Renewable Energy Trust Capital (RET) is working to bring a common financing method, real estate investment trusts (REITs), to the solar financing market. If successful, it could be a powerful tool to help reduce the cost of financing solar and it would allow more people to invest in solar—even if not for themselves.
The group is headed by John Bohn, who has served as Commissioner of the California Public Utilities Commission, president and CEO of Moody’s Investor Services, and Chairman and CEO of the U.S. Export Import Bank during the Reagan Administration. It proposes using asset financing for PV financing through REITs, which would be a new way to use the investment mechanism by creating a new asset class.
Creating the class will depend on a number of things, like regulatory approval, which the company already is seeking. “We have on file a ruling request with the IRS—the IRS response will determine the extent to which REITs can be applied to the solar sector,” said RET CFO Christian Fong. “Historically, the IRS has allowed REITs to be applied to several other real-estate-dependent asset classes over the years. We eagerly await the IRS’s decision,” she said.
Once they receive a response from the IRS they can move forward with creating a trust. “Creating real estate investment trusts to finance solar photovoltaic generation will unleash a powerful tool for the solar energy industry. Our REIT strategy should go a long way to clearing well-known financing bottlenecks that currently limit the growth of solar power,” Fong said. “And it will dramatically lower the cost of capital for solar photovoltaic projects. We project that we can cut the cost of capital to the point that we will also cut the cost of generating solar energy by 20 percent. We also believe we will expand the investor pool by creating an easy and liquid way to invest in the fast-growing solar energy market.”
If successful this could allow people, their 401k-type products, insurers and others invest in solar farms on the long-term. “The REITs would be used to finance commercial and utility-scale projects—we see this strategy as one that represents the ultimate democratization of funding and support for the solar industry,” Fong said.
“REITs make it easy for institutions and individuals to get a piece of the action in the clean energy sector. They are liquid, trading on the open market just like mutual funds. REITs are stable in terms of regulation and are well understood,” Fong said. “They offer investors significant tax breaks and a guaranteed distribution of 90 percent of a REIT’s taxable income. REITs, which became the dominant investment vehicle for commercial real estate, have a history of being successfully applied to new real-estate-dependent asset classes, including timber lands, cell phone towers, data centers and energy transmission.”
The company already has a partner in True South Renewables. “True South will provide key services as RET acquires solar generation assets—they know how to make sure these facilities are well run,” Fong said.