Solar Securitization: Understanding the Risks of Residential Solar Energy-Backed Securities from an Investor Perspective

Abstract

The solar securitization sector is poised for growth and the capital markets will be key for the long-term growth of the sector. Understanding the risks and developing standardized solutions to mitigate those risks through best practices, credit enhancement, policy, structural enhancement and research will insure a healthy future for securitization in the sector and most importantly access to the capital markets for lenders and sponsors. This article covers 10 categories of risks related to securitized solar assets backed by residential power purchase agreement (PPA)/leases: sponsor/servicer risk, counterparty risk, sun (insolation) risk, credit risk, lease term/transfer risk, insurance risk (other than credit risk of insurer), technology risk, grid electricity price risk, PPA/lease disclosure risk, and the structural risk of marrying tax equity funding with securitization (with debt at the fund or holding company level).

TOPICS: Fixed income and structured finance, ESG investing, legal/regulatory/public policy