Banks Wade Carefully into Solar Merchant Waters


Originally posted on Power Finance & Risk.

Lenders financing solar projects are beginning to give credit to uncontracted revenues and novel hedging products amid intense competition in the bank market, with certain caveats.

According to a new database called Solar Lendscape, launched by risk management and data firm kWh Analytics, as many as 10 lenders are already valuing a merchant tail that goes beyond solar projects’ contracted revenues.

Ares Credit, Brookfield, CIT Group, ING Capital, Investec, Live Oak Bank, MMA Energy Capital, North American Development Bank, Open Energy Group and Prudential all attribute some value to uncontracted future cash flows in certain cases, according to the data.

The directory—the brainchild of kWh Analytics ceo Richard Matsui—also highlights more than 20 lenders that are prepared to give credit to the solar revenue put, an insurance product underwritten and distributed by kWh Analytics’ own licensed insurance brokerage subsidiary, Kudos Insurance Services, and backed by investment grade insurance carriers.

Coronal Energy used the product when it secured tax equity from PNC Bank for a 30 MW solar portfolio in Virginia early this year ( PFR, 1/30).

Despite an increased awareness of post-contracted cash flow risks, project finance bankers are reticent to give them too much credit.

Ralph Cho, co-head of North American power at Investec, described the steps banks would take when sizing debt based on merchant revenues when he spoke on a panel at the 15th Renewable Energy Finance Forum in New York.

Lenders modelling amortization scheduled would eschew the traditional 1.25 times debt service coverage ratio for uninsured utility-scale solar in favor of higher DSCRs of 2 to 2.5 times, he said.

Financiers would also assume a downside scenario in their projections—usually incorporating higher-than-expected operating costs.

In addition, they would use conservative capacity price estimates, taking the low-end of the range of values forecast.

Investec, according to Lendscape, is open to valuing both merchant tails and kWh Analytics’ Solar Revenue Put.