BUSINESS:

Wall Street firm makes record bet on rooftop solar power

Wall Street is betting a half-billion dollars that consumer demand will continue rising for rooftop solar panels that allow home and business owners to generate their own on-site power and possibly even sell a few unused kilowatt-hours back to their neighbors.

In the largest financing agreement of its type to date, Goldman Sachs said yesterday it would provide more than $500 million in lease financing to help build thousands of distributed solar projects under a partnership with SolarCity of San Mateo, Calif.

SolarCity is the nation's largest full-service provider of residential rooftop solar systems, with tens of thousands of panels installed in 14 states, mostly on the East and West coasts as well as Colorado and Texas.

The firm, listed among the nation's most innovative companies in 2012 by Fast Company magazine, has been riding a wave of rising consumer interest in renewable energy and on-site power generation while also reaping the benefit of technology improvements and falling costs for solar equipment.

With the new influx of cash from Goldman Sachs, SolarCity should be able to widen its market by helping more home and business owners install solar panels with no upfront costs. The arrangement will also help make solar power available to a variety of other users, including schools, churches, municipalities and nonprofits, the company said in a statement.

One key to SolarCity's success is its use of third-party financing, which allows home or business owners to install solar panels on their property at no cost under a lease or power purchase agreement (PPA) with the developer. SolarCity owns the equipment and sells power to the property owner at a competitive rate, offsetting his or her normal utility bill.

Financing a 'low-carbon energy future'

Excess power not directly consumed by the host home or business is routed back to the grid, where it can be sold to other consumers under utility net metering programs, according to the company.

The Goldman Sachs financing has already enabled about 26 megawatts of new solar generation to be deployed, according to SolarCity officials, and the remainder is reflected in a recent announcement of 158 MW of new projects that will be made available for financing under the company's SolarLease or Solar PPA programs.

"The Goldman lease financing will make affordable solar electricity available to more types of homeowners and organizations," Jimmy Chuang, SolarCity's vice president of structured finance, said in a statement. "We expect to be able to expand our offering to a broader customer base by lowering the credit requirements even further in future financings."

Stuart Bernstein, Goldman Sachs' global head of clean technology and renewables investment, said that the firm has a target of financing or investing $40 billion in renewable energy projects over the next decade and that SolarCity's efforts to widen the customer base for solar panels "will help us move toward a low-carbon energy future."

Nearing 'parity' with other fuels

While Goldman's investment sets a new benchmark for large banks looking to expand their renewable energy portfolios, it is not the only major Wall Street firm operating in the sector. Among the other major banks with dedicated renewable energy or clean technology investment arms are Bank of America Merrill Lynch, Citigroup, Morgan Stanley, Wells Fargo, U.S. Bancorp and Credit Suisse.

According to a recent market analysis from Bloomberg New Energy Finance, annual investment in clean energy is expected to increase from $189 billion in 2012 to between $470 billion and $880 billion in 2030, depending on a variety of factors, including possible regulation of carbon dioxide. Solar photovoltaic and solar thermal will account for the largest share of the investment, followed by onshore and offshore wind power and biomass, according to Bloomberg.

And a recent analysis by Citigroup evaluating the shale gas and renewable energy markets made clear that renewables are no longer a niche market made up of expensive boutique fuels, but actually compete with traditional fuels in some markets and will become an increasingly important part of the electricity generation mix going forward.

"The perception of renewables as an expensive source of electricity is largely obsolete, given the huge cost reductions achieved in recent years," the analysis states. "Residential solar PV has already reached 'grid parity' in regions of high solar insolation, with much of the world set to follow by 2020."

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