Financing Issues in Ontario’s Commercial Rooftop Market

As the market is awaiting a new batch of commercial rooftop photovoltaic (PV) contracts from the Ontario Power Authority, it has become clear that financing these projects is a challenge.  Peculiarities of the Ontario PV marketplace mean that lending and financing options may be limited for less experienced players.  ClearSky Advisors has recently interviewed dozens of project owners and found that the emerging second-hand market for commercial rooftop projects may be the primary solution for developers in need of financing.

Typically, commercial rooftop projects have an all-in cost of $1M- $3M – a size that is too small for project finance, but also one for which most Canadian commercial banks do not currently offer competitively priced non-recourse debt. As many project developers are new to the game and with a great deal of Ontario-made equipment deemed to be non-bankable, commercial PV projects become very complicated and risky from a commercial bank’s perspective; hence the lack of competitive debt products in the market.  Over time, this is expected to change, but perhaps not in time for many of the currently awarded contracts.

However, project owners should not lose hope: the presence of a number of equity investors looking to build portfolios of commercial rooftop projects means that Ontario has an emerging second hand market for commercial rooftop projects. While these equity investors have different profiles, some represent interesting partnership opportunities for project owners that are looking for financing. Investors with collaborative development models can offer significant financing experience, relationships with lenders, unique technology and critical size to project owners that make them credible and worthwhile financing partners.

An ongoing ClearSky Advisors study of Commercial Allocation Exempt (CAE) projects in Ontario with recent Ontario Power Authority (OPA) contracts has revealed that while the majority are self-financing or using their own property as collateral, approximately 37% of project owners are looking for equity investment. From our interviews with over 40 project owners to date, 28.6% are developers who intended to own and operate the projects over the long-term but anticipate difficulty with finding financing and may need to sell all or part of the equity in their projects.  Another 8.6% are developers who have no intention of owning and operating over the long-term and are actively seeking purchasers.

Project owners looking for financing should start thinking about the kind of qualities they are seeking in a partner that would help them monetize their project. Many project owners interviewed by ClearSky Advisors commented that they receive many calls from unqualified suitors.  Some project owners simply want the highest bidder.  Others want a fair price but are more interested in the reputation, experience, and capabilities of the partner.  Project owners must have a very good sense of their needs.

With a number of different types of investors looking to purchase projects, project owners should be able to find a suitable partner when it comes to getting their projects moving – but they may need to part with a significant amount of the equity.  ClearSky Advisors will be monitoring the commercial rooftop market closely in the coming months in order to understand the progress of projects.

Illustration photo by: arenamontanus