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Financing of U.S. solar projects on the brink of transformation

Thursday, May 24th, 2012
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Solar cells are only one product Blue Nano materials improve

Financing of US solar projects is in the midst of a transformation, with new business models, new investors, and new financing vehicles gaining sway, according to new research by specialist research firm Bloomberg New Energy Finance commissioned by Reznick Group.

“However, investors still need to pay attention to tax and structuring issues as these are the factors that will often determine the viability of a project.”

US solar projects have historically been bankrolled by some combination of energy sector players, banks, and the federal government, but the landscape is rapidly changing.

Emphasis on third-party financing

New business models are emerging with an emphasis on third-party financing. New investors, including institutional players, are entering. And new financing vehicles such as project bonds and other securities are being assembled to tap the broader capital markets.

Bloomberg New Energy Finance, a provider of news, data, and analysis on clean energy, water, power, and the carbon markets, has worked with Reznick Group, a national accounting, tax, and business advisory firm, to describe this ongoing evolution of US solar financing: where the market is today, where it is heading, and what’s behind this important transition.

The resulting report, “Re-imagining US solar financing”, can be downloaded at http://www.reznickgroup.com/sites/reznickgroup.com/files/Re-imagining-US-Solar-Financing.pdf.

The evolution towards a broader investor base will help maintain growth for US solar deployment. Asset financing for US photovoltaic (PV) projects has grown by a compound annual growth rate of 58% since 2004 and surged to a record $21.1bn in 2011, fueled by the one-year extension of the Department of Treasury cash grant program.

Funding the next nine years of growth (2012-20) for US PV deployment will require about $6.9bn annually on average.

Two factors driving the evolution

Two factors will drive the evolution. First, traditional players are scaling back their participation. Constrained by regulatory requirements and by the continent’s financial crisis, Eurozone banks are offering loans of shorter duration and with slightly wider spreads.

In the US, a key Department of Energy loan guarantee program lapsed in 2011 making less low-priced capital available for large-scale projects.

Second, thanks to the continuing low-interest rate environment, non-traditional investors are becoming more interested, lured by the risk/return profiles of solar projects that employ well proven PV technology.

Motivated by attractive yields and the examples set by Chevron and Google, US corporations are eyeing forays into tax equity.

New models to broaden universe of solar investors

Pension funds and insurance companies are willing to give solar projects a serious look in the wake of the successful bond issuance for a solar project owned by a Warren Buffett-backed utility.

The past year has seen a crescendo of conversations around financing vehicles that draw on the capital markets, such as solar-backed securitization, master limited partnerships (MLPs), structures resembling real estate investment trusts (REITs) and publicly listed solar ownership funds.

In parallel, new business models for deployment of solar have flourished, including variations of third-party financing structures which enable customers to enjoy the benefit of local systems at little or no upfront cost. These models have the potential to broaden substantially the universe of solar investors.

“Solar equipment prices have dropped by more than half since the start of 2011 but financing costs matter too,” said Michel Di Capua, Head of Analysis, North America, at Bloomberg New Energy Finance in New York.

“New financing vehicles and new investors across the solar project lifecycle – development, construction, commissioning, and then long-term operation of assets – will cause the costs of equity, debt, and potentially even tax equity to migrate down.”

Policy could accelerate the transformation. Investors surveyed as part of this report seek stronger SREC programs, new standards, more flexible tax credits, and sanctioned high-liquidity investment vehicles such as solar REITs.

“A greater understanding of project risk and return is driving new investors into the solar PV market,” said Tim Kemper, Renewable Energy Practice Leader at Reznick Group. “However, investors still need to pay attention to tax and structuring issues as these are the factors that will often determine the viability of a project.”

Angel Venture Forum launches year-long program for Potomac area startups

Monday, May 23rd, 2011

Angel Venture ForumThe Angel Venture Forum – D.C. (AVF), a group of investors, leaders, entrepreneurs and professionals in the Mid-Atlantic region, has launched a year-long networking and education programs designed to discover and develop early stage companies in the Washington metropolitan area. It is the first program of its kind in Washington D.C., with a consortium of individual investors from across the region seeking entrepreneurs who are in the midst of building their businesses.

The application process opened on May 1. All high- and low-tech early stage, as well as expansion stage, companies seeking up to $3 million in capital are encouraged to apply to participate.

