Solar Funds on the Rise: Borrego Launches Financing Deal

It looks like financing for solar projects may be starting to pick up again. Solar installer Borrego Solar Systems is set to announce on Monday that it will offer power-purchase agreements (PPAs) — contracts that provide the upfront financing of a solar-power system in exchange for agreements with customers to buy the resulting power — for its commercial, educational and governmental customers.


The deal will enable the company to offer financing directly to its customers instead of partnering with third-party financiers, which it has done in the past. That means customers will be able to get financing and buy systems from the same company, instead of having to deal with two separate companies, and Borrego claims this will result in lower costs for its customers.

The El Cajon, Calif.-based company has scored $30 million in equity backing from Taiwanese copper wire, cable and steel manufacturer Walsin Lihwa, and CEO Mike Hall says Borrego plans to combine that money with debt financing, government rebates and other incentives to build about $100 million worth of projects during the next year.

The news comes a week after residential-solar financier SunRun raised $18 million in venture capital funding. And in June, SolarCity announced it was partnering with U.S. Bancorp to finance solar projects.

All this recent activity is a good sign, considering that few PPA funds have been created this year because of the capital-constrained economy. Our program is “almost unique just from the perspective that it’s funded,” Hall said.

The idea behind power-purchase agreements is that customers can get solar power without paying the upfront costs of a system, and lock in a fixed monthly rate for the electricity that is the same as, or lower than, their current electricity bills. PPA providers, which own and operate the systems, get to take advantage of the tax creditsnow available as cash grants — and also get the monthly income.

In Borrego’s case, the company plans to offer 20-year PPAs at a small discount to what customers are paying their utilities now, with the expectation that customers’ savings will increase as their bills stay fixed while other electricity bills rise, Hall said. Either a cap-and-trade program for carbon, or energy pricing based on the time it’s used — both of which are under government consideration — will likely boost energy prices, he said.

Other PPA providers, including Goldman Sachs-backed SunEdison and Renewable Ventures, which MuniMae sold to Spanish solar-power developer Fotowatio in March, offer commercial customers a similar deal. But Borrego is aiming to offer 5 percent to 10 percent lower prices than its competitors in most cases, Hall said. Though he added that the current environment makes it difficult to compare prices across the board. “It’s unfortunately a little bit of the Wild West out there right now, because there are a lot of people going around with really unfunded PPA products offering stuff across the map,” he said.

Hall expects Borrego’s PPA deals will likely be most attractive to schools and government agencies, which are tax exempt and therefore can’t take advantage of federal tax credits or tax grants themselves. Under a PPA, Borrego can make use of those credits, allowing the company to offer the systems for a lower price — when the 20 years of payments are added up — than those customers would pay otherwise. Customers also will have the option to buy the system at “a significant discount” after six years, he added.

It may not be as good a deal for companies that can already take advantage of tax credits on their own. “Theoretically, if someone did have capacity to deploy and could utilize the tax benefits, it would be cheaper to buy it themselves,” Hall said, adding Borrego still expects most of its sales will be outright purchases instead of PPAs. But in these cash-constrained times, many companies don’t want to spend their cash and effort on building and operating power systems, he said. “Most of the customers that we’re going to be working with [using PPAs] either couldn’t utilize the federal tax credit or grant or really don’t have or don’t want to put the capital down to buy these systems.”