Tax Equity Unicorns – New Fund Invests $150 million From A Fortune 500 To SunRun

Large tax equity announcements usually include US Bank, State Street, Goldman Sachs, or Bank of America and not a boutique advisory firm. These tax equity providers are syndicating pools of investments into the solar market. But it seems that things are changing with a new $150 million investment for a Sunrun fund by a new firm, Tax Equity Advisors (TEA). The biggest difference is that the capital is coming from an unnamed Fortune 500 corporation, making a direct investment into tax equity for solar. In other words, tax equity supply may have just gotten the early adopter, the unicorn that solar developers have been seeking for years.

SolarWakeup spoke to Jonathan Silver, the managing director for Tax Equity Advisors about the investment and what’s next for the firm. Silver told us that TEA has been working with Fortune 500 companies for over a year, an education process that meant going through many levels of understanding then approvals. Silver said, “We formed TEA to bring the opportunity of solar tax equity to corporate America. Corporations are interested in the returns solar represent but it needed to be easier for them to get the scale they need.” Corporations look at tax equity to offset their estimated liabilities, so sculpting the right investment size was a key part of the process.

The $150 million first investment is just the start. The Fortune 500 that TEA is managing the investment for is looking to deploy another $250 million, of which $150 million is already allocated. In response to why a single corporation was deploying $400 million, Silver said, “Seeing an opportunity to deploy significant tax advantaged capital at attractive returns without needing to build an investment management team was a key value proposition.” The boutique advisory group is managing the investment over the span of the partnership with the sponsor, handling the compliance for the years after the initial investment is made.

Last week’s announcement with Sunrun was for $150 million for the tax equity portion of the fund, meaning that Sunrun will be able to deploy at least a total of $300 million worth of solar projects. The projects are split between 2016 and 2017 placed in service and could continue a new trend away from the banks, that have long cornered the market for solar tax equity especially in the above $50 million bracket.

So what’s next for the firm? Silver told us that they are talking with other corporations with differing amounts of investment needs. Through managed accounts, TEA is matching the right investment with the right investor. With TEA in the market offering a new supply, solar can be hopeful that other corporations could be looking to deploy tax equity into a market that also offers positive publicity for their brand. In a tax code filled with opportunities to invest in the economy, growing the solar market is a worthy cause for corporations that meet the hurdles of the double bottom line.

By Yann Brandt, December 11th, 2016

SunShot Is Proof That Venture Capital Is Missing Out

SunShot Is Proof That Venture Capital Is Missing Out

By Yann Brandt, Managing Editor of SolarWakeup

photo 2On a day when the Wall Street Journal sings the praise of how much capital is flowing to solar companies like SunRun and Sungevity, Minh Le, director of the Solar Energy Technologies Office, stands before a group of over 800 participants of the SunShot Summit. As the Department of Energy helps solar companies across the country cross the proverbial valley of death, the success rate is remarkably high. So high in fact, it appears that the data is showing venture capital that early stage solar makes financial sense.

$1.8 billion dollars of direct corporate investment for SunShot award winners is the statistic and that does not include the project finance capital used to invest in projects which brings the total to over $3 billion. Regardless of the success of SunShot, there is little doubt that investors are not doing early stage investing in the space. A fact clearly pointed out by Rob Day of Black Coral Capital in his recent piece. Rob knows what he is talking about; his twitter handle is @cleantechvc.

Let’s point out the reasons that SunShot is having success and why there is much more room for VCs to participate in this market. Having the private market replacing the Department of Energy is a reality that top brass at SunShot are hoping for, they do not, in fact, want SunShot to be the early stage investor in the space if the private market is willing to take over.

photo 5SunShot has a public goal of bringing solar costs to $0.06 per kWh, which according to the recent procurement by Austin Energy of $0.05 per kWh is already happening but not for the everyday market. The goal is listed as 60% accomplished and the outlined path includes many different parts of the market, creating investment opportunities for all types of venture capitalists.

photo 6Solar is a huge market, growing 10x since 2009. It also retains many inefficiencies in the soft cost side of the development structure. An important factor since many VCs look at solar as a sector where they took a beating in the past investing billions in big manufacturing plants. Soft cost inefficiencies are addressable by “3 founders and an iPhone app” according to one panelist at the summit, meaning it is not a capital intensive endeavor. The appetite for soft cost reduction is also there as companies continue to partner and acquire whenever possible.

photo 3Soft costs represent 64% of the cost structure according to the SunShot team and that is the opportunity the market with the help of venture capital could and should address. SunShot is accepting approximately 5% of applicants, lower than Harvard but higher than current VC investment in the space. With $1.8 billion in follow on investment, a SunShot syndicate portfolio would surely represent a healthy return to VC limited partners. In simple terms, SunShot says the private investment has been $18 for every $1 of their public investment. Let’s assume a conservative $3.6 billion in valuations (aggregate) and the return to a $100 million ‘fund’ would be quite 7

The success rate is proven by the SunShot experiment. Can the investment community look at solar, particularly very early stage, as a valley of opportunity instead of the proverbial valley of death. SunShot is doing its part to de-risk but we cannot expect that to last forever.