There's more than one way to invest in solar power
Solar companies, already benefiting from booming share prices, are turning to increasingly innovative ways to raise capital, including bond issues, bank loans and even crowd-funding.
SolarCity—Wall Street's newest renewable energy darling—last week announced that it will offer debt investments backed by pools of solar assets this year. Last year, SolarCity, which is backed by Tesla Motors founder Elon Musk, issued about $54.4 million in the first-ever solar bonds. They secured an investment-grade rating from Standard & Poor's.
Observers say SolarCity's fortunes are the latest signs of a maturation process that could hasten the day when renewable energy is less dependent on government subsidies. It also comes as demand for solar power is expected to see what research firm NPD calls "explosive growth," with demand expected to surge more than 36 percent in 2014.
"As we're seeing costs and price point for solar systems fall, we're seeing concomitant increase in deal structures and investment vehicles available to individual investors and utilities," said Nadav Enbar, senior project manager in power delivery utilization at the Electric Power Research Institute. "As a result of this maturity, investors consider renewable energy/solar as a potential area with less risk for their dollars."
Solar securities are still largely unproven, and the relatively short tenure of solar projects–less than 20 years in many instances–may become a barrier to wider adoption of solar financing.
Still, the move toward tapping capital markets means green projects could make the sector less vulnerable to the backlash that often ensues from using public funds. Private investors are starting to warm to the idea: US Bank has a alternative energy arm that has doled out more than $1.7 billion to a spate of renewable projects in the U.S.
A steep drop in solar prices and costs—data from the Solar Energy Industries Association says sun-power is now 60 percent cheaper than it was just a few short years ago—is fueling strong demand.
According to the Energy Information Administration (EIA), growth in renewable power generation is expected to exceed 858 billion kilowatt hours by 2040, with a bulk of that growth coming from solar. Renewables generated 524 billion kilowatt hours in 2011.
Because solar power can be generated at the local level, and because its infrastructure can be built easily without the politically-tinged problems that accompany crude, it makes for a comparatively attractive investment.
Mike Sheppard, senior energy and power analyst with research IHS, says investors "see it as a trend…that opens up new sources of capital investment from people not yet willing to risk money in technology" that may not be proven, he added.
"Securitization smooths out [risks], diversifying over multiple projects," Sheppard said. "That concept is relatively new…and its a definite trend that a lot of people are looking forward to."
—By CNBC's Javier E. David. Follow him on Twitter