Solar and Renewable Energy Financing – Current and Future Trends
We are at a crossroads in the renewable energy sector with a great opportunity for exponential growth in infrastructure development and available financing solutions. In this quarter’s Preserver article, we discuss two of the currently available government lending programs most commonly used for renewable energy projects and what we see as major trends in the renewable energy industry in the years to come.
During this time of crisis, it is important to remain optimistic and to keep our eyes open to opportunities that can make our visions a reality. Investing in renewable and, specifically, solar energy expands economic opportunities for local economies, as well as creating jobs and a more sustainable future.
Assistance for Renewable Energy Projects in Rural Areas
Several government programs exist to support financing strategies for energy-related projects, including those with the U.S. International Development Finance Corporation (DFC), Department of Energy (DOE), U.S. Department of Agriculture (USDA) and expanded U.S. Small Business Administration Section 7(a) authority. In addition, the USDA Rural Development department has programs for biofuels, biorefineries, renewable chemicals and biobased products, but there are loans and grants available for renewable energy as well.
One of the most popular programs for financing solar projects is the USDA’s Rural Energy for America Program (REAP), which provides loan guarantees for the development of renewable energy or energy efficiency projects in rural areas. In addition, the Business and Industry Guaranteed Loan Program (B&I), while not specific to energy projects, can be used to support small to medium-sized projects for innovative energy technologies alongside other commercial efforts. Both REAP and B&I offer a maximum of $25 million of loans for projects. These loan programs can also be combined to offer up to $50 million in loans.
Renewable energy investment has been shown to remain strong even during the current economic downturn of the COVID-19 pandemic. The above loan programs also drive development and economic growth in rural areas, support energy infrastructure, and create sustainable environments for businesses and communities.
The USDA’s REAP supports rural landowners and businesses to purchase, install and construct renewable energy systems and improvements that create good-paying, US-based jobs.
Funds may be used for renewable energy systems such as:
- Biomass, Geothermal
for electric generation or direct use
- Hydropower (less than 30 MW)
- Solar and Wind Generation
- Energy Storage; and
- Ocean Generation (tidal, current, thermal)
USDA REAP loans have lower fees, lower interest rates, a longer length of terms, and can be combined with USDA B&I Guarantee Loans. The Power Purchase Agreement (PPA) can be up to 30 years for combined real estate and equipment loans.
USDA B&I Guarantee Loans
The Business and Industry (B&I) Guaranteed Loan Program is a loan guarantee program designed to assist eligible rural businesses in obtaining needed credit for most business purposes. The goal of the program is to save and create jobs in rural America.
If you have not explored the USDA REAP and B&I loans options for your projects and you want to learn more, please contact us or reach out to your local state USDA State Coordinators. For AVANA Capital’s B&I project examples, please visit avanacapital.com.
Highlight on Solar Power – Expected Future Trends
In October, our Executive Vice President of Renewable Energy, Walter Cuculic will be speaking on a panel at the 2020 Solar Power Finance & Investment Summit. The summit convenes senior-level solar and financial executives to better understand how to successfully close solar power deals in today’s business climate. In his work with renewable energy financing, Walter sees the following trends emerging in the solar sector:
To save on costs, developers, financiers, and EPCs will continue to vertically integrate. Developers will begin to take on more EPC roles including equipment procurement, engineering, design, and project management. Financiers will begin to take on more of the capital stack and construction lenders will start to do term loans or tax equity. Permanent lenders will offer construction and tax, or even predevelopment loans.
Investment in energy storage will become common across mature solar markets. In addition, other types of energy storage will begin to compete with lithium-ion.
As described recently in Forbes, “Battery storage can take advantage of abundant and low-cost power: it consumes excess power during the day and redeploys that electricity during the peak periods when conventional power generation would be turned on.” New technology called “flow batteries” differ from “lithium-ion batteries”, as the former provides long-term storage that can deliver power for up to 15 hours, while the latter supplies electricity for shorter periods of four hours or less. The better performance means that renewable energy will have more leverage in the market.
Solar plants are typically built under long-term PPAs with set-price customer agreements. An increasing number of those contracts require storage, which provides a hedge for developers. Storage devices allow solar producers to capture solar power when it is cheap and to sell it at higher market prices to other buyers not under contract — but for less than competing fuels.
Many states now have Renewable Energy Portfolio Standards (RPS) that target 100%. Although exceeding 70-85% renewable energy will be challenging, developers, utilities and product manufacturers are now betting on energy storage. As storage prices continue to fall, it will be easier to meet peak demand and 100% RPS targets — a transition, that Forbes says, is “happening now in parts of the country but one that could grow nationally as renewable energy becomes more pervasive”.
This week, Elon Musk touted his million-mile battery project that claimed to have developed a battery that will last for one million miles or more before it is rendered unusable. It will still require regular recharges the same way batteries operate now. This type of battery could completely change the game for the electrification of transportation (EoT), which is putting increasing stress on electricity grids unlike anything we have experienced previously. This will result in the need for tremendous growth in renewable power.
Electrification of Transportation
As EoT expands, it will create a new and greater demand for electricity. Electric vehicles are growing in popularity due to demand for environmental sustainability, tax incentives and long-term cost savings.
Renewable energy growth and electrification of transportation (EoT) are complementary and by working toward greater expansion of both, we can accelerate their progression. Utilities can prepare for this by engaging customers regarding their use of electricity, managing grid impacts during peak demand times, building relationships and partnerships with government and sectors, and developing technical expertise.
AVANA Capital is Proud to Support Renewable and Solar Energy
Over the last two years we have financed over $300MM in projects within the solar, biogas, and energy efficiency equipment sectors. It is our mission to continue and grow our commitment to clean energy; as such, we intend to finance over $200MM annually in renewable energy projects going forward.