A Potential New Approach to Financing Small Commercial PV Projects

Financing issues remain a problem in solar market growth. While third-party PPAs have become widely accessible and transformed residential and larger commercial sectors, funding still remains a real bottleneck for the small commercial market niche. To explore solutions, Vote Solar commissioned a report looking at the problem in more depth, and exploring a potential solution: a PPA/PACE hybrid.

What’s the problem with the small commercial sector? With third-party PPAs, projects are financed by a committed tax equity fund that finances projects based on predetermined underwriting criteria including, notably, FICO scores – standardized consumer credit measures. Unfortunately, there is no analogous credit report for the vast majority of commercial enterprises. As a result, businesses must provide financial statements, bank records and other financial documents and this non-standardized information must be analyzed. This process increases transaction costs. In the large commercial market, transactions can support a project-by-project approach. However, many small to medium sized commercial projects fall in the no-man’s land between large commercial and residential– these projects require a transaction-specific credit analysis, but the cash flow is not sufficient to justify the costs associated with a non-standardized approach.

One potential solution is to combine the strengths of PPAs and PACE. How would that work? Well, you’ll have to read the report. Check out the report, here (pdf) and let us know what you think. We’ll be hosting some outreach events/webinars to discuss this in more depth in the near future. Stay tuned.

Article by Mary Katherine Lynch, appearing courtesy The Vote Solar Initiative.

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