Various products have hit the market that attempt to overcome a major hurdle to solar financing and securitization: the lack of standardized metrics that can provide a measuring stick against which financial institutions can quickly and easily assess solar projects. These products include Mercatus’ solar project scoring system and Sol Systems’ SolMarket. Both of these seek to put information about solar projects into a format that allows for easier comparison.
And now VDE Americas and First Solar have added another tool to the toolbox: a third-party certification body that can provide quality control assurance for entire solar systems, rather than just their individual components.
VDE Americas is the wholly owned, U.S.-based subsidiary of VDE, an well-established institution in Germany that certifies all electric products, from dishwashers to clock radios. “They’ve been in the solar industry perhaps longer than anyone,” said John Sedgwick, President of VDE Americas. “They’re responsible for the generation of the solar module standards that are now in place worldwide.”
VDE and its partner, an applied research facility called the Fraunhofer Institute for Solar Energy Systems (ISE), have come up with the first formal certification associated with solar systems as a whole, according to Sedgwick. “There has never been a third-party certification that looks at the entire system when you put all these products together,” he said.
This certification offers “a detailed analysis of all the components, and a detailed strategy of how that system should perform,” Sedgwick said. “It really was targeted at trying to reduce technical risk and improve bankability for solar in general.”
“We’re trying to make it easier to get solar projects financed, and to reduce the financial risk involved in solar energy projects,” Sedgwick said.
There are many solar projects that are on hold pending the receipt of financing, according to Sedgwick. There is “too much perceived technical risk…and the situation is getting worse, not better,” especially when factoring in other headwinds such as market turmoil, narrowing margins and balance-sheet risk.
“We are trying to bring a very disciplined, well-regarded third party, a totally independent and not-for-profit certification body, to do a confidential analysis of the technical aspects of these projects to at least eliminate the technical risk,” Sedgwick said. And by streamlining the technical risk analysis, third-party system certification should also reduce due diligence costs.
“It’s been so wild and chaotic in the industry that a lot of the large financial institutions that are financing solar are hiring their own technical staff to do due diligence, and that’s kind of crazy,” Sedgwick said.
Building a Brand
VDE and the Fraunhofer Institute are not necessarily as well known in the U.S. as they are in Germany, and it will take some time to build up the brand recognition necessary to make inroads among financial institutions and other lending sources. “Banks are much more comfortable with the independent engineering firms that they’re working with now,” Sedgwick said.
“There does need to be some education in the marketplace that a company like VDE, that’s been around for a long time, coupled with the Fraunhofer, clearly have the most practical experience in the world with nearly 30 gigawatts of installed capacity in Germany,” Sedgwick said.
First Solar is taking on the brand recognition aspect of the push to expand third-party system certification, and once that is established, Sedgwick says that this new certification process could provide a substantial boost to the U.S. solar industry.
“Once we start getting involved in securitized assets and asset-backed security finance -- which is a fantastic future mechanism for funding going forward -- there can be a trusted independent entity that comes in and gives comfort to rating agencies so they can assign ratings to these investments," said Sedgwick. “It can attract the kind of investment we need to turbo-charge the industry.”