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Securitization of residential solar photovoltaic assets: Costs, risks and uncertainty

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  • Alafita, T.
  • Pearce, J.M.

Abstract

Limited access to low-cost financing is an impediment to high-velocity technological diffusion and high grid penetration of solar photovoltaic (PV) technology. Securitization of solar assets provides a potential solution to this problem. This paper assesses the viability of solar asset-backed securities (ABS) as a lower cost financing mechanism and identifies policies that could facilitate implementation of securitization. First, traditional solar financing is examined to provide a baseline for cost comparisons. Next, the securitization process is modeled. The model enables identification of several junctures at which risk and uncertainty influence costs. Next, parameter values are assigned and used to generate cost estimates. Results show that, under reasonable assumptions, securitization of solar power purchase agreements (PPA) can significantly reduce project financing costs, suggesting that securitization is a viable mechanism for improving the financing of PV projects. The clear impediment to the successful launch of a solar ABS is measuring and understanding the riskiness of underlying assets. This study identifies three classes of policy intervention that lower the cost of ABS by reducing risk or by improving the measurement of risk: (i) standardization of contracts and the contracting process, (ii) improved access to contract and equipment performance data, and (iii) geographic diversification.

Suggested Citation

  • Alafita, T. & Pearce, J.M., 2014. "Securitization of residential solar photovoltaic assets: Costs, risks and uncertainty," Energy Policy, Elsevier, vol. 67(C), pages 488-498.
  • Handle: RePEc:eee:enepol:v:67:y:2014:i:c:p:488-498
    DOI: 10.1016/j.enpol.2013.12.045
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Overholm, Harald, 2015. "Spreading the rooftop revolution: What policies enable solar-as-a-service?," Energy Policy, Elsevier, vol. 84(C), pages 69-79.
    2. Mundada, Aishwarya S. & Prehoda, Emily W. & Pearce, Joshua M., 2017. "U.S. market for solar photovoltaic plug-and-play systems," Renewable Energy, Elsevier, vol. 103(C), pages 255-264.
    3. Dinesh, Harshavardhan & Pearce, Joshua M., 2016. "The potential of agrivoltaic systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 299-308.
    4. Ng, Thiam Hee & Tao, Jacqueline Yujia, 2016. "Bond financing for renewable energy in Asia," Energy Policy, Elsevier, vol. 95(C), pages 509-517.
    5. repec:eee:renene:v:109:y:2017:i:c:p:422-433 is not listed on IDEAS
    6. Blyth, William & McCarthy, Rory & Gross, Robert, 2015. "Financing the UK power sector: Is the money available?," Energy Policy, Elsevier, vol. 87(C), pages 607-622.
    7. Heidari, Negin & Pearce, Joshua M., 2016. "A review of greenhouse gas emission liabilities as the value of renewable energy for mitigating lawsuits for climate change related damages," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 899-908.
    8. repec:eee:rensus:v:80:y:2017:i:c:p:125-132 is not listed on IDEAS
    9. Farooquee, Arsalan Ali & Shrimali, Gireesh, 2016. "Making renewable energy competitive in India: Reducing financing costs via a government-sponsored hedging facility," Energy Policy, Elsevier, vol. 95(C), pages 518-528.
    10. Thiam Hee Ng, . "Bond Financing for Renewable Energy in Asia," Chapters, Economic Research Institute for ASEAN and East Asia (ERIA).
    11. Kayser, Dirk, 2016. "Solar photovoltaic projects in China: High investment risks and the need for institutional response," Applied Energy, Elsevier, vol. 174(C), pages 144-152.
    12. repec:eee:enepol:v:108:y:2017:i:c:p:657-672 is not listed on IDEAS
    13. Srinivasan, Sunderasan & Reddy, Vamshi Krishna, 2016. "Towards a better understanding of renewable energy YieldCos," Renewable and Sustainable Energy Reviews, Elsevier, vol. 65(C), pages 154-163.

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