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SolarCity Offers Bonds, Wants Everybody To Invest In Solar

This article is more than 9 years old.

SolarCity on Wednesday announced a direct sale of $200 million in bonds through its own online portal, an offering that targets consumers rather than institutional or accredited investors.

SolarCity executives made it known in January this year that they planned to roll out a website to allow investors to buy securities.  The company bought Common Assets for an undisclosed sum in December last year because it wanted to use a newly developed online tool by Common Assets to match investors with renewable energy project developers. The initial plan was to have the website up and running by June.

The bond offering is SolarCity's effort to tap into a group of investors it couldn't reach before. The company makes money by selling long-term solar energy contracts of 15 to 20 years to home and business owners, who pay for the electricity generated from their rooftop solar panels. They don't pay for the upfront equipment and installation cost, which is financed by funds SolarCity raises from banks and corporate investors.

Figuring out ways to raise more money to finance its expansion is key to SolarCity's growth. The company completed the industry's first securitization of rooftop solar assets in November 2013 and has done two more since.

This direct-to-consumer bond offering that started today is the first for SolarCity. The pitch is to make solar investment opportunities available to the masses, not just the institutional investors.

"The goal is to bring similar financing to average Americans," said Lyndon Rive, CEO of SolarCity. "We want to create more wins for people to learn about making money and saving money in solar."

Though the concept isn't new, the vast majority of SolarCity's competitors haven't done it. Except Mosaic, a private California company founded in 2010 that rolled out a similar investment opportunity to the public in January 2013 after doing a trial run. The company doesn't install projects like SolarCity does, however. Instead, it raises money from the public to loan money to project developers.

Mosaic won a lot of attention by describing its effort as solar crowd-funding, which appeals to those who not only support clean energy but also the idea of helping a startup reach what could otherwise be an unattainable goal. The company has since been courting institutional investors in order to grow and moved into the residential solar market. That move also set it up to compete with SolarCity, which is the largest residential solar installer in the country.

SolarCity is offering bonds that will mature in 1, 2, 3 or 7 years, with interest rates ranging from 2% to 4%. Any U.S. citizen with a domestic bank account are eligible to buy the bonds (you have to be in the U.S. to complete the transaction). The minimum purchase is $1,000, a threshold that is similar to other financial products such as savings accounts, CDs and municipal bonds, said Tim Newell, vice president of financial products at SolarCity.

Since SolarCity started offering the bonds this morning, it's seen investments ranging from $1,000 to tens of thousands of dollars per transaction, Newell said.

When Mosaic first launched its investment tool, it was offering 4.5% to 7% returns over 5-10 years. The company raised money for individual solar power projects, which it highlighted on its website, and those projects were located at businesses, nonprofits and affordable housing.

It's doing the same crowd-funding model for its move into residential solar and announced in July a plan to raise $100 million. The returns would range from 5% to 10%, said Bruce Ledesma, Mosaic's chief operational officer, at the time.

Asked about its competition with Mosaic for investors, SolarCity executives said that their company's scale — it's lined up $3 billion worth of contract payments over the next 20 years — should offer more assurance to investors that they will get the promised returns. Newell added that the bond offers better returns than many CDs, savings accounts and municipal bonds these days.

Newell wouldn't say how often SolarCity would like to roll out new bonds, but he noted that the company would like to "be issuing on a relatively continuing basis." Proceeds from the bonds will fund the company's general operation, which includes sales, marketing, installation and maintenance of solar electric systems in 15 states.

Whether SolarCity could popularize the solar bonds remains to be seen, given that the offering is new. It's prohibited by law from using its sales force to market the bond.