Nov. 4, financiers and solar industry professionals met at the “Solar Finance Roundtable,” an event put on by the Colorado Solar Energy Industries Association and the Colorado Bankers Association (CBA).
The event was a chance for executives on both sides of the financial equation, lenders and those who seek lending to develop solar, to meet and discuss what’s needed from each player to increase the opportunities to fund projects.
“This is a first for us in terms of having an educational meeting with another sector that wants to finance,” said Don Childears, CEO of CBA during opening remarks. “We are obviously excited because this represents quite a growth market for the banking industry, and we think there's a lot we can learn from this.”
The solar industry represents an opportunity for the banking industry, but hurdles remain.
Childears said solar companies need to be aware of a number of factors banks must consider before doling out loans to companies. Among them, can the company repay the loan?
“Not just today but five years down the road. If they can't repay the loan, can we work our way out of it? Is there adequate collateral that holds its value?” he said.
Banks have a lot of money to lend at this point.
“There's intense competition between banks for what we call ‘A loans,’” Childears said. But a lot of qualified customers might not want to borrow in this environment, while others that do aren’t qualified.
One of bankers’ biggest concerns is education.
“Our education comes not just from information, but also from experience,” said Tom Wright, senior vice president of FirstBank Company of Colorado. “We're going to take a very conservative approach, and incrementally, as we become more comfortable and more familiar with the products and more educated about it, we'll be able to borrow more and more. A lot of it’s got to be experience, and it's got to be positive experience.”
One loan that fails can wipe out all the earnings from 10 successful loans, according to Wright.
Banks want to understand how power-purchase agreements (PPAs) are expected to generate profits, said Joe Coleman, senior vice president with JP Morgan Chase.
“We're often approached with projects that are PPA based, and I've yet to see a bank underwrite a deal on the income from the PPA,” he said. “A $500,000 loan, that's not an easy thing to get done when we don't have the education. People seem to think it's our fault that we don't know enough about the industry, and I'm continually asking how this project is going to work. Lay it out for me.”
Coleman has had limited involvement in solar for a number of years.
“I've still yet to get the explanation of how these projects work. One company showed me how the PPA worked on their spreadsheets and why I shouldn't be afraid of that,” he said.
The company wouldn’t let Coleman keep it.
“I've got to educate people in my bank who are not here in Colorado. And I've got to be able to give them information about specific projects that show the capability of repayment,” he said. “Think about that collaborative effort—help educate us.”