Solar Getting Credit Where Due? Financing Options Expanding Despite 201


Originally posted in Julien Dumoulin-Smith’s Bank of America Merrill Lynch Alternative Energy Report, February 6, 2018.

Despite the clear headwinds from a rising yield curve of late, we note continued focus on bringing costs down through a variety of methods including increased leverage as financial firms get more comfortable with the risk profile of solar, which we see as consistently viewed as lower risk.

For example, we see kWh Analytics’ “solar put” option as one example of both the comfort level around solar increasing as well as one method to offset the pricing increase from the 201 tariff. While the ‘solar put’ is still relatively small (30MWac) in the larger picture, we highlight the comfort of insurance companies in underwriting cash flows from solar projects at the P50 production level, which is a key turning point for the industry to lever up further. With about 70% advance rate on Solar historically and a 1.15x debt service coverage ratio, we see the involvement investment-grade credit insurance companies as helping to spur a further cost decline (5 cents/watt on the revenue put alone) and higher leverage metrics for an asset class which should have relatively de-risked production levels versus other power assets.

We see the revenue put as merely the latest example of the industry adjusting processes to bring costs lower, offsetting at least part of the 201 case.

Julien Dumoulin-Smith, Research Analyst, MLPF&S