SolarCity Joins the Impact Investing Trend with Solar Bonds

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Have you been getting those calls from SolarCity and other companies, telling you they’ll put solar on your roof for no money down? That’s great if you own your roof, have the right credit score, and don’t have too much shading.

If you’re one of the 75% — a conservative estimate of the number of Americans who can’t put solar on their own roof — you may be getting tired of the calls from solar companies.

Now there’s a new way you can participate, thanks to SolarCity joining the trend of crowdfunding for solar. Their offering is a bit different from what’s already available in that they’re providing solar bonds — up to $200 million worth initially. The bonds give individuals across the U.S. a simple way to earn a return on their investment while also participating in the solar revolution — even if they can’t put solar on their own roof.

The earnings on the solar bonds will be paid by income received from monthly solar payments made by thousands of homeowners, schools, businesses, and government organizations across the country.

What else makes this different from other solar crowdfunding or other investment options?  Tim Newell, Vice President of Financial Products for SolarCity, told us it’s “different in kind and in scale. This is pushing crowdfunding to a new place because it’s making it available to everyone.” More specifically:

  • What’s being invested in: Other solar crowdfunding has consisted of project financing that allows investment in a single or handful of solar projects. SolarCity’s bonds, on the other hand, are corporate bonds fully backed by the company, with interest payments from those bonds coming from all its customers. That also means we’re talking unsecured debt, as opposed to an asset-backed security.
  • Who can invest: Because of securities laws, most other solar crowdfunding opportunities are available only to accredited investors or people living in a specific state. SolarCity’s bonds are available to anyone in the U.S. who’s over 18 and has a bank account.
  • Ease of investing: “We worked hard to make this investor-friendly,” said Newell. The idea was to create an investment process that a wide range of investors would be comfortable with. It should feel similar to buying a CD — and the bond is issued on the next business day. The online investment site is indeed simple and easy to use.
  • Range of maturity options: Investors can pick bonds that mature in a year and yield a return of 2% or go up as far as seven years and get back 4%, with options in between.

 

This is just the latest in expansions and new offerings from SolarCity, coming on the heels of its recently announced solar loan. The company seems to be aiming to be all things in its increased vertical integration and expansion into new areas.

As Newell noted, the bonds take advantage of current trends. “This is a good example of a couple themes in financial markets today,” he said. “We’re increasingly seeing investors seeking the ability to invest directly in opportunities they may not have had before, through web-based platforms. And we’re also seeing the rise of impact investors, who want a good return on their investments but also want as part of that to see that they’re investing in something that will make an impact. We’re at the intersection of both of those themes.”

As SolarCity continues attracting billions in financing from large financial investors, providing these bonds lets it further expand its financing sources. Newell noted, “We’re a business that relies on continuously raising capital; access to funds is one of the lifebloods of our business. This lets us diversify our source of capital, and over time that competition will drive down the cost of capital. That will drive down the cost of solar.”

Also significant is that SolarCity does not install solar in all 50 states. Offering not only solar power but also financial products based on solar power lets the company expand to all states. “It dramatically expands our customer pool,” said Newell, “and allows people to participate who may not be able to get solar. That doesn’t mean they can’t make money with solar.”

It’s natural for comparisons to arise with Mosaic, the company that pioneered a means for regular people to make money with solar — and recently became another early entrant into the solar loan business. The bar for entry at Mosaic is lower, at just $25, and returns on investments can be higher. The company still faces the barrier of SEC regulations limiting who can invest in their projects.

But the solar investment opportunities available so far still have enough differentiators that there should be room for everyone — not to mention that the market remains huge. Katie Ullman, Communications and Business Development manager at Mosaic, told us, “As the first company to offer solar project investments to the public, we’re supportive of more opportunities for people to invest in the solar industry’s rapid growth. It’s great to see the diversification of capital flowing into the solar industry.”