DOE banking on solar

April 17, 2013 | By Barbara Vergetis Lundin

Less than 5 percent of the country's 6,500 banks and lenders are actively involved in financing solar projects due to ongoing concerns about, and misunderstanding of, industry risks. Despite a robust market for solar installations, lenders struggle to efficiently underwrite loans in solar energy.

In response, members of the truSolar Working Group are continuing to develop uniform standards for solar project screening, rating and underwriting to reduce and reliably price financing risk, lower the cost of capital, and increase the availability of commercial lending for solar projects, helping market participants more accurately forecast asset performance throughout the lifespan of a project.

The U.S. Department of Energy's (DOE) National Renewable Energy Laboratory (NREL), and DOE's Sandia National Laboratories (Sandia) have recently provided their support of the group's efforts, which promise a market-driven solution to accelerate growth within the commercial solar segment, where common practices throughout the value-chain and adopted by development and finance can bridge the market more quickly toward securitization and solar becoming a significant asset class.

"truSolar represents a valuable opportunity to create a common approach to characterizing solar project benefits and risks and more precise alignment on pricing of project capital," said NREL Senior Financial Analyst Michael Mendelsohn.

Sandia's Roger Hill concurs. "This initiative could potentially lower transaction costs and improve access to financial capital critical to solar project deployment. We will be examining the risks inherent in projects to sharpen our analytical tools for criteria and assessment in technical areas including yield and reliability."

The group is identifying an industry standard through which a wide range of business methods, analysis tools, and related products and services from varying companies, can be applied. The initiative has been designed to foster best practices and encourage more reliable decision-making systems that tie into an industry-adopted credit screen. By scoring project performance, site profile and counterparty risk criteria with sophisticated rating tools, this framework could lower capital costs, reduce the risk of project failure, support trade credit insurance for power purchase agreement revenue and increase the bankability of the solar industry. The framework will be transferred to a standards body in 2014 and made available as open-source to the entire industry.

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