SolarCity’s initial funding
Initially, SolarCity (SCTY) raised funds through the issue of warrants to investors on preferred stock. The company also raised capital through a variety of investment funds such as joint ventures, lease pass-throughs, and sale-leaseback structures.
As of December 31, 2015, SolarCity had entered into 46 financing funds, which contained a total of $657.7 million of undrawn committed capital. Investment funds are popular among downstream solar companies like SolarCity, Vivint Solar (VSLR), Sunrun (RUN), and SunPower (SPWR).
In a joint venture, the company and fund investors contribute funds to acquire solar energy systems and to lease the acquired solar systems to customers. Initially, the fund investor will receive the majority of the proceeds from customer payments, incentives, investment tax credits, and benefits associated with accelerated tax depreciation of the funds’ assets. Once the investor receives its contractual rate of return, the company receives the proceeds associated with the funds’ assets.
Lease pass-through structures
In a lease pass-through structure, SolarCity leases solar (TAN) energy systems to fund investors and receives significant upfront payments. Fund investors, in turn, sublease these solar systems to customers.
Unlike in a joint venture fund, in a lease pass-through structure, SolarCity can receive some or all benefits associated with accelerated depreciation and solar incentives. But fund investors will receive proceeds from customer payments and investment tax credits for the entire duration of the lease term. After the lease term, SolarCity receives the remaining customer payments, if any.
Under a sale-leaseback structure, SolarCity receives funds through the sale of solar energy systems to investors. After the sale, SolarCity leases back these solar systems from investors and then subleases them to customers. Depending on the leaseback agreement, SolarCity receives lease payments and incentives associated with solar systems, and in turn, it makes leaseback payments to fund investors. Fund investors also receive customer payments after the lease term, if any.
We should note that investors receive investment tax credits and benefits associated with accelerated depreciation during the lease term. But SolarCity can purchase the solar systems from fund investors at the end of the lease term. Apart from that, SolarCity has also raised funds through the issuance of solar bonds, convertible notes, and asset-backed securitization schemes.
Continue to the next part for a look at SolarCity’s initial acquisitions.