The C&I solar stalemate — with massive development potential on one side, and available but complex financing on the other – might finally be ending thanks to a clearer path to action. That path is the first finance exchange platform for C&I solar, which will allow developers and installers to send their prospective projects into an open market of eager lenders to quickly garner competitive financing terms.
This is the brain child of Open Energy, a company that has been chipping away at inefficiencies in the C&I solar segment for the past five years. The goal in the beginning was to scale access to financing, but options at the time were limited.
“The cost of capital was in many cases very high and prohibitive,” says Graham Smith, founder and CEO of Open Energy. “So, we created a lending platform for commercial solar to bring in institutional investors for accessible capital. Making the process more transparent and capping transaction costs.”
A large impediment in C&I solar, Smith notes, is the typical bilateral process where a borrower contacts one or two lenders they are familiar with and that’s it. This is functional but limiting and leaves the borrower at a sizable disadvantage. A go-to lender can easily step away or take its time deciding what it wants to do. Open Energy stepped in the middle to curate deals for both sides, easing an arduous process that also lowered the cost of capital and opened the potential pool of investor options.
This sector has come a long way in the five years since. Open Energy now has more than 60 lenders in its network with a wide range of financial structures.
“More and more lenders, particularly banks, are interested in accessing commercial solar projects,” Smith says. “Whether in the PPA market where competition is pressing down on margins and where tax equity is still hard to source at competitive rates, or in the direct to customer market, it falls on the developer-installer to find the best deal on finance. Our Financing Exchange streamlines this process and helps developers access a large, liquid pool of low-cost capital.”
With the Open Energy Finance Exchange, Open Energy is essentially untethering itself from the curator role and allowing its Rolodex of more than $5 billion in U.S. financing capacity to become an open, competitive market.
“We say let’s commoditize the lending side of things and get them to compete,” Smith tells us.
How it works
On the Open Energy Finance Exchange, developers and installers provide information about their project for a free instant quote. This helps developers and installers gain a clearer idea of the amount of financing they can access with a PPA-based project or a direct-owned system and can plan accordingly. The quote is the first step for developers to access the Open Energy Finance Exchange and applies to power purchase agreement-based and direct-owned projects from 50 kW to 50 MW. The free quote (terms, principal, sRECs, etc.) is generated using a proprietary algorithm that Open Energy devised using a blend of terms of similar underwritten deals.
From there the developer can pay to gain access to the exchange and begin the competitive shopping process. Inside the exchange, the information from the quote is turned into a standardized document and sent to subgroup of the Open Energy network that makes sense for the particular project. Both of those are important details.
“To form a viable market you need a transactable template,” Smith says. “The structured information is in a format where investors can see what the deal is – it’s not just a random PPA. We then release that via the platform into the market into segmented investor verticals. A term loan on 1 MW project is a group of lenders, banks, insurance companies … Have to know who it makes sense for it. For a 20 MW project there’s a totally different set of lenders. But they will all get same info at the same time.”
The lenders know they are in competition here, and they understand the timeframe for offering their terms. A lender can pass if they choose, but if they are interested, they know they have to prioritize sending their terms, and offering the best terms they can. Otherwise, they risk losing the deal.
“Now there is a need for lenders to react; it’s no longer ‘we’ll call you,’” Smith notes. “We’re encouraging a newer behavior of customer engagement.”
Another key to this exchange: Open Energy receives the information the lenders send back, which comes in a variety of templates that can be hard to decipher, and then simplifies it so the borrower can make apples to apples comparisons.
The granularity is power for the borrower. Equipped with better financing terms, developers can move faster and get more projects financed.
“We want to take the search for financing off the developer’s plate and bring the market to them,” Smith says. “The commercial solar market continues to have an immense potential but numerous obstacles, such as difficulty in financing and lack of information, has hindered its growth. Over the last few years, we have worked hard to expand commercial solar financing and now we are taking the next step in growing the market with the Finance Exchange. With more transparency and accessibility, we believe we can help the market truly take off.”
Over $75 million worth of deals are already active on the Open Energy Finance Exchange, with $35 million already matched successfully. By the end of the year, Open Energy targets $250 million of solar financing matched between lenders and developers.
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