Financiers to solar and clean energy projects are the ones taking the risk, so it helps if a borrower understands what a lender needs to know about a proposed system for a request for funds to be approved.
Renewable energy generation such as solar PV is a neat solution to creeping electricity costs but systems are still a major item of capital expenditure. When their balance sheets are low on cash, businesses or households that want to tap into cheap clean energy can either keep saving for a system – and pay inflated utilities bills along the way – or borrow.
These days it’s a lot easier to borrow money than it used to be, but it’s still no walk in the park.
Clean energy projects come in all sizes, from utility-scale plants worth hundreds of millions to domestic fit-outs that cost less than a top-shelf bicycle.
Sydney-based lender Classic Funding Group started financing green energy in 2014 and will lend for solar, energy efficient lighting, power monitoring and control, hot water systems and insulation and upgrades to heating and cooling systems – if it thinks the investment looks solid. That means solvent borrowers and sturdy systems. If everything adds up, approval can be granted in 15 minutes.
“Where we differ from the banks is we can do much faster turnaround [on approvals],” says Classic Funding Group clean energy finance business development manager Hamish McMinn.
The methodology in the approvals process includes a solar installer’s prediction of savings based on system efficiency and the number of sun hours, among other factors. In some circumstances those who are inquiring to borrow for residential systems don’t even have to provide financial information such as payslips or proof of income (although the lender makes a credit assessment using other means). For commercial borrowers, no financial details are required for systems up to $75,000 in most situations; beyond that level financial information and other documentation are required.
“We use the asset and the savings from the asset to determine whether the customer can service the loan,” McMinn says.
Ready set go
Classic’s online calculator for residential applications calculates the repayment amounts for any system size and cost. For commercial installations, decisions are based more on loan serviceability. If there are no issues then funding is approved, subject to a few conditions, McMinn says. A business’s reputation may also be checked online and in some cases meetings are held with management to determine whether sales practices don’t contradict the lender’s values.
Installers must be accredited with Classic Funding before they can offer finance to their customers. Installers that are not accredited can apply to become an accredited. Classic’s list includes 115 installers and counting.
Loans are available up to seven-year terms and money is only lent for systems with graded technology. “Panels and inverters have to be at least tier two for us to fund them,” McMinn says.
Depending on a borrower’s electricity cost and how much saving is achieved by installing solar, a system could be cash-flow positive from day one, he says. “And after seven years it’s free – and most systems have a 15-to-20-year lifespan, so you’ve a fair few years of free energy before you have to upgrade.”
Installers sometimes view the domestic and commercial-industrial markets as vastly different, but a lender who sifts requests for finance quickly sees what they have in common – the motivation to lower their energy bills. “The price of electricity is going up regardless, and both [residential and commercial borrowers] find that a key driver [to switch to renewable energy],” McMinn says. “For business, another motivation may be to reduce their carbon footprint and be more socially responsible.”
Stored and sorted
As householders twig to the benefits of batteries as a way to capture solar energy for later use, Classic has been fielding more requests for funding for systems that include storage. “It’s becoming more popular and we’ve done a few now,” he says. “What we’re finding is there are people who wait until the technology has proven track record, and is also cheaper.” Classic also applies a tier regime to batteries.
Finance is also available for energy efficiency upgrades, including upgrades to LED, heating, ventilation and air-conditioning systems and “anything that reduces cost of energy and is clean”.
More than 2,300 clean energy transactions have been completed since then, for a total $29 million, but Classic won’t say what the split is between commercial and residential.
The largest transaction was $329,000, approved more than two years ago for an engineering firm that replaced grid electricity with clean energy and bought a fleet of electric vehicles. The smallest loan was for $2,151, which went towards a residential system.
Interest on borrowed funds can range between about 5% and 14.8%, depending on a customer’s credit profile, financed amount and the term of the loan.
Processes and requirements differ greatly between financiers, he says. Some require full financials while others have lo-doc options; some require security over the real estate and others don’t. Approval times vary, with some financiers taking days or weeks to make a credit decision while others can do it within minutes. Secure online document signing allows for much faster turnaround than some lenders’ requirement for printed, signed and posted paperwork.
Providers of zero or low-interest payment plans typically charge the solar company a merchant fee, he says, which the solar company either absorbs or includes in the system price. While the interest rate is zero or lower, the overall cost of the system may be higher. Documentation fees and account keeping fees also need to be considered.