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Sunshine-backed bonds tipped for take-off in Europe

This article was produced by IFR and originally published on

The first European solar panel securitisations are in the works and are expected to appear as soon as the second half of this year, as Europe plays catch up with the well-established market in the U.S.

  1. Fragmentation and a lack of large pools of solar contracts have delayed the emergence of solar panel securitisations in Europe.
  2. This is set to change as large portfolios of standardised power purchase agreements, leases and loans are being signed.
  3. Will solar ABS help the European rooftop solar market grow while offering investors a fresh supply of green bonds?

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The solar panel market in Europe has lagged in part because it is more fragmented and had not produced large, homogenous pools of solar contracts suitable for securitisation.

But that is set to change as Europe enters what one participant in a panel discussion at the Global ABS conference in Barcelona on Wednesday described as a golden era for solar.

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“I think that we’ll see a private transaction in Europe in 2023 and a public transaction either in 2023 or 2024,” said Spencer Hunsberger, head of energy asset finance at Credit Suisse.

Gordon Beck, a director in securitised products solutions at Barclays, said that the first deal could even come later this year. “If not, it will certainly happen next year,” he said.

There is growing interest in what is seen as a promising new asset class, with service providers like Kroll Bond Rating Agency, which has rated 57 solar securitisations in the U.S., vying for roles on the first transactions.

Solar finance warehouses opened

The solar installation industry in Europe is largely comprised of small players, which has hampered the emergence of solar ABS compared with the U.S. where the market has been dominated for years by a few large players such as SolarCity (now part of Tesla), Sunrun and Mosaic.

The U.S. market became more concentrated in 2020, when Sunrun bought one of its biggest competitors, Vivint.

But national champions are beginning to appear in Europe, enabling larger portfolios of standardised power purchase agreements, leases and loans to be built up.

Contracts originated by Spain’s Perfecta Energia or Berlin start-up Enpal are expected to be among the first to be securitised, a conference attendee told IFR.

A major step forward has been the signings of the first European solar finance warehouses.

This was a challenge in itself, as it would be for any new asset class, given the lack of an established term market in which to refinance the assets.

“The only way to do it is to have a clear view on who will take out that facility by working with the investors themselves in order to park the assets,” said Laurent Haik, a managing director at Credit Agricole. “Otherwise the refinancing risk seems to be too high.”

American dream

Would-be solar securitisers have taken inspiration from the U.S., where the solar ABS market was inaugurated with a US$54m issuance by rooftop solar company SolarCity in 2013. Since then, the public new issue market has grown to about US$3.3bn per year, according to data compiled by IFR.

Deals have also been issued in the U.S. private placement market.

In the U.S., many home and commercial solar installations are financed through a federal programme called Property Assessed Clean Energy, which allows home and business owners to finance energy efficiency and solar projects with loans that are repaid through the property tax system.

No equivalent programme exists in Europe, so it will instead follow the private sector financing model of solar installation companies like Sunrun and Tesla, and specialist lenders like Mosaic and Good Leap (formerly Loanpal).

Simpler solar

Although solar ABS has so far struggled to gain traction in Europe, issuers, arrangers and investors will have at least one less thing to worry about than their U.S. peers, who had to deal with federal investment tax credit.

The ITC allows U.S. taxpayers to recover a portion of the cost of installing a solar system, an incentive that may have turbocharged the growth of the U.S. residential solar market but also added a major wrinkle to solar securitisation structures.

End customers that own their solar system and finance it with a loan are able to use the ITC to offset their own taxes, but if they lease the panels or buy the energy through a power purchase agreement, the solar panels are owned by the solar panel company, which often does not have sufficient tax liabilities to realise the benefit of the ITC.

To monetise the tax credits, the solar company typically brings in a third-party tax equity investor in a partnership structure designed to “flip” when the investor makes a specified internal after-tax rate of return.

A recent example of a lease-and-PPA securitisation was Sunrun Jupiter Issuer 2022-1, which priced in April. The bonds are secured on Sunrun’s managing member equity interest in the partnership, rather than directly on the photovoltaic panels.

Although U.S. solar ABS investors are now comfortable with the partnership flip structure, it took many years of education to reach that point. In Europe, solar ABS will likely be an easier sell.

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What is set tochange as large portfolios of standardised power purchase agreements

Fragmentation and a lack of large pools of solar contracts have delayed the emergence of solar panel securitisations in Europe.