Details on Sunnova’s $3 billion loan guarantee from Department of Energy

home solar loan

Sunnova Energy International received a conditional commitment from the U.S. Department of Energy (DOE) Loan Programs Office (LPO) to provide up to a $3 billion partial loan guarantee for projects tied to a new solar loan channel named “Project Hestia” squarely focused on disadvantaged communities.

The DOE loan guarantee would be issued pursuant to Title XVII of the Energy Policy Act of 2005. If issued, this is a 90% guarantee of up to $3.3 billion of financing to support loans originated via Project Hestia.

“Project Hestia would make possible a historic private sector investment in disadvantaged American communities and energy infrastructure,” said William J. (John) Berger, Chief Executive Officer of Sunnova. “The DOE financing would accelerate the adoption of solar and storage, decrease greenhouse gas emissions, and expand the availability of reliable, clean, and affordable energy to those communities who benefit the most from low-cost energy.”

RMI Managing Director for Carbon-Free Electricity Mark Dyson also commented: “Today’s announcement by the Department of Energy marks a transformational investment in a critical solution with the power to make electricity more reliable, affordable, flexible and cleaner for consumers and businesses across the United States. RMI founded the Virtual Power Plant Partnership to advance those critical goals, which is why we’re thrilled to see that projects like these are already emerging at the scale needed to begin delivering on the full potential of what VPPs can offer.”

Unique to Sunnova? | Philip Shen with Roth Capital Advisors wrote in an industry note that $3 billion of guaranteed loans represents about three years of originations, which “we believe lowers NOVA’s cost of financing by ~100bps.” This opens Sunnova to a whole new class of investor looking for government backed securitizations, which “could provide the company with a higher advance rate and lower cost of equity.”

“We also think competitors may have a difficult time securing the same guarantee as they are loan originators and not service providers,” Shen wrote.

On one condition … | The “conditional” part of this commitment means certain conditions must be satisfied before the DOE loan guarantee is issued, including finalization of definitive financing documents. Sunnova has agreed to provide monthly servicing reports supplemented by hardware and software deployment information to DOE.

Sunnova has agreed to measure the reduction in greenhouse gases associated with Project Hestia and deliver “collateral pools that realize agreed criteria related to FICO distributions, and certain concentrations of customers located in disadvantaged communities.”

If issued, the DOE loan guarantee would support the origination of Sunnova loans associated with solar, storage, or other Sunnova Adaptive Home technologies. Sunnova anticipates the DOE loan guarantee will support up to $4.0 – $5.0 billion in Sunnova loan originations, reduce the company’s weighted average cost of capital, and generate interest savings.

“DOE’s conditional commitment is expected to support grid reliability, improve access to clean energy, and enhance ratings and advance rates on our senior bonds,” said Robert Lane, Executive Vice President and Chief Financial Officer at Sunnova. “This financing would allow Sunnova to realize issuance spreads commensurate with the expected credit uplift and introduce new, investment-grade investors to Sunnova’s long-term strategy.”

The transaction is expected to close in the second quarter of 2023. Sunnova plans to issue its first securitization under the program in 1H 2023.

More on Project Hestia | Project Hestia would provide disadvantaged individuals and communities with increased access to Sunnova services by indirectly and partially guaranteeing the cash flows associated with those consumers’ loans.

Project Hestia has an educational / behavior modification underpinning too. To be eligible, each energy system must be outfitted with Sunnova’s purpose-built technology, accessible by smart phone or other personal electronic device. The technology is designed to improve customer understanding of their power usage, and functionality to facilitate demand response behavior.

This is huge news for Sunnova, following the CPUC’s rejection of its bid to become a micro utility in California. Sunnova wants to expand access to its energy as a service (EaaS) offerings, and lay the foundation for future virtual power plant (VPP) activities. Project Hestia plays a huge part in this.

The Sunnova app and portal aims to reduce greenhouse gas emissions, enhance the integration of load controllers and smart appliances, and support grid stability by giving consumers near real-time insight into their residential energy system and quantifying the location-specific emissions impact of changes in consumer behavior.

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