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Transparency and Clear Risk Analysis Power Solar Energy Securitization

By June 18, 2015 No Comments

Information is Power

There is no such thing as too much information in the world of finance, investment, and securitization. Information is key to precise risk analysis and informed decision-making. Nowhere is this more relevant than in emerging and maturing sectors like solar and other renewable energy sectors.

Investors and capital developers require transparency and data to assess performance and risk. It is the only way to “look before they leap.”

Analyzing risk in solar energy investing

In solar securitization, investors struggle to measure and evaluate the risk in an underlying asset. They frequently cite the lack of solar project performance data as a primary factor slowing the flow of capital into new projects and, thus, solar securitization. Better insight into performance would make investing in solar projects less risky, increase capital flow, and lower rates.  Win/Win/Win.

What’s lacking is a tool to standardize data and make it more transparent. Investors require sufficiently large, accessible datasets to permit robust analyses of product and project performance for accurate performance modeling.


Rating agencies foggy about solar asset risk

Unlike the more established securitized assets, rating agencies, structured finance professionals, and investors are still a bit unclear as to the risk factors for solar assets. And, there may be insufficient data.

Investors recognize there are understandable risks related to new technology and new financial instruments, as well as risks associated with the data accrued for these new vehicles. So they bet on the securitization of solar assets’ long-term performance based on the limited amount of performance data available extended throughout the entire operating life of solar projects.


Building trust in solar energy investment

In other asset-backed sectors — whether they be cell towers, student or auto loans, or home mortgages — trust is built by sharing a track record. While the performance of mortgages has a well-analyzed record that stretches back more than a century, the data trail for solar projects is only a few decades long. It is only the last decade of that trail that represents how well modern equipment performs.

The key is transparency so that lenders can confidently grasp their risks. The surge in solar performance data analytics from firms like T-REX Finance will boost interest in solar securitization.


T-REX contends that providing investors with the tools to:

  • deliver risk analysis of portfolios and transaction data collected; and
  • establish metrics…

… makes it easier to de-risk solar projects and assign them a credit rating investors can accept without requiring them to perform their own due diligence. It is the role of the rating agencies to scrutinize investment opportunities (to ensure adequate returns for investors), and manageable risk factors.

Developing a proactive response to this new level of scrutiny will make the solar industry more efficient, secure, and profitable. Failure to meet Wall Street’s expectations will only hurt the industry and hamper growth.  So solar has to get it right. Now.


The scalability of large solar asset portfolios

Going forward, it is clear that mainstream investors will group solar assets into large portfolios with geographically dispersed assets. Scale will become the new currency. And key to scale is data driven by high-performance processing and powerful analytics. Tools like T-REX Analytics can drive optimization of power production, and eventually return on investment.

Very soon, solar assets will be part of a mainstream asset-backed market. While the level of financial scrutiny that comes with securitization is new to solar, the process of rising to meet this emerging challenge provides tremendous opportunity and will create the foundation for a sustainable industry.

Authored by the T-REX team



Energy & Infrastructure Project Finance


Structured Credit Markets

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