3 investment vehicles that could revolutionize solar
Securitization is the process of pooling contractual debt such as mortgages, car loans and potentially solar project debt into large investment offerings. This offers multiple advantages to prospective investors. One of the advantages of securitization are the sizes of the offerings that allow large institutions to participate. Another advantage is the ability to create multiple products offering different returns, depending on risk. The last main advantage is the diversification inherent in securitization. Instead of having all of the invested money contingent on one projects success, instead the investment is spread out between thousands of projects so the default of one project will not substantially affect returns.
Large banks might invest in solar projects if cash flows were securitized because the risks would be clearer and the offering size would make it desirable. However, this is difficult for a variety of reasons. One issue is the lack of standardization in Power Purchase Agreements (PPAs) and the complexity of solar projects compared to mortgages. Unlike mortgages or commercial leases, where contracts are all very similar and there is a clear credit rating system, the current solar industry doesn't have the same level of standardization in its contracts. One way this is being addressed is through the TruSolar working group of which Mosaic is a founding member. TruSolar’s goal is to establish universal criteria of evaluation that should lower transaction and capital costs, and improve project finance liquidity within the commercial and industrial solar segment.