3 investment vehicles that could revolutionize solar
There is no denying that the solar industry is growing at an incredible rate. The Solar Energy Industries Association (SEIA) estimates 723 megawatts (MW) of photovoltaic (PV) capacity was installed in the first quarter of 2013, representing a 33% increase in deployment levels over the first quarter of 2012. This has been bolstered by falling prices, which have decreased by more than 24% for a complete installation in the past year and over 60% in the price of panels since 2011.
However, now the price of photovoltaic cells only represents a small percentage of the cost of the entire PV system, increasing the difficulty of lowering system costs as a whole. For the solar industry to maintain its rate of growth, especially in a post subsidy environment, it is necessary to reduce the costs of balancing system components, inverters, sales and installation or to innovate in other areas. One area open for innovation is solar finance, and to reach the monumental levels of investment needed to reach climate goals, there needs to be new investment vehicles to make solar investing desirable for a larger range of investors.
Solar as an investment has a long payback period, modest returns, and is comparable to traditional long term infrastructure projects. But unlike large infrastructure projects, the size of typical solar installations is much smaller. Solar projects are too large for many organizations to fund on their own, but too small for banks to pay much attention to. This has made financing solar one of larger barriers in the industry, but new investment vehicles are emerging to help raise investment dollars. The three most popularized ideas are Master Limited Partnerships, Solar Securitization and Real Estate Investment Trusts.
Master Limited Partnerships
Master Limited Partnerships (MLPs) are investment vehicles that protect profits from corporate taxes with the condition that the majority of the profits from the venture are distributed to investors. MLPs are traditionally used in the energy industry, mostly pipeline businesses, which earn stable income from the transport of oil, gasoline or natural gas. In June 2012, U.S. Senator Chris Coons introduced the Master Limited Partnership Parity Act that allows energy-generation projects like solar and transmission companies to form master limited partnerships, giving them favorable tax status and access to low-cost capital.