The residential solar power market has grown dramatically in recent years, but there is more than one way to fund a “green energy revolution,” and financing innovations have begun to give the residential market’s less-developed cousin, commercial solar, a needed boost.
One company focused on commercial solar financing is Wunder Capital, which runs two investment funds: one providing loans to primarily midsize businesses looking to convert to solar power and a second fund offering short-term capital to commercial installers for project development activities such as system design and hardware procurement. The Boulder, Colo.-based start-up launched its first fund—an asset-backed income fund with a targeted 6% annualized return over 10 years—last spring. The second, a bridge fund with a targeted 11% return over two years, launched in November. Both funds have a minimum $1,000 investment and are available only to accredited investors.
Now Wunder hopes to grow beyond its peer-to-peer lending beginnings with its anticipated inclusion in financial advisory platforms, as well as increased attention from family offices and hedge funds. “We’re in the process of having our tires kicked,” says Wunder CEO Bryan Birsic. “We feel good that in 2016 we’ll be available to thousands of advisors through smaller, independent platforms.”
One of those could be First Affirmative Financial Network, which specializes in sustainable, responsible and impact investment consulting. President Steve Schueth says the Colorado Springs-based firm is still in the analysis and due diligence phase with Wunder but does have clients who would likely take an interest.
In addition to accreditation, the ideal investor would have a generous, diversified allocation to fixed income, Schueth says, adding that Wunder products would likely fit into an asset allocation as alternative or high-yield debt. “It also has to be a client that is interested in deeper exposure to renewable energy, which we have a fair number of.”
The main reason residential solar has grown so much faster than commercial is the availability of FICO scores for individual homeowners. Unless a business is rated by the Standard & Poor’s of the world, and most aren’t, it has no equivalent credit rating. So to vet projects, Wunder uses proprietary technology that automates the process but still looks at the basics, starting with a company’s finances, its credit history (through sources such as Experian and Equifax), its utility payment history, any liens or claims against it, and five years of audited financials. The vetting process also includes analysis of the quality of the solar hardware and installer—Wunder currently works with 55 installers in 14 states—and the area’s real estate market, including vacancy rates.
The income fund loans money at 7% and pays investors 6%, a gap that allows for an anticipated 1% loss rate (the anticipated default rate is 3%, with a recovery value of 70 cents on the dollar). The recovery mechanism is the assets, in that if a business goes bankrupt and moves out of the building, the investors still own the energy generation for that building, which Wunder offers to new tenants at a discount relative to the utility.
The bridge fund loans at 13% and pays investors 11%, allowing for a similar default rate but a lower recovery value. The recovery value is lower because in the first fund you have a working solar power system; in the second fund all you have are the materials—some panels, the inverter and racking.
“With this new fund, we hope to have more institutional interest, family offices and hedge funds get involved in the next 12 months,” Birsic says.