Silicon Valley Bank is back to financing community solar

Silicon Valley Bank is back to lending money to community-solar developers under its new ownership — two months after its collapse sent shockwaves through the U.S. banking and clean-energy financing sectors.

On Tuesday, community-solar developer Pivot Energy announced a $203 million financing package led by Silicon Valley Bank, now a division of First Citizens Bank. The package includes a construction loan, tax-equity bridge loan and term loan, with JPMorgan, National Bank of Canada, Bank United, Cadence and Comerica also contributing debt financing.

It’s the first big community-solar financing for SVB since March, when the Santa Clara, Calif.–based bank was taken into federal receivership after a bank run left it insolvent and reliant on federal insurance to make its depositors whole.

But that financial collapse, and SVB’s subsequent acquisition by North Carolina–based First Citizens, did not alter the terms of the deal that had been in the works between Pivot Energy, SVB and the other participating banks, said Bret Turner, head of project finance for business development and innovation at SVB. It merely delayed it by about two months.

“We obviously went through a somewhat traumatic event,” Turner said in an interview. But all the original participants involved in the $203 million financing facility have remained on board, and community-solar developers have continued to seek out SVB to finance projects.

“We’re getting propositioned every day on this type of asset,” he said. 

Pivot Energy is just one of several community-solar developers that have worked with SVB, one of the premier lenders to the sector. The bank claims to have participated in financing more than three-fifths of all U.S. community solar projects as of the first quarter of 2022.

That oversize role led to concerns that community-solar developers would find it harder to secure adequate financing after the bank collapsed in March. But Tuesday’s financing news would appear to allay those concerns, said James West, senior managing director and head of sustainable technologies and clean-energy research at investment banking advisory firm Evercore ISI.

SVB’s takeover by the Federal Deposit Insurance Corporation and subsequent sale to First Citizens have given the bank ​“a much stronger balance sheet, and you have the implicit backing of the government,” he said. The FDIC will reimburse First Citizens for half of any losses greater than $5 billion from the commercial loan portfolio it acquired from SVB.

“Because of what the Fed was able to do, and what regulators were able to do, we haven’t seen a lot of havoc in the clean energy market,” West said. 

If anything, said Bret Labadie, Pivot Energy’s chief financial officer, his company, a long-time leader in the community-solar field, is seeing even more interest from larger banks looking to tap a fast-growing market.

That includes JPMorgan, which has made its first community-solar debt financing as a participant in Tuesday’s round. ​“Now you have one of the largest banks in the world stepping into what SVB has established on an operational standpoint,” Labadie said. ​“The fact that SVB was able to bring them in speaks volumes about the strength of community solar.”

A growing community-solar sector

Community solar — smaller-scale solar projects that sell power to subscribers ranging from commercial and industrial clients to lower-income households — will need growing sources of financing to scale up at the pace that policymakers and the industry are aiming for.

Over the past decade, the number of states that have enacted policies to support it has expanded from only a handful to 22 states plus Washington, D.C., encompassing a collective 5.6 gigawatts of generation capacity.

Last year’s Inflation Reduction Act also extended lucrative federal clean-energy tax credits to community-solar projects, as well as creating a $7 billion fund to back such projects in low-income and disadvantaged communities. The National Community Solar Partnership, led by the Department of Energy, has set a target to build up to 20 gigawatts of community solar by 2025 with the goal of cutting subscribers’ electricity bills by a collective $1 billion over that time. The community-solar industry itself is aiming for 30 GW by 2030.

Pivot Energy, which also closed a $190 million financing from SVB in April 2022, plans to use the new funding to support a 100-megawatt portfolio of distributed solar projects in California, Colorado, Hawaii, Illinois, Maryland, Minnesota and New York. It’s the second portfolio of projects for Pivot Energy since its 2021 acquisition by New Jersey–based infrastructure investor Energy Capital Partners.

“Community solar makes a lot of sense for the banks at scale,” Labadie said. ​“But to get to scale, you’re going to have to have 30 or 40 or 50 projects, and each project is different” — unlike rooftop solar, where the relative similarity of individual projects has allowed nationwide installers and financiers to secure increasingly favorable credit terms for large-scale residential solar portfolios.

Community-solar projects do offer benefits of lower cost per watt installed compared to residential solar. But the typical 1- to 20-megawatt scale of the projects tends to be more costly than the utility-scale solar farms that have led the growth of the solar sector. Community solar also tends to be more complicated to develop and build than utility-scale solar, given the need to fine-tune projects based on state-by-state variations in program rules.

But policymakers and environmental-justice advocates have been pushing to expand community solar as a way to share the benefits of low-cost solar power with lower-income communities facing high and rising electricity costs. Pivot Energy’s 100-megawatt portfolio will be subscribing customers including municipalities, health care facilities, food-service and retail businesses, and residential customers, including 8,000 low- to moderate-income households.

The smaller size of community-solar projects can also help them avoid the yearslong wait times that larger-scale clean energy projects are facing to connect to high-voltage transmission grids in many parts of the country.

All of these factors have led to an expansion of lending from banks and other financing partners to community-solar developers over the past few years, Turner said. Forecasts indicate that community solar could grow from about 5.6 gigawatts today to between 12 gigawatts and 30 gigawatts by 2030, he noted. ​“That’s a pretty big number for banks to get interested in.”