New Financing Model, Acquisition Position REC Solar for Commercial Success

REC Solar commercial

Stellar’s strong presence in the ag sector fits nicely in REC’s mid-market development wheelhouse, like this Dole Plantation in Oahu.

The solar industry is ripe with new opportunity, both in terms of previously underserved verticals and new technology, but getting the financials in place can still be a hurdle for mid-market customers. All of these storylines intersect with what’s going on at REC Solar.

REC Solar is in growth mode, a result of both the opportunities in the market and the success and strategic positioning of the company to date. Some background: The position of REC Solar now can be traced back to Duke Energy acquiring a majority stake back in February. Duke has the financial muscle to allow REC to broaden its horizons. The additional financial flexibility led to the targeted acquisition of Stellar in June.

“Stellar is a good fit for REC in terms of strategy, the scope of services they provide and the customers that they are engaged with,” says Al Bucknam, CEO of REC Solar. “Duke has a real interest in us as a platform for origination and for delivering projects. They want to see growth, and we want to see growth.”

A strategic acquisition is one way to accomplish that growth, especially considering REC needed “more capacity, more sales/origination capacity and more engineering/operations capacity” as part of their growth plans, which are now all naturally filled by just the right people from Stellar.

But then there’s all of the possibilities post-acquisition. Specifically, Stellar has a strong presence in the ag sector — a sector that fits nicely in REC’s mid-market development wheel house, and an industry vertical in which REC already has a nice foothold. Post-acquisition, REC is now extremely well positioned to take on and target even more ag business.

“We’re trying to be focused on the commercial, industrial segment of the market. No residential. Part of that focus is understanding our customers, their energy issues and the solutions we need to bring to solve those issues.

Financial backing

As mentioned earlier, the investment by Duke Energy was crucial for REC to accelerate its growth. According to Bucknam, Duke has committed up to $225 million to fund PPAs or leases. But Duke’s backing has greater value than just that dollar amount for REC. Aligning so closely with an investor of that size, with a specific dollar amount committed, and with certain project targets in mind allows for a streamlined financing process, which can be of tremendous value for the mid-market commercial projects REC is targeting.

“The solar industry has always pursued the really big customers that have really strong credit ratings,” Bucknam said. “The challenge for mid-market commercial has been financing, among other things. Smaller project size is also a challenge in terms of cost. We are approaching both of those issues by developing more cost-effective solutions for small projects from a procurement and constructability perspective and also by developing a better financing solution for these opportunities that is lower in cost to implement.”

Driving down the cost of customer acquisition is a key objective when it comes to smaller projects because the scale just isn’t there to absorb a lot of transaction costs. This is where the streamlining comes into play. With Duke, REC no longer has to shop deals around to investors.

“We know their return requirements; we have the agreed pricing model that we can access directly; we have agreed upon documents — the PPA between us and the customer, as well as an EPC agreement with us and Duke. All of those documents are already set,” Bucknam says. “The PPA is designed to be very customer friendly, easy to understand, easy to engage and complete.”

This removes the all-to-familiar surprises during the financing part of the process — no back-and-forths, no adjustments to the agreement and no incentive to look around and find a new investor. REC has had a signed PPA within three days of sending the documents.

“Here’s the deal; here’s the document; we can sign this tomorrow. That’s refreshing and different for the mid-market customer,” Bucknam says. “From our perspective, once a customer knows if they want to do a project, the time is dramatically shorter with our process because we can just look at the project, and we know if it fits the Duke portfolio. We can make that determination ourselves, and then close a deal in a week or two if the customer is willing to move that fast.”

Energy storage

The financing piece is essentially plug-and-play, and the expertise and additional manpower for adding capacity is in place. So, what’s next? Other than keeping their ears open for other potential acquisitions, Bucknam plans on looking more at energy storage solutions. Both its partnership with Duke and its acquisition of Stellar will help in that regard.”

“We understand the economics faced by farmers and associated high-load facilities, like cold storage, for example, and all of the issues those create that we believe solar can help address, but we’re going beyond solar and looking at energy storage solutions,” Bucknam says. “We have customers where a given utility can’t meet the load requirements of their facility, and storage is a possible solution to expand a heavy load like cold storage or a manufacturing plant. We picked up some expertise from Stellar to supplement our own in that regard.

“Frankly, our partnership with Duke equips us to better bring both solutions because they have spent a long time looking at all means of energy storage and will help us get to a better, more efficient solution for our customers,” he continues.

Energy storage is a near-term trend for both REC and the solar industry as a whole, but Bucknam believes the next trend coming down the wire involves energy management services, demand response and just a more holistic approach for finding energy solutions that could meet a commercial customer’s needs.

“We are seeing more and more customers that are feeling a real desire to exhibit corporate responsibility,” he says. “They want a cost-effective solution that improves their bottom line, but they also want to do the right thing for the environment and send a message to their community to demonstrate that they are being a good resident of that community. That is going strong lately and will continue to strengthen.”

Chris Crowell is managing editor of Solar Builder.

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