Sunday, December 3, 2023

Green fund pours $80m into SolarZero

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Largest ever investment made by NZ Green Investment Fund.
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Blackrock-owned New Zealand solar power company solarZero is the target for the largest-ever investment to be made by the government’s NZ Green Investment Fund.

NZGIF is placing $80 million of its capital alongside $90m from two international investors, Sydney-based First Sentier Investors and Paris-headquartered global funds manager Natixis, to create a new investment-grade class of certified lending for solar electricity installations.

The whole $170m raised will allow Auckland-based solarZero to refinance existing debt, with a view to further such financing to match the firm’s fast-growing business to the 20-year lifespan of the contracts it writes with its customers, solarZero chief executive Matt Ward said.

“We are currently deploying about $10 million a month” equating to about 400 domestic rooftop solar and battery kits valued at $25,000 apiece, said Ward. That has grown from about 200 installations a month two years ago, and the company could see capital needs well beyond the runway created by the NZGIF funding.

SolarZero has operated in the NZ market for more than 20 years and sold to global investor BlackRock Investments last year; it had been working with NZGIF on the newly announced structure long before the BlackRock sale occurred.

BlackRock announced recently it was seeking participants for a $2 billion NZ decarbonisation fund.

SolarZero took the top award for innovation at the Energy Excellence Awards in Christchurch earlier this month for its novel business model for making solar power affordable for households.

The company differs from other retailers of solar electricity in that it funds and continues to own the solar installations while charging customers a fee intended to be lower than an average monthly power bill. 

This asset ownership model was a key element in being able to structure an investment-grade offering for private investors to back the NZGIF bond initiative, the fund’s chief executive, Jason Patrick, said.

SolarZero also generates revenue by aggregating the electricity stored in rooftop solar systems’ batteries around the country to sell back into the national grid at times of high demand when wholesale power prices are spiking.

The company gained funding from the government’s decarbonisation research agency, Ara Ake, to pilot this system, known as a virtual power plant (VPP), over the course of this winter.

The VPP is capable of fulfilling the same role as a gas-fired fast-start peaker plant, except that it generates no greenhouse gas emissions and offers instant energy, whereas a gas peaker needs time to fire up. 

Electricity market participants pay both a fee for access to the VPP’s output and the going rate for electricity that it produces when needed.

The NZGIF announcement characterised the agreement as “initially” financing the country’s “largest residential PPA [power purchase agreement] portfolio”, managed by solarZero – in effect, the VPP structure.

Ward cited commercial confidentiality on the interest rate that SolarZero will pay on its replacement debt finance via NZGIF but said there are advantages in having long-term arrangements locked in on terms that allow the firm to amortise debt across the lifetime of a solar rooftop installation contract.

“Replacing short-term floating rate debt with longer-term fixed rate options will allow New Zealand solar providers to be able to access the NZGIF Solar Finance programme soon,” Patrick said.

SolarZero is “the first beneficiary of the scheme”, he said.

NZGIF last week announced $15m in debt funding for another solar firm, LightYears Solar, to build small-scale, on-farm solar production capacity that could feed into local electricity networks without needing to be connected to the national grid.

In July, it announced a $15m working capital facility for commercial-scale solar farm provider Lodestone Energy.

NZGIF has more than $700m in total funds and has invested a little more than $400m so far. It targets partnerships with private sector initiatives and funding sources to accelerate decarbonisation investment in NZ.

The NZGIF announcement coincided with the Labour party announcing a policy that promises a $4000 rebate for solar installations: $2000 off the cost of the rooftop solar array and $2000 off the cost of a battery, lowering the cost of panels and battery for a typical home installation from about $25,000 to about $21,000.

The funds raised under the latest NZGIF initiative are certified under the Climate Bonds Initiative, a scheme used internationally “to provide confidence that investments are consistent with what we must do to address the climate emergency”, Climate Bonds Initiative chief executive Sean Kidney said.

Natixis Asia Pacific head of private debt real assets, Angus Davidson, said: “Distributed renewables and storage are compelling markets, particularly in NZ.”

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