Renewable energy-related asset securitization has been gaining a lot of traction lately as a number of key stakeholders from both the private and public sectors have been stepping up their collaborative efforts (including NREL’s finance team). To help frame the discussion and facilitate the creation of ratings-quality renewable energy asset pools, Standard and Poor’s (S&P) rating agency has recently produced high-level guidance on various possible risk factors in the potential securitization of renewable energy assets, cash flows, or loans.
An opinion paper published by S&P earlier this year titled, “Will Securitization Help Fuel The U.S. Solar Power Industry?” (accessible here) focused on a number of risks associated with the securitization of future solar lease or power purchase agreement (PPA) payments. Like mortgages, in order for S&P to adequately assess the credit risk associated with these cash flow-based securities, payment default risks must be understood and reasonably quantified. From S&P’s perspective, much of this payment default risk can be attributed to system performance, of which there is not an adequate amount of historical information that ensures solar panel performance is maintained over the full length of most 20-year PPA and lease cash flow agreements.