NREL, banks craft plans for solar lending

Bankers and energy experts, working in conjunction with the Golden-based National Renewable Energy Laboratory, have formed a new group to help streamline financing of solar projects.

Spurred by the rising popularity of solar – the market jumped more than 40 percent from 2012 to 2013 – the group formed earlier this month to begin developing standardized loan documents and underwriting criteria for residential and commercial projects, according to NREL. More than 50 banks and industry organizations are part of the group, including Denver-based Vectra Bank.

“There are specific legal issues, underwriting issues, regulatory issues and a lack of available historical data on this sector, which provides challenges unique to this industry,” said Shaw Thomas, senior vice president at Vectra.

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Among these challenges is high transaction costs for due diligence, Thomas said. Because the industry is new, finding comparable projects and research is difficult and costly, but the lending group is working to improve efficiency, he said.

Vectra has done a few solar loans already and is reviewing others, Thomas said.

“(The group) is also focused on addressing some of the challenges, like providing data points on the larger market including how projects and loans have performed,” Thomas said.

The Banking on Solar Group is still too young to have made much progress, said Travis Lowder, an NREL analyst involved with the group’s work. The group currently is setting up subcommittees, Lowder said.

The Banking on Solar Group also will host several webinars in coming months to introduce solar lending to those banks that have not yet financed a solar project.

According to the Solar Energies Industry Association, 2013 was a record year for solar. The U.S. solar market grew by 41 percent from 2012 to 2013, making solar the second-largest source of new electricity-generating capacity in the nation, according to SEIA’s annual report, released March 4.

The cost of installing solar also fell by 15 percent from 2012 to 2013.

Where the solar banking sector goes will be determined by the popularity of solar installation in coming years, according to Jenifer Waller, senior vice president at the Colorado Bankers Association.

Many banks have rolled out lending programs pertaining to environmentally friendly projects, but few are specifically aimed at solar projects, Waller said. As solar becomes more prevalent, that could change.

Right now, solar projects are not usually financed individually, Waller said, but as part of a mortgage or construction loan on a home. Bankers are working to find out what they can and can’t do, but lending money just for solar installation is tricky because the panels themselves don’t make good collateral.

Solar panels have almost no value if they have to be repossessed, Waller said, so in order to be financed, they need to be connected to some other asset that can maintain value if the bank has to take it.

But the market is expected to continue growing in coming years, helped along by the economic recovery.

“It will be important for the solar and lending industries to have known historical data on the performance and costs of solar projects,” Vectra’s Thomas said. “We find companies are more willing to make capital investments when the economy is improving and expanding, particularly when it improves their bottom line.”

Molly Armbrister can be reached at 970-232-3129, 303-630-1969 or marmbrister@bizwestmedia.com. Follow her on Twitter at @marmbristerBW.