New working group to boost small commercial solar market

New working group to boost small commercial solar marketThese days, there’s a lot of news about big financing deals to support residential solar leases and financing for the humongous solar projects in the U.S. southwest. But there’s not too much news about financing for what was an important growth sector for solar for years, the small commercial market.

A new partnership forged between Solartech and CalCEF is aiming to change that by improving the flow of capital to support such projects.

The small commercial solar market—installations under 1 megawatt—was one of the fastest growing parts of the solar industry. There was a piecemeal explosion of solar being installed on box stores, malls, warehouses, then interest in financing such projects dried up.

“Those are great one-offs, but we’re looking at how to create a standardized set of tools—a toolbox that can be used by everybody,” said Doug Payne, co-founder and executive director of SolarTech. “It goes back to the financial crisis.”

Prior to the recession of 2008, which is still hampering investments in solar today, many investors were interested in this market.

“[Then] the project financing market moved upward in size to utility scale, and also residential leasing programs,” he said. “Those two events created a vacuum around the small commercial market sector.”

The two organizations signed a memorandum of understanding on Nov. 15 under which they will form a technical working group to address the issues.

“It’s really about creating a working group to study and figure out where the gaps are and identifying current best practices,” Payne said.

The group will also look at the remaining market barriers to increase access to capital in the secondary financing market for this sector of the solar industry.

“We need to accelerate the amount of capital flowing into this sector,” he said.

Much has to do with a lack of understanding between project developers and potential investors, also the subject of a recent roundtable discussion in Colorado.

“There’s still, in aggregate, a poor understanding of risk in the investment community when it comes to these projects,” Payne said.

That lack of understanding leads to higher costs of capital for project financing.

“We believe it’s not justifiable. But organizations have not come together to assemble a standardized toolkit [to show them otherwise]. If we did that it would give us better access to the secondary financing market,” he said.

Such a toolkit would include standardized contracts, proposals and credit metrics. The group will develop the tools.

“We’ll work with regional banks in Northern California to finance projects in the second half of 2012 and demonstrate this as a proof of concept,” he said.

The tools and projects will serve as a reference developed to be adopted by other groups across the country.

Image courtesy of NREL.