San Francisco startup Renewable Energy Trust Capital Inc. may become the first firm allowed to raise money for solar-powered projects, depending on a ruling from the US Internal Revenue Service to classify solar farms as property that is included in real estate investment trusts (REITs).
REITs are a financial vehicle that has been used in $640 billion worth of US property ventures across the country, typically for developing commercial properties. According to data compiled by Bloomberg, 208 US REITs returned an average of 28 percent in 2012. Applying REITs towards photovoltaic power could significantly impact the industry.
“REITs will significantly reduce the financing cost of solar energy projects and with it, the overall cost of solar electricity,” Felix Mormann of Stanford University's Law School (Steyer-Taylor Center for Energy Policy & Finance) told Bloomberg. “They will bring the solar industry a big step closer to subsidy independence.”
The format of REITs has evolved over time to assist industries that are both tangible assets and generate steady income over the long term—a description that solar power plants fit under, according to Renewable Energy Trust. Applying REITs to the industry would make it easier for investors to get involved with renewable energy generation, while providing the industry access to large pools of low-cost capital.
“There’s no practical way for individuals to vote with their dollars and invest in solar power generation,” Christina Fong, Renewabe Energy Trust's CEO, told Bloomberg. “A solar REIT would, for the very first time, give them a way to do that.”
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A final decision on solar REITs is expected to be made this month. At least 26 members of Congress are reportedly backing the minor change to the federal tax code at a time when the solar industry needs about $6.9 billion a year.
“High financing costs are well recognized in the industry as a barrier to growth,” Stefan Linder, an analyst with New Energy Finance, told Bloomberg. “Any structures that allow a wider investor base to get involved, increases liquidity, or lower taxes would be beneficial.”