Commercial PV small and midsized projects have huge growth opportunity
The small to medium commercial PV solar market although behind in growth has an immense upside. It composes about 23% of the entire U.S. market or about 4.2 billion in dollars of installations. This market has grown slow because of the high and complicated transaction costs along with few investors.
Investing in residential solar, has an established and well characterized process to rate consumer credit using the Fico scores. There is no equivalent of a ‘Fico’ score for small to medium size businesses. The financing party has to make an assessment on three years of financial statements, which takes time and adds cost to a financial closing. Commercial leases and loans for solar PV are normally short term from five to seven years. This means that for a typical solar project the owner will be ‘under water’ for several years as the financing costs are higher than the savings.
PACE is still relatively new
To understand financing of the small to medium sized projects I spoke with Jonathan Pickering from K2 Clean Energy Capital. Jonathan is based in Campbell CA and focused on bring PACE financing to solar PV. Commercial PACE is still relatively new with about $100M of transactions completed. Residential PACE in CA has now hit the $500M mark. PACE is becoming better known and better understood as a financing option for solar PV. PACE is better known and used for a wide range of energy efficiency and water efficiency measures.
“The key advantage of PACE is that it can be 100% financed up to a 20 year term which means that a typical commercial CA solar project will be cash flow positive every year. PACE financing is secured against the property value and NOT the business and requires no corporate guarantee. Property values are easy and quick to assess. The business owner pays back the financing through an incremental assessment in their property tax. It appears as a line item on the property tax bill, said Jon Pickering, co-founder and Managing Director of K2 Clean Energy Capital.
PACE municipal bonds
“There is a long line of investors looking to buy the private placement PACE municipal bonds as it is considered a safe investment. Because it is a safe investment, the interest rates are competitive and PACE is typically a lower cost than for example a PPA. The other key advantage of PACE is that the rates are fixed and the financing is ‘non-accelerating’: In the case of the building sale, just like property taxes, the PACE payments pass directly to the new owner. There is a tax lien on the property but only for that one year’s PACE assessment. So owners can finance through PACE without tying up their balance sheet.”
“There are PACE financing options for both ‘for profit’ and for ‘nonprofit’ businesses and we expect the market size to grow rapidly in CA as more deals are closed and building and business owners are educated on this exciting new financing vehicle. K2 Clean Energy Capital believes PACE will change the financing landscape for commercial properties just as it has done for the residential solar and EE upgrades. It is only a matter of time said, Jonathan Pickering. If you have any questions about PACE or you have a small to medium sized commercial project you are looking to get financed please contact me at email@example.com and I will arrange a meeting with Jonathan.