In September, SolarCity feared its SolarStrong project could wilt on the vine thanks to Solyndra. Now with Bank of America/Merrill Lynch, SolarCity is moving forward with a project almost as big as if it had won an Energy Department loan guarantee. So how important are those things?
Back in September, one of the echo-effects we talked about with regard to the Solyndra/DOE fiasco concerned a project called SolarStrong. Run by SolarCity, it was intended to install residential rooftop solar at up to 124 military bases in 33 states. SolarCity said, at the time, that this project "has the potential to be the largest single residential solar electricity project in the world and would nearly double" the total number of residential solar installations in the US.
Then the DOE’s loan financing program stalled out under the weight of Congressional scrutiny. So SolarCity wrote to Congress and said the stakes for blowing off its loan guarantee were high:
Halting the project will mean sacrificing more than $1 billion of private investment into economically hard-hit military communities throughout the United States. It would also mean the loss of jobs we believe the project would create, many of which would have gone to veterans and the family members of our active duty military servicemen and women. We believe that the valuable work done to move the SolarStrong project to completion should not be lost because of the Solyndra bankruptcy.
Two months later, the sky is no longer falling. SolarCity has kept Bank of America Merrill Lynch as lender, and they've "agreed to terms on financing for SolarStrong." In Wednesday's announcement, SolarCity says that it and its financial advisor, US Renewables Group, began the loan guarantee application process under DOE’s Section 1705 loan guarantee program in October 2010, and Bank of America/Merrill Lynch subsequently joined the application as lender. The federal government approved a loan guarantee in early September of this year, but then couldn't get the paperwork done to make the guarantee actually happen once Solyndra blew up. But Bank of America has stuck with the deal.
I spoke with Jonathan Plowe, the managing director for a group at Bank of America Merrill Lynch that handles new energy and infrastructure solutions. He says the new capital structure for the deal is a mix of debt and equity, rather than solely reliant on equity financing, which is more scarce and more costly compared to debt.
So was that letter a load of doom-and-gloom hooey? No, says SolarCity's Jonathan Bass. DOE's failure to grant a loan guarantee here DID shrink the project and all those benefits they were talking about. "We expect the scope to be around 300 megawatts and up to 120,000 rooftops, which is slightly smaller," Bass said. "We're very grateful to Bank of America that they could create a structure that worked. It's better outcome than we anticipated [after the DOE put the loan guarantee on hold." In other words, they were afraid the whole project was going to disappear. And, Bass argues, the loan guarantee program did its job, in a way, because it helped Bank of America get familiar with what SolarCity was doing, and get behind it.
Not that there aren't some additional risks and new upsides, according to both Bass and Plowe. B of A/Merrill's Plowe says the cost of debt for this deal is now different, with good reason. When the loan guarantee was looking real, it meant that the government was going to cover 80 percent of risk. Bank of America was going to be the sole lender;it would have provided all of cash and covered 20 percent of the risk. Now B of A's risk is larger, Plowe says. "The loss of that guarantee program does increase the cost of capital but we are able to use the financing tools to move forward and get this thing closed on terms that still work."
Plowe says this SolarCity SolarStrong deal is part of a larger 20 billion dollar plan his group has to deploy capital in renewable energy conservation and clean technologies. Earlier this year, B of A/Merrill announced a project with Pro Logic called "Project Amp," financing large scale rooftop solar programs. That project, Plowe says, put BofA in a good position to work with SolarCity on some kind of project - with a loan guarantee or without. Plowe says this whole thing is significant for large-scale distributed solar's mainstreaming and growth. "This is a strong vote of confidence for long term viability of distributed solar," he says. "The financing tools we developed are a huge step forward. We do intend to stay focused on this market. We hope and expect that others will follow and we'll be able to attract more capital to this space."