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PACE Talk: Renew Financial + Solar City

Nation’s Most Affordable Solar Power Option for Small and Medium Businesses

August 21, 2015

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Kristina Klimovich of PACENow talks to Brad Copithorne, Vice President of Commercial PACE Programs at Renew Financial.

Kristina Klimovich: Brad, Renew Financial’s recent announcement of partnership with SolarCity is a very exciting development for small and medium sized commercial businesses.

Brad Copithorne: Thanks, Kristina. We are anticipating an eventful year at Renew Financial. This partnership with SolarCity will allow small and medium-sized businesses to take advantage of low-cost PACE financing in all communities that are part of the CaliforniaFIRST PACE program.

KK: Can you tell me more about this structure? As far as I understand, SolarCity provides the upfront funding, while CaliforniaFIRST offers a PACE-based collection and repayment mechanism?

BC: That is exactly right.  SolarCity has been looking for a solution in the SMB market for quite a while, but has had difficulty evaluating the credit of most commercial properties.  For the residential market, each homeowner has a FICO score and their credit can be quickly and cheaply evaluated.  For the Fortune 500 companies, the rating agencies monitor corporate credit. But for the rest of the commercial market – and that represents the vast majority of commercial properties – there is no simple solution.  Using PACE, however, SolarCity can rely on the property tax collection process and can therefore treat most small businesses the same as large investment-grade corporations.

Several PACE programs have offered solar PACE Lease and PPA options. Combining the security and repayment mechanism that lies at the basis of PACE financing with Lease and PPA seems to be very attractive to non-profits and small commercial property owners who do not want to own the asset outright or cannot qualify for other types of financing.

KK: Who will originate these projects and what does the business owner need to know?

BC: SolarCity is a vertically integrated company and they control all aspects of project origination and development. The key is to simplify with experience for everyone through standardized market documents. A local business, in this case, would enter into a lease or PPA agreement with SolarCity and would sign an assessment contract with CaliforniaFIRST to collect and remit the PACE assessment payment.

KK: What is your estimate of potential volume of projects that can result from offering this structure in California?

I think the impact could be significant.  Currently, most of the commercial solar market is limited to buildings owned or fully occupied by government or by very large, highly rated corporations.  When I drive around the state these types of properties seem to cover only a very small fraction of the buildings that I see.

SolarCity (and PACE leases in general) offer property owners the opportunity to lock in utility rates well below today’s level AND have the rates basically fixed for 20 years.  (Usually about a 0.5% annual increase, which is well below the likely rate increases for utility service.)  All this, and they do the right thing for the planet.

I would be surprised if the commercial solar market does not at least double in California in 2016 due to PACE and the opportunity for small and medium businesses to finally participate.

KK: How would you explain Solar City/PACE structure to a typical small business owner with sufficient roof space?

BC: This solution is very similar to the solution offered to WalMart or any other big company. The primary difference is that customer pays their solar payments as an assessment on their property tax bill. This makes investors more comfortable that they will be paid and that the payments will survive any change in ownership, which allows more credits to qualify at lower implied rates.

Would you rather pay the utility a high, rising rate for traditional power or generate your own clean power at a much lower, fixed cost? Seems like an easy choice to me.

 

KK: What types of projects will SolarCity focus on?

BC: My understanding is that they plan to work with a very wide range of small and medium businesses throughout California, including REIT-owned buildings, small owner-occupied businesses, multi-tenant properties, etc.

KK: Where is this solar financing option available? (I assume throughout CaliforniaFIRST territory?)

BC: The SolarCity PACE option is currently available in every community that has opted into CaliforniaFIRST. (You can see a list here.) We have a political team that is working closely with additional communities in California to get them to opt in to the program.  In California, most communities choose to opt in to multiple PACE programs to create competition and choice for contractors and building owners.  There is no cost or commitment for a community to opt in to CaliforniaFIRST or other programs. Together we provide local businesses with an easy option to access low-cost capital to go solar!  In the coming months we expect to work with SolarCity to expand to additional states.

KK: Thanks, Brad!

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Kristina KlimovichPACE Talk: Renew Financial + Solar City
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