Posts Tagged ‘Wall Street Journal’

Diamond Castle’s equity-only approach to Solar

Posted July 20th, 2010 by SRECTrade.

A recent Wall Street Journal blog post highlighted a new approach to solar financing.  Diamond Castle Holdings LLC has committed up to $225 million of equity to KDC Solar LLC to develop solar projects in New Jersey. The company will finance the project completely with equity, which will give them increased freedom with their SRECs over the more traditional method of financing solar projects by taking out debt.

The genius behind this strategy from an SREC perspective is simple: most solar projects today are financed with debt. The off-taker of that debt requires an SREC contract with a suitable counter-party. Bilateral long-term contracts have been hard to come by and have traded at a significant discount to ACP levels. This is one reason we’ve seen such growth in our long-term SREC contract markets and Diamond Castle is solving the problem yet another way. Rather than giving up this value, it seems the private equity firm is forgoing the leverage and financing the projects with equity suggesting they believe the discount in a long-term SREC contracts wipes out the benefit of taking on leverage.

This groundbreaking strategy could prove influential in SREC markets moving forward, illustrating an alternative model for the financing of solar projects. It highlights the issues that many developers face in financing projects in the SREC market world. More importantly, it demonstrates that despite the challenges created by a market-based structure for subsidizing solar, private industry will always find a solution. This is at the core of why the U.S. favors SREC markets over the state-controlled Feed-In-Tariffs that are popular abroad. A fixed subsidy for solar energy may be a whole lot easier to implement on day one, but in the long-run, a successful market-based mechanism is an optimum solution (not to mention, far more American).

When New Jersey passed the 2010 version of its SREC program, the most important takeaway wasn’t the increasing of the requirements, the creation of a safety net or the extension of the program through 2026: it was the overall statement coming from the legislature that this program is here to stay and it is only getting stronger. Now it is time for the industry to come up with its own solutions for playing within the parameters of the SREC market. The companies that solve those solutions creatively will be successful while the rest wait around for something to change. Hopefully the banks will find a way to participate, but until they do, firms like Diamond Castle will lead the way.

For more information on this story in the Wall Street Journal blog, see here.

Wall Street Journal mention of SRECTrade

Posted April 22nd, 2010 by SRECTrade.

One of SRECTrade’s customers was the subject in a recent article in the Wall Street Journal titled Businesses Wait for Green Energy Payback.  The article describes the opportunities available for small businesses looking to go green and some of the headaches involved in the process.  There is no doubt that the federal, state and local incentives combined make solar an especially attractive investment in New Jersey.  Despite this, solar is not growing at the pace that it should be in New Jersey and other states.  Part of the reason is due to financing challenges to cover the gap between investment and payback.  Although there are some banks that have been willing to take the time to understand the SREC markets, many have simply not wanted to venture into the unknown.  As a result many business owners looking for financing have struggled to get it.  In the example in the article, our client found an angel investor willing to put down the capital for the investment. In a few short years, both our client and his investor will have made a significant return on investment from the sale of the SRECs.  Since the value of SRECs are driven by market fundamentals, as long as would-be solar owners continue to struggle to get financing, the market will be under-supplied and SREC values will subsequently remain high, ensuring that those willing to invest today see the same returns that are quoted in the article.

Subscribe to the SREC Blog by Email