Solar Risk Project

Summary

The Solar industry will continue to experience dramatic growth over the next few decades as installation and equipment costs decline and grid-parity is achieved in many global markets.

 

The availability of well-priced debt is vital to drive the expansion of this industry in the medium/ long term, as government incentives expire. It’s estimated that over $1 trillion in cumulative debt investment will be required to fuel the growth of Solar through 2020 – potentially creating a new financial asset class.

 

Solar plants have a unique combination of credit risks (e.g., technology risks, policy risks, counterparty risks) with no standardized methodology or approach for analyzing and rating these risks. Partly as a result of this, comparatively few banks are active in Solar finance today despite the attractive fundamentals of this asset class (e.g., proven and reliable technology, stable/ long-term cash flows, investment-grade coverage ratios).

 

The Solar Risk Project was launched in 2011 to develop a standardized credit risk scoring methodology for solar plants (analogous to an S&P rating for corporates or FICO score for consumers). In consultation with industry experts and associations, a risk framework was developed and preliminary data-sets were sourced to better understand the risks in each category. The work was presented at the SolarTech Summit in 2012 and disseminated to industry participants. Similar projects were subsequently launched and carried forward by NREL and Distributed Sun. 

 

Collaborators

Professor Gary King, (IQSS, Harvard University)

Various solar industry executives and associations

 

Date

2011

 

Relevant material

Solar Debt Opportunity: SolarTech Summit Presentation