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The sudden collapse of Silicon Valley Bank has sent shockwaves through the entire financial sector and marked the biggest bank failure since the 2008 financial crisis. Being the only publicly traded bank focused on Silicon Valley and startups for four decades, the swift collapse has particularly rattled the venture capital community and left climate tech startups in a crisis. SVB was popular in the renewables world for its crucial role in supporting small-scale projects, including community solar projects which other institutions shunned due to the onerous legal and tax paperwork required to advance them loans.
In the midst of the renewable energy boom, one secular trend has been looking to transform the solar sector: community solar.
Whereas residential solar demand has exploded in recent years as more Americans try to play their part in ameliorating climate change, the harsh reality is that not everyone can have solar on their own roof.
Thankfully, community solar holds the promise of making solar energy accessible to nearly every one of America's 130 million households. Community solar projects allow households that are unable to install their own rooftop solar panels to purchase power from local solar farms instead, which helps to lower their electricity bills.
But the unfortunate collapse of SVB now puts these projects in jeopardy.
"Since deposits were guaranteed, the risk has moved from small, early-stage companies that might have struggled to make payroll, to those that might be reliant on the bank's credit facilities for infrastructure projects,'' Mark Daly, head of technology and innovation at BloombergNEF, has said.
Community Solar: How It Works and Why SVB Was Important
For decades, residential power customers who wanted to switch to solar energy have been limited to two options: Installing their own solar panels or purchasing solar off the grid from their local utility.
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Rooftop solar panels deliver plenty of savings for the average homeowner with the average installation generally paying for itself within six to 10 years. Unfortunately, installation costs remain high with the average system costs clocking in at ~$13,000 after tax credits. Further, whereas some solar plans require no upfront costs, they have the big drawback of locking the customer into multi-decade contracts.
Only about 23% of American households have ready access to rooftop solar.
Customers who choose to purchase solar energy directly from their utilities or retail energy suppliers do not enjoy the full benefits of falling renewable energy costs. While solar and wind are frequently the cheapest source of electricity in most places, most of these cost savings are not passed on to the customer but rather end up in the pockets of retailers--green energy plans merely pass on their green credits to customers, but offer minimal to no savings with some even costing more.
Enter community solar, a simple, even elegant, model that promises to deliver clean energy to anyone connected to the main grid for less than their current utility bill.
There's no national standard yet for what constitutes a community solar program but the basic premise is that customers purchase shares in a new solar farm in their service area; developers build it, and the electricity generated flows into the main grid. These subscribers then receive credits that cut their utility bills by about 10%.
Community solar provides flexible contracts that deliver energy savings by constructing large-scale solar arrays. Developers sign up customers months ahead of time with many solar projects completed in a year or less. Many plans allow customers to cancel with a few weeks' or months' notice.
Despite being a decade old, the concept of community solar has only recently started to truly take off.
Currently, community solar accounts for 5.6GW of the 97.2GW installed solar capacity in the U.S., and is slated to double in the next five years. Community solar is available in 40 states though only 20 states and the District of Columbia have passed community solar legislation. The average discount off utility rates on its community solar marketplace is about 10% but goes as high as 20% in New York thanks in part to a more mature, competitive market.
According to BloombergNEF, it's not yet clear how much financing SVB was offering to community solar developers. However, SVB's website says it has committed $3.2 billion to innovation projects in clean energy, was leading or participating in 62% of financing in U.S. developments and had more than 1,550 customers in the broader climate technology and sustainability sector.
BloombergNEF has estimated that between 2020 and 2022, SVB financed ~$357 million of residential solar, excluding community solar, by no means an insignificant amount.
Everyone's Getting Nervous
Regional banks and other types of debt investors are now expected to step in to fix the gap, but it won't be without a few rough patches.
"Other financiers will step in, but pipelines will be on hold for some time as those new relationships get sorted out," Kiran Bhatraju, chief executive officer of Arcadia Power Inc., has said.
Bhatraju described SVB as a "trusted partner" for some 60% of the community solar industry.
He also noted that Arcadia had "moved quickly" to remove most of its funds from the failed bank.
Likewise, Sunrun sought to calm the panic by noting that it has less than $80 million in deposits and SVB.
"Sunrun has long-standing banking relationships with a large number of financial institutions, and we remain confident in our ability to replace SVB's undrawn commitments," Sunrun CEO Mary Powell said in a public comment.
Nautilus Solar Energy also tried to calm investors by saying that it was not affected by the SVB collapse, while Sunnova described its exposure as immaterial.
How damaging will the rough patch last? According to Raymond James' Pavel Mochanov in an email to UtilityDive, the banking industry has a "strong appetite" for solar because of the "low risk involved".
"The more substantive issue for project developers in recent months has been the cost of capital, which of course has risen along with higher benchmark interest rates," Molchanov said. "Plenty of cash is available, just at a higher cost."
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More
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