Elon Musk’s Latest Innovation: Bonds Backed by Rooftop Solar Power

We all know that Elon Musk is one of the world’s great innovators. The South African-born developer of PayPal, and current CEO of both Telsa Motors and Spacex may well be a legend in his own time. In 1992, he dropped out of a Ph.D program in Physics at Stanford to pursue entrepreneurial aspirations in the Internet, space exploration and renewable energy. To date, he has achieved major successes in two out of three.

And now, as the Chairman of SolarCity, he might have achieved a Triple Crown. The solar installation company has just become the first of its kind to offer bonds backed by rooftop solar panels.

This financial innovation will allow solar companies to move away from becoming manufacturers and distributors of solar equipment, into energy companies, selling solar power as a service to their customers. The move is reminiscent of the move Xerox Corporation made back in the 60s, when they moved from selling copiers to selling copies by the click through leasing arrangements. The move proved to be critical to the company’s long-standing success.

SolarCity sold $54.4 million worth of bonds last week based on the 68,000 contracts they currently hold. Bloomberg states that the company might raise an additional $200 million early next year.

Despite the fact that the company turned profitable last quarter, that hasn’t stopped Senator Jeff Sessions, R-Alabama and Fox News from trying to draw parallels with Solyndra based on the fact that both companies received solar stimulus money and both had ties to the Obama administration. However, while plummeting solar panel prices coming in from China led to Solyndra’s downfall, that same drop in prices has done much to bolster SolarCity's business.

Much has been made over the threat that the increasing popularity of rooftop solar panels poses to the utility industry. Free solar power has been compared to music being downloaded from the internet, bypassing the traditional sales channels.

There is a need to recognize and provide appropriate compensation for the value and services being provided by all the players in this increasingly complex game. New business models need to be developed, something that Rocky Mountain Institute’s eLab is looking into.

This latest move on the part of the solar industry, to raise money by issuing bonds the way that utilities have traditionally done, throws yet another wrinkle into this game. It could be viewed as a coming-of-age for the solar industry. Fast Company called it, “an important validation for the solar industry.”

SolarCity keeps emphasizing to investors the inherent stability of long-term solar contracts. “We’re continually educating the financial world on the quality and predictability of 20-year contracts where the sunshine is free,” said Bob Kelly, SolarCity’s CFO.

The solar bonds are rated BBB+ by Standard & Poor’s, the third-lowest investment grade. They have a 4.8 percent interest rate and will mature in December 2026.

The idea of packaging a series of payment obligations into securities is, of course, not new and has been very problematic in unstable markets such as housing. But sunshine is fairly constant and one would hope that it would not become the subject of speculation or manipulation.

[Image credit: Hey! Sam!!: Flickr Creative Commons]

RP Siegel, PE, is an inventor, consultant and author. He co-wrote the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water in an exciting and entertaining romp that is currently being adapted for the big screen. Now available on Kindle.

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