SolarCity Snags New Tax Equity Investor

SolarCity has lined up a new tax equity investor at a time when finding a financing partner is difficult and investors often demand a greater return on their investments.

Solar tax equity investors are seeking 3 percent to 5 percent greater returns these days than before the credit crisis hit last fall, said SolarCity CEO Lyndon Rive.

Investors historically expect 7 percent to 8 percent, which includes the tax benefits and a slice of profit during the life of the fund, Rive said. Now they want 10 percent or more, he said during an interview about SolarCity's new tax equity investor, the U.S. Bancorp Community Development Corp.

U.S. Bancorp has set up a fund to finance Foster City, Calif.-based SolarCity's residential and commercial installations, SolarCity announced today. It's difficult to gauge the impact of this fund on SolarCity's business since it won't disclose the funding amount or the solar power generation capacity that could be created with the money.

Rive, of course, is pleased that he is able to win over a tax equity investor at a time when those kinds of investors are an endangered species. Those investors have become leery of doling out money because of the financial market freefall, just as banks have become choosier when approving home loans nowadays. Investors could get the 30 percent federal investment tax write-off in exchange for putting money in solar. But if they don't expect to make good profits – if any – this year because of the recession, then they won't find the tax credit as attractive.

The fund is the second announced by SolarCity this year. In April, the company said it had lined up funding from Greystone Renewable Energy Ventures. Again, SolarCity wouldn't say how much. It's getting the funding in phases, and the first infusion of money would be used to finance residential installations in California and Arizona, the company said.

The fund from U.S. Bancorp is meant to last through 2009. SolarCity plans to hire 100 full-time employees over the next six months to boost its ability to install more systems, Rive said. He said he started discussing funding with U.S. Bancorp in late 2007.

The money will allow SolarCity to offer its leasing program to more homeowners install solar without paying all the upfront costs. For commercial customers, SolarCity could sign more power purchase agreements. A PPA also entitles the customer to buy solar power without paying the expensive upfront costs or assuming the risks of owning and operating the system.

About 60 percent of the company's revenue comes from the residential business now, though Rive said he would like to see the residential-commercial sales to split evenly in the long run. The company does business in California, Arizona and Oregon. It's eyeing an expansion to states on the East Coast later this year or 2010, Rive said in an interview in April.