Power and renewables

Securitization of solar projects

Supported 1 GW in eleven PV project portfolios globally

Developers, investors and aggregators

An exciting development in the financing of solar power projects is the application of securitization to portfolios of residential, commercial and industrial (C&I), and utility-scale solar PV systems. Securitization refers to the process of converting a pool of illiquid assets into tradable securities. A portfolio of PV systems is assembled and asset-backed securities are issued and rated based on the portfolio of underlying cash flows. Pooling assets reduces credit risk as the rated bonds are linked to the pool performance rather than to the risk of one single asset. As solar technology and manufacturing capabilities have advanced, financing mechanisms are also evolving to support the rapid global growth of PV installations. Securitized assets are particularly attractive to investors who lack knowledge of renewable power generation so that they can compare potential investments by risk class.

Thorough technical due diligence is an important aspect of financing all solar power plants. In the case of securitizations, this review supports the agencies that rate the portfolio and its associated cash flows for the investment community. The use of recognized investment ratings methods greatly helps to mitigate risks and facilitate the evaluation of the investments in PV portfolios. The main elements of DNV GL’s technical due diligence for a solar securitization include reviews of the sponsor’s commercial and technical processes, equipment selection, energy estimation methodology and energy production forecast accuracy, commercial contracts, electrical and structural designs and installation quality, and technical inputs to the underlying financial model, including O&M budget.

Overall, DNV GL has supported eleven securitizations of PV project portfolios globally by providing technical due diligence reviews. The overall installed capacity of these eleven portfolio is approximately 1 GW. Three of the portfolios contain a blend of residential and C&I systems, six contain solely residential systems, one contains only C&I systems, and one is composed of utility scale systems. Ten of the portfolios are located in the United States, with the eleventh located in Singapore.

Developers, investors and aggregators benefit from solar asset backed securitizations. Lower financing costs facilitated by securitization directly help to lower the levelised costs of energy and make PV generated electricity more competitive with other sources. The energy produced by each system in the portfolio generates cash flow which supports the returns on the securitized investment. Many of the solar portfolios that DNV GL has reviewed have received investment grade ratings which helps lower their cost of raising capital.