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SolarCity to offer asset-backed securities to mom and pop investors

Posting in Finance
SolarCity revolutionized the financing of solar projects when it started to sell millions of dollars worth of bonds backed by leases for solar arrays installed on residential rooftops to institutional investors like pension and hedge funds. Now the company is opening up solar securitization to the rest of us. 

SolarCity announced Wednesday plans to launch an online system that will allow regular folks and organizations to buy asset-backed securities. SolarCity acquired Common Assets, the privately held technology company that developed the investment platform. The solar company did not disclose the purchase price. 

How securitization works

Securitization is when a bunch of assets are pooled and bundled together, then sliced up and sold into capital markets. Anyone who watched or read the news during the recession is probably familiar with the now tainted mortgage-backed securities.

Securitization in the clean energy world operates on the same basic principle. The securities pay investors out of the cash flow generated by its solar leases. This frees up the company's capital to invest in new projects, making it an increasingly important tool for the clean energy industry as federal tax incentives expire. 

And unlike mortgage-backed securities, solar securitization is considered less risky because it relies on cash flows generated by stable things like solar equipment sitting in the sun, SmartPlanet columnist Chris Nelder noted in November. Once the equipment has been properly evaluated and graded, and as long as it's maintained, the only real threat to the stream of cash is weather. 

Mosaic, a startup that we covered quite a bit here at SP, also offers solar asset-backed securities. But they're issued for specific solar projects and not bundled, sliced up and sold off like traditional securities. Mosaic essentially sets up crowdfunding campaigns that allows people to invest and receive a return on a specific solar project. 


Thumbnail photo: SolarCity

— By on January 16, 2014, 11:42 AM PST

Kirsten Korosec

Contributing Editor

Kirsten Korosec has written for Technology Review, Marketing News, The Hill, BNET and Bloomberg News. She holds a degree from Northwestern University's Medill School of Journalism. She is based in Tucson, Arizona. Follow her on Twitter. Disclosure