From 2011 to 2014, residential solar capacity tripled and utility quadrupled. Over the same duration, however, commercial-scale projects grew only 25%. Experts say limited available financing in the commercial space has been the culprit behind its lagged growth.
“That’s crazy,” said Bryan Birsic, CEO of Wunder Capital. “That’s a crazy reaction to a similar market dynamic. There is no ostensible reason the commercial space would barely grow over three years and two other portions would grow.”
Birsic and colleagues set out to determine why financing for commercial projects came up short. He discovered that the cost of closing a loan—which is a process requiring extensive legal documentation and evaluations—was quite high for traditional lenders.
In fact, for projects under 500 kW (typically $1 million), traditional lenders would lose money on the deal, Birsic said, so they just didn’t do them.
“We started to realize there wasn’t a cost-effective way to do solar-specific project financing for deals that were below $1 million,” Birsic said. Reacting to that finding, Wunder Capital decided to use technology and automation to make commercial lending 10 times as efficient and open up the small commercial market.
In the last quarter of 2015, Wunder saw $25 million in funding needs, Birsic said. While regulations prevent him from disclosing exactly how much funding Wunder honored, Birsic said it was “much less than $25 million.”
“We have a lot of businesses that want to go solar, and our battle is getting enough capital to service their demand,” he said.
Still, Birsic thinks a time will come when securing capital for commercial solar will be no problem.
“If you step outside of solar and look at mature alternative lenders like Prosper, OnDeck and Lending Club, once they hit a level of maturity, once Wall Street got over that new marketplace challenge, almost all of those companies flipped to having too much capital,” he said.
And when that happens, platforms like Wunder Capital will provide a way for more solar installers to get funding beyond the walls of a bank.
Other companies, like Open Energy Group and Wiser Capital, are working on ways to open the commercial market to financing, as well.
The problem with so many unrated facilities in the mid-scale commercial market is that, historically, there hasn’t been a simple way to assess risk, according to Megan Birney, director of strategic affairs at Wiser Capital. Yet the broad range of potential solar facilities is astounding—everyone from non-profits to regional chains to mom-and-pop businesses could benefit from solar.
Wiser Capital created the Wiser Solar Asset Rating (WSAR) system, which uses an automated process to calculate the bankability and risk of a solar project by assigning a score (similar to a FICO score) to help bring investors, developers and facilities together to understand the viability of a potential project.
Open Energy has created a loan platform that exists entirely online, with a simplified interface and fast turn-around times. “If you can get a credit card online, why can’t you get a solar loan?” asked Graham Smith, CEO of Open Energy. “Sure, there are different sets of information you put in, but why not?”
Smith said the average cost of financing is $.30/watt from traditional sources, but Open Energy has taken it down to 10 cents.
“That’s a big deal because it allows a project that couldn’t pencil before to pencil, so it seems like we’re playing a vital role in helping projects get built,” Smith said, noting that demand for electricity in the C&I sector is three-and-a-half times that of the residential space. “So you kind of know there is a massive pent-up demand there, and for it to be realized, you need a solution to financing costs.”