Demand for ‘solar bonds’ goes through the roof

According to deal tracker Finsight.com, solar bond sales reached nearly $2 billion in the first six months of the year, nearly double the level during the same periods in 2020 and 2019. The bonds, backed by bundles of loans given to homeowners for panel purchases, are being issued by a handful of financing companies that specialize in residential solar panels, including Goodlip LLC, Sunnova Energy Corp., and Solar Mosaic Inc.

By tapping the bond markets, companies are connecting fund managers looking for eco-friendly investments with homeowners who want to get cheaper and potentially more reliable electricity while reducing their carbon footprint.

“It came down to cost and the environment,” said Josh Rudin, 34, a real-estate attorney who took out a 10-year loan from Solar Mosaic to install solar panels on his family’s home he bought in Woodbury, NY. year. “We just started a week ago, and even with the bad weather, the system is producing 82% of our electricity.”

Solar panels cut the cost of her electricity purchases by 95% from the grid and qualify her for nearly $15,000 in federal and state tax credits. Even after accounting for loan payments, his monthly electricity expense would drop, saving him about $8,500 over the life of the loan, according to Empower Solar, the company that sold him the equipment. Payments on the loan will remain stable, and when panels produce more electricity than they use, Mr Rudin can sell the excess to his local power grid, he said.

Debt demand is picking up this year amid more violent and unpredictable weather patterns, said Tangi Sera, president of Goodlip LLC, the largest issuer of solar bonds. “The wildfires in California, the Texas winter, the outages in Louisiana, they are all massive advertisements for the product,” he said.

Hurricane Ida cut power last week to nearly a million customers in New Orleans and Mississippi and 200,000 people in New York, New Jersey and Pennsylvania.

Bond investors prefer loans backed by solar loans because borrowers must own their own homes and have good mortgage track records to qualify, said Katrina Niehaus, head of corporate structured finance at Goldman Sachs Group Inc. arranges bonds. Buying securities helps asset managers meet environmental, social and governance, or ESG, investment goals required of their clients.

A growing appetite for bonds is driving down borrowing costs for companies like Goodlip. According to Finsight.com, investors bought the firm’s most recently issued bond at a yield of 1.94%, compared to 2.77% on the deal made in July 2020.

Solar power systems can cost $30,000 or more, and until recently, most homeowners had two options when purchasing them: pay cash or sign a lease. Over the past five years, solar financing companies scaled operations by borrowing money from banks and credit unions, then lending it to customers of panel vendors such as Empower.

Companies use algorithms to rapidly assess and approve borrowers, collect fees on loans and then sell them to fund managers. Mosaic chief executive Billy Parish said debt accounted for 63% of solar financing in 2020, up from 21% in 2015.

Initially, finance companies sold most of their debt and bonds to hedge-fund managers. Alternative fund manager CarVal Investors LP has acquired GoodLeap and Blackstone Group Inc. It has bought loans worth more than $500 million from the company, bought in large amounts from the company when it seized the bond market in the summer of 2020, people familiar with the matter said.

Rob Camacho, co-head of Structured Credit at Blackstone, said the solar bond market is still small, but it is now starting to attract large traditional investors. “This market is going to grow a lot, so you have money managers willing to spend time on it,” he said.

A person familiar with the matter said that the world’s largest fund management company BlackRock Inc. has started buying solar bonds.

As the market expands, so can loans backed by solar bonds. “Solar loan borrowers have an average FICO score of around 745, but there is “certainly the possibility that the industry will expand to borrowers in the lower credit spectrum,” said Melvin Zhou, an analyst at Crawl Bond Rating Agency LLC.

Brian White, solar analyst at market research firm Wood McKenzie, said increased government aid is playing a role in the industry’s growth. He said the 26% federal investment tax credit on residential solar panels would expire completely in 2024, but the Biden administration and Democrats in Congress are working on extending it to eight years through the current budget reconciliation process.

“Today is a great day for solar power,” Mr. Rudin said Thursday as blue skies replaced Ida’s torrential downpours. “I’m exporting five kilowatts to the grid and it’s only at 9 o’clock”

This story has been published without modification to the text from a wire agency feed