Solar securitizations

Author: Keith Martin Publication | December 2017

Solar securitizations set a new record in 2017.

However, the massive tax-cut bill that cleared Congress in December could make it more challenging in the future to securitize future revenue streams that are payments for electricity or rents to lease rooftop solar systems.

Separate securitizations completed this year by Tesla, Sunnova and Dividend Finance and two by Mosaic add up to more than $1 billion in capital raised.

In a securitization, a solar company takes receivables — amounts that it expects to receive over time either as repayment of loans to homeowners who bought rooftop solar systems or power purchase or lease payments from customers who signed contracts to buy electricity or lease rooftop solar systems — and borrows against them. By so doing, it converts future payment streams into current cash.

The quality of the receivables is rated by a rating agency.

Greentech Media, which analyzed the securitizations this year, said they reflect a shift in the solar rooftop market from the third-party ownership model, where a solar company retains ownership of rooftop systems and enters into 20-year contracts with customers to sell the electricity or lease systems, to direct sales of systems to customers. It said “the tables turned in Q4 2016, and now more customers buy their own systems.”

The Structured Finance Industry Group, a trade group representing more than 350 participants in the securitization market, complained in a letter to Congress that new limits on interest deductions in the tax-cut bill will make securitizations where the income is in the form of lease payments (rather than interest on customer receivables) uneconomical.

That’s because the bill limits the ability to deduct interest starting in 2018 to the extent interest expense exceeds 30% of income, but interest expense can still be offset — despite the new limit — against interest income received in the same year. In a securitization, interest income is received by a securitization vehicle that makes interest payments to the lenders. No offset is possible against other forms of customer payments.


Keith  Martin

Keith Martin

Washington, DC