kWh Analytics, Coronal close the first solar revenue put

The company says that the new product has the ability to reduce up to 5 cents per watt in financing costs.

January 31, 2018 Christian Roselund

Image: Flazingo Photos, Flickr

With so many in the solar industry and outside it fixated on the potential impact of tariffs on solar deployment, it is important to note that a big part of system cost reduction has been and will continue to be driving down “soft”, non-hardware costs. Some of the most important soft cost reductions have involved driving down the cost of solar finance, such as the securitization of solar assets pioneered by SolarCity.

Yesterday kWh Analytics and Coronal Energy announced a new development in reinsurance that kWh Analytics says can significantly reduce the cost of solar finance, closing on the industry’s first solar revenue put for three solar projects totaling 30 MW-AC in Virginia.

kWh Analytics’ Solar Revenue Put is backed by an un-named “global” insurer and provides a guarantee that investors will get paid for up to 95% of a solar project’s expected output, even if the plant itself falls below this. The product provides insurance not only against cloudier-than-expected weather, but also panel failure, inverter failure, snow and system design flaws.

“If you are an investor or a bank looking at a project, your number one concern is cash flows,” kWh Analytics Founder and CEO Richard Matsui told pv magazine.

“The idea itself is not new,” he observes. In fact, Matsui notes that all of the combined cycle gas plants in the United States built in the last decade have carried some sort of hedge to cancel out uncertainty of the project, which usually involves the risk of lower-than-expected power prices. Similarly, the wind industry depends heavily on fixed-shape hedges, which put a floor on prices.

And while Matsui says that a number of insurers had expressed interest in a similar product for the solar industry, they lacked the necessary actuarial data on PV plant performance. This is where kWh Analytics came in, and Matsui says that his company is able to draw upon the data that they have gathered from monitoring an estimated 20% of the large-scale PV plants in operation in the United States.

“By and large the (solar) asset class performs very well,” declares Matsui. “Everyone who is in solar knows that, but we just happen to have the best data to prove that.”

Matsui notes that in the past three months, his company has already seen seven lenders issue term sheets at 1.10x or 1.15x DSCR against P50 revenue when the Solar Revenue Put is in place. He notes that this compares to a standard “haircut” of 30%, meaning that project developers were typically able to only borrow 70% of a project’s estimated income.

If banks are willing to lend more towards the value of projects, that means a potential lowering of financing costs. And while differences in the available rates and types of finance between different projects makes it inherently hard to determine what the overall impact on cost will be, kWh Analysts estimates that developers and project owners could see a 5 cent per watt reduction in certain projects.

“In the solar business, risk is cost. In fact the cost of capital is the single largest cost in a solar power plant,” states Matsui. “Using data, we at kWh Analytics reduce risk. Lower risk means lower costs means more solar.”

“In 2018, 1.10x DSCR will become the new normal.”

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