Anambitious project by a California company to install solar panels for more than 100,000 military housing units has been revived with private financing after it failed to receive a loan guarantee from the federal government.
Under the program, which would roughly double the number of homes with solar power if fully carried out, SolarCity will install, operate and own the solar systems, said Lyndon Rive, the company’s chief executive. Customers will pay the company for the electricity they use, with any unused power feeding back to the military bases.
The San Mateo, Calif., company had originally hoped to serve up to 160,000 homes with the help of a loan guarantee from the Obama administration. In early September the energy secretary, Steven Chu, announced preliminary approval of a guarantee that would have covered $275 million of a $344 million loan from Bank of America Merrill Lynch for the program, called SolarStrong.
But the public uproar over the bankruptcy of Solyndra, a solar module maker that had received a $535 million loan guarantee from the same program, cast a pall over other companies’ applications even as the Energy Department was racing to evaluate them before the guarantee program expired on Sept. 30.
Near the end of September, the Energy Department told SolarCity it would not be able to approve the guarantee after all, having run out of time to finish the paperwork before the program’s deadline. At the time, Mr. Rive said that the scrutiny the program was under influenced the department’s decision.
However, the financial profile of the rooftop solar program was still attractive to Bank of America Merrill Lynch. The bank is lending up to $350 million for the scaled-back program without the guarantee. Its backing comes as other banks and companies including Google have been financing distributed solar programs at SolarCity and competitors like SunRun and Sungevity that make rooftop solar systems affordable to homeowners.
“It’s a huge leap forward for the distributed solar market because what we’ve done is create a financing model that can make distributed solar affordable on a huge scale without a guarantee from the federal government,” said Jonathan Plowe, a managing director at the bank.
A year ago, he said, debt financing was available only for large-scale, utility-based projects that did not face the challenges of distributed solar programs, which are by nature fragmented and have to negotiate differing local regulations and procedures.
But after Bank of America Merrill Lynch backed a distributed solar project by NRG and Prologis Inc. that did win a federal loan guarantee, it decided it had a process in place to handle the risks of proceeding without government backing, according to Mr. Plowe.
He said the bank decided the SolarCity project was a solid investment for several reasons: photovoltaic technology is proven, the diversity of installation sites reduces the risk of a failure everywhere at one time, the electricity is relatively easy to transmit, construction time is short and there are few negative environmental consequences.
Solar developers can also take advantage of a 30 percent investment tax credit.
SolarCity executives declined to say how much of a return their investors could expect or to predict how many developers of military housing would sign up to buy the solar power.