Australasia's structured finance markets could soon adopt a new asset class if an innovative privately placed solar asset-backed securitisation leads to similar public offerings.
BlackRock-owned and Auckland-headquartered solar developer SolarZero in July raised NZ$195m (US$109m) from the first securitisation backed by New Zealand residential solar energy installations.
Societe Generale was arranger of the ABS, which benefited from a credit enhanced structure provided through the Solar Finance Programme of state-owned New Zealand Green Investment Finance.
The deal was split into a customer series, backed by residential customer contracts, and a battery series that will support SolarZero's development of "virtual power plants", a scheme where thousands of home batteries can be aggregated to feed electricity into the national grid during potential emergencies.
The issuer said the split helped attract a broader range of investors, with the customer series appealing to traditional ABS investors and the battery series to "more ambitious and outcome oriented investors, such as NZGIF".
SolarZero said the ABS trust would be used to finance new customer installations and facilitate long-term debt refinancings with other investors.
A solar securitisation bundles together a portfolio of solar-related receivables, ie, loans or leases, originated by a solar energy company into asset-backed securities that can be sold to investors.
Around US$25bn of public solar ABS has been issued so far, all in the US and mostly over the past five years, according to Societe Generale.
In Europe, Spain's Perfecta Energia and Germany's Enpal have signed solar ABS warehouse deals, laying the groundwork for potential future public securitisations.
SolarZero is the clear leader in a fragmented New Zealand residential solar market, so it would be the natural issuer of the inaugural public ABS deal.
“ABS makes sense for solar because the asset pool has relatively low values and high diversification across many households who own their own properties, thereby providing a strong credit floor for the product,” said Richard McClew, a structured capital markets banker at ANZ Bank New Zealand.
“New Zealand does struggle with scale, however, with market penetration for residential solar still relatively low at present, resulting in a rather limited number of assets available to securitise.”
Beyond solar-backed ABS, McClew sees auto-backed securitisations as the next subset most likely to issue in the green format, citing Australia’s first such deal in May.
Fleet Partners issued the A$400m (US$275m) FP Turbo Series 2024-1 Trust ABS, which included a A$75m senior green tranche backed by a pool of battery/electrical vehicles.
The Kiwi structured finance market could do with a lift having raised just NZ$1.17bn this year, from two auto-backed and three credit card-backed deals, as RMBS supply ground to a halt.
Australian potential
Across the Tasman Sea, sun-kissed Australia offers far greater potential for solar-backed securitisations, especially in light of the huge growth in domestic solar panels over recent years.
Whereas only 3% of New Zealand households have solar distributed installations, according to the country's Electricity Authority, more than one-third of all Australian households and small businesses now use rooftop solar photovoltaic systems, Clean Energy Australia reported.
Indeed, in energy capacity terms, Australia now has more rooftop solar power than coal-fired power, said Clean Energy Australia.
It would not be a huge step to issue solar energy-only securitisations since Brighte Capital, Plenti and Humm Group, formerly Flexigroup, have already sold Australian dollar ABS that included green tranches backed wholly or partly by solar energy-related receivables.
In June, Firstmac privately placed the A$1.2bn prime RMBS Firstmac Trust No 4 Series 2024-3PP with a A$306m Class A1-G note that satisfies the Climate Bonds Initiative Rooftop Solar Proxy criteria.
A Sydney DCM manager sees solar-backed ABS as a viable proposition, which would benefit from pent-up demand from green-focused credit investors.
"Semi governments and SSAs have dominated green and sustainability bond issuance of late, which is fine for rates investors but not for credit investors who have seen a drop-off in ESG-related FIG and corporate bond supply," he said.
An Australian solar ABS market, backed by solar panel loans of around five-years, would be easier to structure and market than a New Zealand securitisation where there is wider use of power purchase agreements that typically range from 10 to 25 years, McClew believes.
A solar PPA is a financial agreement whereby a developer arranges for the design, permitting, financing and installation of a solar energy system on a customer’s property.
The developer then remains responsible for the operation and maintenance of the system for the duration of the agreement.