Solar-Backed Bond Opens New Path for Renewable-Energy Financing

  • China raised $152 million in solar asset-backed securities
  • Securities are backed by 200 megawatts of solar farms

About seven months ago, a unit of Shenzhen Energy Group Co. started looking for ways to find new sources of capital for solar plants that wouldn’t compete for cash with its parent company’s hydro and coal projects. The answer was a new kind of security and a first for China.

A unit of the company called Shenneng Nanjing Energy Holding Co. raised 1 billion yuan ($152 million) last month by selling the nation’s first securities backed by solar farms. It required the parent company to become a guarantor of the securities and executives to persuade banks and insurance companies that “cash flows generated by solar farms in the long run can help repay,” said the unit’s managing director Li Zhong.

The comments shed light on the inventive ways companies in renewable energy are choosing to raise money at a time when stock markets worldwide and particularly in China are wobbling, shutting off traditional equity investments.

The funding Shenneng Nanjing obtained is linked to solar farms with about 200 megawatts in capacity and equivalent to 55 percent of total investments it’s making in the technology, Li said in an interview in Zhengzhou city in China’s central province of Henan. 

Biggest Market

China’s push to boost clean energy has made it the world’s biggest market for solar power and home to most of the biggest photovoltaic panel makers. It’s also spurred developers including China Longyuan Power Group Corp. and GCL New Energy Holdings Ltd. to build their own solar farms, requiring access to capital to execute deals.

Applying the asset backed securities, or ABS, to more solar projects would help the industry overcome one of its biggest challenges -- to tap capital as some of the companies in the industry file for bankruptcy, including Suntech Power Holdings Co. and LDK Solar Co.

Shenzhen Energy’s deal is important because it “laid out a pathway to a bigger ABS market backed by renewable energy assets,” said Nick Duan, an analyst for Bloomberg New Energy Finance in Beijing. 

China last year issued 593 billion yuan of ABS products, up 79 percent from a year earlier, according to the China Central Depository & Clearing Co.

Shenneng Nanjing will pay interest of about 3.6 percent to 4.5 percent annually for the securities, which have various maturities of as much as five years, underwriter BOC International (China) Ltd. said on its official WeChat social media account. The highest interest rate applied to the solar ABS is below the central bank’s benchmark rate of 4.75 percent for borrowings of as much as five years.

Creditor Confidence

Others may follow if they can maintain the confidence of their creditors,  Li said.

“An ABS takes about three to six months to issue, which is still a bit more time consuming than securing financing from banks, and its costs need to be determined case by case,” said Xue Jiancong, director of public relations at China Merchants New Energy Group Ltd. Even so, the securities can be a tool to refinance existing debt, he said.

One problem is it’s difficult to predict cash flows from solar farms in China, since developers are suffering delays in subsidy payments and the grid is having trouble absorbing electricity generated from some plants, said Duan at BNEF.

Subsidy Delays

Shenneng Nanjing’s products were designed to cope with subsidy delays by keeping repayments lower earlier in the term and then raising them as time passes, Li said. 

The company currently focuses on projects in regions of Jiangsu, Anhui, Shandong and Henan and plans to develop new projects in Jiangxi, Hunan and Hubei in the future. These regions are suffering fewer grid constraints.

Shenneng Nanjing is operating about 100 megawatts of wind farms and 400 megawatts of solar-power projects. It plans to raise its renewable energy capacity by about 50 percent this year, he said.

— With assistance by Feifei Shen

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