The application deadline is August 1, 2011. All companies seeking angel funding or investor mentors should submit a business proposal online at: www.angelventureforum.com/id20.html and click Submit Application.

AVF-D.C. features five months of education and training programs for every applicant that applies. There are no membership fees – only a $150 application fee for companies is required, which includes unlimited access to all AVF education and training sessions, as well as direct feedback from experienced investors. The program formally kicks off July 12, with the AVF Academy, a day-long education, training and networking session that prepares entrepreneurs on how to most effectively find and work with angel investors.

The program culminates with a select number of companies presenting their business plans to accredited private investors on October 18 at the National Press Club in Washington, D.C.

Unique Program

The Angel Venture Forum provides a unique, all-in-one education, networking and training program that screens, prepares and grooms best-of-class entrepreneurs for accredited investors over a five month period prior to the Forum.

Fifty semi-finalists will be selected from an expected pool of 150 company applications by a panel of active angel investors after a day of live presentations by the companies on September 8. Ultimately, 30 companies will be selected and groomed to further present their company and to network at the Angel Venture Forum on October 18.

According to Ryan Meinzer, founder and CEO of PlaySay.com, a language learning technology, AVF provided him with real world guidance on how to court investors. “Working with AVF, I learned investors are interested in traction, the product’s appeal, an experienced team and social proof,” says Meinzer.

“This helped us to effectively scale with the help of trusted advisors.” The company now employs five people, including programmers and a linguistic specialist, product people and metric specialists. One day this month, PlaySay saw more than 500 users sign up for their service.

Rooted in Success

Valerie Gaydos, angel investor, founder of Capital Growth, and former Director of the Baltimore Technology Council, ran the Angel Venture Fair in Philadelphia (no affiliation) for the past six years, making it one of the most prolific angel venture networking programs on the East Coast. Since its founding in 1998, more than $30 million has been raised by emerging growth companies in first round and follow-on capital.

When asked about her change in venue from Philadelphia to D.C., Gaydos said she was approached by several colleagues in the angel community about bringing her network to Washington D.C.

“It became apparent that nothing like this exists in the greater Washington, D.C. market,” says Gaydos. “There is a robust entrepreneurial ecosystem, many active angel investors groups, several private investors and many valuable supporting organizations, but there is no organization with the scale and scope of resources to bring many of these interest groups together in one place in this sort of way.”

Treating Entrepreneurs with Respect

Growing a start-up into a scalable business takes time, money and resources. While the Internet provides access to a wealth of information, experts who have grown successful companies point out that access to and engagement with professionals who have the experience and expertise to scale a business is critical.

Lenard J. Harac, PhD, a partner of the Angel Venture Forum, and a consultant who shows small businesses how to build successful enterprises, says the value of this program extends well beyond a financial investment,

“There is no shortage of organizations and events designed to help start-ups,” says Harac. “What sets the Angel Venture Forum apart is we provide more than money; We set up entrepreneurs to succeed well after the event ends. We stay with them to make introductions to advisors and strategic partners that not only provide direction, but put the business owner on a glide path for success.”

Fulfilling a Need

“There is definitely a need in this market,” says Alex Castelli, Principal at the Reznick Group in Vienna, VA. “It is still difficult for a start-up to get bank financing. And in most cases, venture capitalists find these companies too small to take an active interest in.”

Castelli points out that entrepreneurs benefit from more than just financing alone. “It’s not just the money; The mentoring by these investors is critical to these companies. Angels are successful entrepreneurs who have been there, done that. They commit themselves to groom and grow these companies who lack the experience.”

Scarcity of deals

“Starting a company is about surviving long enough to be relevant,” says Dean Rutley, a venture capital attorney with Womble Carlyle in Tysons Corner, Va. “Having access to sophisticated, experienced angels who provide insight and advice increases a start-up’s odds of being one of the ‘survivors.’

Statistics suggest a regional start-up group could help spur deal making. According to a PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ report, first quarter 2011 data shows investment deals in start-ups in Maryland dropped from 18 to 16, and the amount of investment fell from $89 to $86 million.

Deals in the District of Columbia inched up from two to three, but the amount of investment plummeted from $26 to $7 million. One bright spot was Northern Virginia, where transactions increased from 12 to 19 and amount of investment increased from $90 to $102 million.

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