Understanding Third Party Leasing Structures for Renewable Energy
Third party leasing is a well-established financing solution in the United States. It emerged in the solar industry as one of the most popular methods of solar financing. Third-party solar financing predominantly occurs in two forms: solar leases and power purchase agreements (PPAs).
(If you would like upside exposure to the growing renewable energy & solar market, check out our offer here: www.StartEngine.com/sun-fund-dc.)
In the lease model, a customer signs a contract with an installer/developer and pays for the use of a solar system over a specified period of time. This is instead of paying for the power generated.
In the PPA model, the solar energy system offsets the customer’s electric utility bill. The developer sells the power generated to the customer at a fixed rate. This rate is typically lower than the local utility.
Whether renewable energy assets can be leased is determined at the state level.
Florida and Third Party Leasing
A recent article in Solar Wake-Up says Florida’s Public Service Commission (FPSC) just announced it would make the third party leasing of solar assets legal. The implications of that are staggering. A whopping 56GW of third party leasing based renewable energy could be added to Florida in coming years. At present, only 1.4 GW of solar capacity has been reportedly developed there.
Of the top 25 US cities at-risk for being threatened by sea-level rise, a whopping 22 of them are in Florida. (New York City tops the list at #1).
It is easy to see how a state threatened by sea level rise would be inspired to switch their laws so that more renewable energy projects can come online.
One problem with this strategy is that everyone, worldwide, needs to conserve and invest in renewable energy to grow the sector: Just as a rising tide floats all boats, a rising ocean sinks all coastal cities. If only states that are affected by sea-rise invest in renewable energy, the climate may well continue to heat up as a result of greenhouse gas emissions. It is not only coastal cities that are affected: The fourth leading cause of death, worldwide, is air pollution. Fossil fuel emissions must be dramatically curbed immediately.
Global renewable energy adoption can help solve that problem.The entire renewable energy market is fragmented, often beset by too many interests competing for profits from the same project. That is one of the main obstacles to the growth of the entire market.
Sun Fund empowers the world to grow that underserved market.
Sun Fund’s PIP is the Global Solution That Makes Complex Renewable Energy Third Party Leasing Agreements Easy
Contracting renewable energy assets is a complex process. One major barrier to the growth of the renewable energy market is startup costs associated with performing due diligence, agreements and more adversely affect small-to-medium sized renewable projects. Larger renewable energy projects are not as greatly impacted by those costs because the revenue from larger projects is correspondingly greater.
Eight Areas of PIP Performance
Our blockchain technology platform will improve operational efficiency, reduce costs and deliver superior returns to investors in these eight areas:
- Financial Disintermediation: The Sunny will allow individuals anywhere in the world to invest in a fractional share of a solar project and receive a proportional return. This process will eliminate many intermediaries such as brokers, payment systems, custodians and other margin-diluting parties.
- The democratization of Investment: Fractional investment and the efficient distribution of investment returns via our cryptocurrency will level the playing field. Small investors will have access to high-profit projects, which have been traditionally reserved for large accredited investors who invest in large, utility-scale projects. Blockchain allows for low-cost fractional investment in renewable energy and that opens more opportunity for small investors.
- Decentralization of Investment. All investments will be decentralized and diversified as tokenization will permit investors to allocate their investments in whatever percentages they prefer to a project rather than having to fund all or none of a project.
- Efficient Globalization of Renewable Energy Investment: Small (retail) investors will be able to use the Sunny to buy a stake in a renewable energy asset anywhere in the world without incurring transaction costs related to currency exchange and electronic payments.
- Lower Due Diligence Costs: All contractors and developers participating in the Sunblockchain investment ecosystem will be subjected to initial rigorous due diligence permitted to advertise projects. Once admitted into the Sunny ecosystem, participants will be scored on the basis of cost, efficiency and the quality of systems installed. This will allow investors to assess the risk of a potential solar project by reviewing the historical performance of the developer and installer. Because data embedded into the blockchain is “immutable,” investors are assured that the ratings are transparent and objective.
- Automated Solar Asset Performance Analysis: Our blockchain technology will utilize algorithms which will automatically parse and analyze data such as forecasted production, weather, and equipment selection and then score each project accordingly. The goal will be to analyze the actual vs. forecasted performance of each project. Ratings will in part determine the market value of a project. For example, underperforming assets will be marked down or discounted. This will, in turn, allow for “automatic price discovery” of assets, which will reduce the human capital required for analysis and reduce transaction costs as assets are bought and sold.
- Algorithmic Credit Risk Analysis: As projects are built and off-takers (buyers of electricity) make monthly payments for their solar electricity, a credit history will be automatically updated in real time and immutably embedded into our distributed ledger. The credit score of the off-taker will impact the value of the asset. For example, an off-taker who is never past due with payments will increase the market value of the project because the credit quality will be confirmed. These credit scores may also be sold to credit-rating services, which will unlock further shareholder value. Automation of this function will require less human capital (fewer credit analysts) and materially reduce transaction costs.
- Improved Market Liquidity: As the project portfolio grows, Sun Fund or outside investors using the Sunny, will buy and sell projects. We envision a liquid market, where buyers and sellers of solar projects will be able to view objective and transparent data on projects – performance history and payment history, with the ultimate goal being the creation of a liquid, transparent marketplace to buy and sell projects.
As more states come online with third-party leasing options, Sun Fund’s PIP will finally make renewable energy investment easy for everyone. Learn more at www.StartEngine.com/sun-fund-dc.