Commercial Banks, Credit Tightening, and Interest Rate Effects on Solar Development, an Opportunity for Specialty Lenders

April 26, 2023

“We are certainly at an interesting point in the maturation of the solar development market, not to mention the economic cycle,” states Taimur Jamil, chief investment officer of Sol-REIT, a structured finance firm dedicated to solar projects.  

2023 was supposed to be a watershed moment for the solar industry considering the alignment of policy in the form of the IRA and the restoration of the global supply chain. Yet, the macroeconomic environment isn’t quite cooperating, particularly for the solar developers and EPCs (engineering, procurement, and construction firms), who build the projects that are fueling our energy transition. Following years of increasing access to capital from commercial banks, credit for project finance of all varieties is tightening.  

“Roadblocks to solar development are not uncommon, but rising interest rates and market warnings in the form of the failure of climate friendly Silicon Valley Bank, have necessarily shifted the focus of depository institutions to reserve and conserve capital,” suggested Jamil. “Meanwhile, we’re set up to efficiently deliver capital to Solar developers and EPCs in a way that allows them to build a portfolio and own their projects long term; that value proposition is now two-fold attractive as banks constrict lending.”

Sol-REIT provides 100% construction to permanent lending for projects at NTP (notice to proceed). Typical commercial banks will lend against these projects as well, but they’ll only finance a maximum of 80% of a project costs, leaving developers to find mezzanine financing or equity financing that dilutes their ownership.

With SolarC2PTM, solar developers and EPC firms are ready to construct right away and their permanent loan and tax equity are aligned for the long-term. They have ease of execution and are set from NTP to own this project through commercial operation and beyond, allowing them to capture the value they create as opposed to selling projects at NTP and continuing a cycle of leaving value on the table.