SolarCity’s announcement this week that the company is moving forward with a massive military housing solar project, may be more than just a boost for one company. It’s another indication that despite a turbulent few months, the solar industry is alive and thriving.
By itself it’s a big deal that SolarCity and Bank of America Merill Lynch are teaming up without a government loan guarantee. That isn’t traditionally how it’s been done. Private investors usually like the security of a guarantee before they get into a big, risky investment. But in an interview with KQED’s Lauren Sommer, SolarCity’s CEO Lyndon Rive says this investment isn’t actually very risky, “We’re selling electricity; the consumer needs it. It’s not like you are financing a car where they can skip on their financing payments. It is a necessity.”
“It’s exactly what the program was intended for,” says Rive, who sees the deal as a sign that the federal loan guarantee program is doing its job. “The government came up with the loan guarantee program about two and half to three years ago with the intent to get private capital to the market, so that private capital would finance solar systems after the loan guarantee went away,” he told Sommer.
That model has panned out for SolarCity. Originally, the firm was angling for a federal loan guarantee, but the firestorm around Solyndra’s collapse made it impossible for them to meet the program’s September 30th deadline. Rive says he always believed they’d find the financing somehow.
“When we started in 2010 the only way I was getting this done was through the loan guarantee. Through the year of hard work and not getting the loan guarantee there was no doubt in my mind that we would do this privately,” he asserted.
Private investment comes at price. Originally, SolarCity wanted to install panels on 160,000 units instead of the 120,000 announced. But Rive says the loan from Merrill is going to cost them a bit more, so they had to scale back. He remains optimistic, saying that losing the federal guarantee wasn’t all bad news. “The loan guarantee comes with a lot of restrictions on it,” said Rive. “The plus is low cost of capital. The minus is all the restrictions,” he admitted.
The federal loan guarantee has been an important way for solar firms to attract investors. Another crucial tool that renewable energy companies have used to weather the recession — and the lack of liquidity and investment dollars that came with it — is a tax provision known as “1603” for the section of federal law that authorized it. It allows companies to take a cash grant instead of the 30% tax credit that they’re entitled to under tax law. The provision is set to expire at the end of the year. Without it, renewable energy companies say they’ll have a lot more trouble coming up with the cash they need to finance new projects. A coalition of 750 businesses and organizations sent a letter to Congress this week, asking them to extend the provision.
For now, SolarCity’s contract with private military housing companies represents a ray of hope for solar. Rive claims that only 180,000 solar systems have been installed across the country in the last 30 years. The 120,000 announced will almost double that in five years’ time. “Right now we are at less than one-percent penetration in the US, but that’s not even close to where it needs to be. We need to get to 10-20% penetration in the US. before we get true economies of scale. Once we get to that point we’ll be able to make solar work without incentives,” concluded Rive.