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Community solar industry says it can ride out Silicon Valley Bank failure

The collapse of SVB, a key early funder of community solar, won’t halt the sector’s growth — but the ripple effects will likely impact all clean-energy development.
By Jeff St. John

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A large solar array surrounded by farmland and trees with leaves turning autumn colors
A 1.4-megawatt community solar array located in Oxford, Massachusetts developed by BlueWave Solar (BlueWave Solar)

In the wake of Friday’s collapse of Silicon Valley Bank, some media coverage has focused on the threat it poses to the community-solar industry. Stories cited a figure prominently featured on the bank’s website — the claim that the bank had led or participated in funding for 62 percent of U.S. community-solar projects as of a year ago.

But as the oft-cited investing axiom reminds us, past performance is not indicative of future results. 

Santa Clara, Calif.–based Silicon Valley Bank was an important early backer for community-solar projects — solar installations that sell subscriptions to individuals who then get bill credits for the clean power they produce. And the bank played an important role in bringing more financing partners into the space.

But the community-solar industry has grown quite a bit since those early days, as has its roster of financial backers. So says Jeff Cramer, CEO of the Coalition for Community Solar Access, a trade group representing more than 100 companies involved in the burgeoning community-solar field.

Silicon Valley Bank did great pioneering work” in the community-solar sector back when there were only a couple of players” financing projects, and at that point, the bank had a significantly higher portion of the market” than it does now, Cramer said.

We’re in a very different world today than we were five years ago,” he said. Today there’s a great diversity of tax equity and debt providers.”

Bank-related challenges aside, community solar isn’t as risky a target for lenders as it used to be, Cramer contended. In his view, the projects on Silicon Valley Bank’s books will likely be transferred to one or multiple new banks,” including banks already funding community solar, he said. Those will be positive assets on anyone’s balance sheets.”

Cramer also pointed out that the community-solar projects Silicon Valley Bank has been involved in financing — those reflected in the 62 percent figure from a year ago — include many that have already been built and are now in commercial operation. Those can switch relatively easily from one financial backer to another. And the community-solar projects that are still under construction are bankable projects and attractive pieces of portfolios,” he said.

In short, the reality of community-solar financing is divorced from what’s happening at SVB,” according to Cramer. 

This is an admittedly sunny perspective. Others are not so sanguine.

The failure of a major banker for Silicon Valley startups and venture-capital firms and an important lender for clean-energy projects has shocked and alarmed cleantech companies and investors.

A Sunday commitment from the federal government to ensure full payout to all the bank’s depositors has eased the immediate cash crunch of companies reliant on those funds to pay employees and meet other pressing needs.

But this depositor bailout hasn’t resolved the question of what will become of the project-financing commitments Silicon Valley Bank has made to sectors including community solar. That could be of particular concern for companies that have landed more recent financing. Colorado-based community-solar developer Pivot Energy closed a $190 million financing facility led by Silicon Valley Bank in April of last year, for example, and Wisconsin-based community-solar developer SunVest Solar announced a $113 million debt facility led by the bank in December.

Pivot Energy CEO Tom Hunt said in a Tuesday email that SVB is part of a syndicate of banks financing one of his company’s portfolios. Pivot Energy is working through the implications of the federal takeover,” and is confident that these projects will be moving forward,” he said. Pivot is in a strong position financially while we navigate the impacts of the situation on our future projects.”

Impacts on the broader clean-energy industry 

Silicon Valley Bank’s heavy portfolio emphasis on clean technology investment has had ripple effects on the solar industry. The bank was among the lenders to nationwide residential solar installers Sunrun and Sunnova. After the two companies saw steep declines in their share prices in Friday trading, both Sunrun and Sunnova issued announcements on Friday saying that their exposure to financial risks from the bank’s collapse was minimal or negligible.

James West, senior managing director and head of sustainable technologies and clean-energy research at Evercore ISI, an investment banking advisory firm, said that the exposure to Silicon Valley Bank of Sunrun, Sunnova and other larger publicly traded companies appears to be immaterial.” But where it becomes more unknown is the impact on private, small developers of climate-related or clean-energy-related infrastructure,” he said.

When a bank collapses, there’s inherently some change in the cost of capital,” West said. Because the government came in and backstopped the deposits, it’s maybe not a major impact.” But broader trouble in the banking sector is still a real threat and could make matters much worse, he said.

Silicon Valley Bank’s collapse was rooted in its decision to make major investments in low-interest, long-term bonds in 2021, before the Federal Reserve began raising interest rates to levels that made those investments far less valuable. These rising rates have created ripple effects throughout the economy, including a reassessment of risk for project financing going forward,” West said.

Barrett Bilotta, CEO of solar and energy storage developer Agilitas Energy, which doesn’t have any relationships with Silicon Valley Bank, agreed that banking-sector troubles are likely to raise the cost of debt for projects across the board. I think that projects will still get done,” he said. They’ll just be more expensive to do from a debt perspective. And higher cost of debt will weed out projects that are more marginal.”

A downturn in the financial sector could also reduce the appetite for the tax equity that’s a vital part of U.S. solar financing, Bilotta said. That tax appetite will go to the strongest projects first and trickle down from there,” he said. On that front, solar developers across the spectrum are exploring the provisions in the Inflation Reduction Act that allow project developers to sell their investment tax credits to third parties rather than resort to traditional tax-equity structures, he noted. 

Positive trends for community solar

Overall, the community-solar sector is in a strong position for growth.

The market for community solar has grown significantly in recent years. The number of states that have enacted policies to support it has expanded from a handful a decade ago to 22 states plus Washington, D.C. today, encompassing a collective 5.6 gigawatts of generation capacity.

These projects, typically in the 1- to 10-megawatt scale, have also been able to reduce the cost of the solar power they sell to individual subscribers, both through incentive structures aimed at making solar affordable for low- and moderate-income customers and through the broader decline in solar costs over the past decade.

Meanwhile, last year’s Inflation Reduction Act created a host of incentives for community solar. Those include access to the same lucrative investment and production tax credits available to a wide range of clean-energy projects, as well as a bonus tax credit for serving low- to moderate-income communities.

Lower-income households are also a prime target of the National Community Solar Partnership, a Department of Energy–led coalition that wants to enable up to 20 gigawatts of community solar by 2030 and reduce subscribers’ electricity bills by a collective $1 billion over that time.

And community solar is eligible for $27 billion in green investment lending being administered by the U.S. Environmental Protection Agency, a figure that includes $7 billion set aside for distributed clean-energy projects for low-income and disadvantaged communities.

All of this isn’t to downplay the broader economic risks created by the second-largest bank failure in U.S. history, Cramer said. But nothing that I’ve seen suggests that the investments that SVB made in climate startups had anything to do with their collapse.”

More broadly speaking, the hundreds of billions of dollars of clean-energy backing from the Inflation Reduction Act could make banking-sector turmoil somewhat irrelevant for the clean-energy side,” Evercore’s West noted. But if the broader economic turmoil does make it harder to finance solar projects that benefit low-income communities, it could undermine a key goal of the law, he said, which is to make clean energy accessible to everyone.

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.