What Happens if Energy Savings From Solar Doesn’t Materialize?

Energy efficiency and solar companies often finance projects with power purchase agreements that guarantee a certain amount of energy savings for the end user. But banks are often skittish about lending for solar projects, according to Renewable Energy World.  Banks are concerned that the solar company will have enough cash flow to fulfill the guarantee and repay the loan.

Energi, a Massachusetts reinsurance company, has come up with a financing model to help lenders feel more comfortable financing solar projects.

“We’ve developed a program that allows the contractor to put in place a guarantee and then back that up further with an insurance policy,” said Kevin Kaminski, senior VP of alternative energy with Energi.

Typically, the collateral for the loan is the solar equipment. But does this equipment have any real value for the bank if it’s not connected to the borrower’s property?

Some states have even begun requiring collateral backing – some kind of insurance, or cash, or letter of credit, said Kaminski.

Energi’s insurance adds between 2 and 5 percent to the cost of the project in the form of a one-time premium. The insurance is non-cancellable even in the event of the bankruptcy of the borrower.

These insured projects can help smaller solar companies approach their banks with a low-risk proposition.

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