Bank of America (NYSE:BAC)
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Bank of America Corp. (BAC) and solar-panel installer SolarCity said they are moving ahead with a $1 billion rooftop solar project on military housing, despite having missed out on a federal loan guarantee.
The companies announced the project in September, with high hopes that the U.S. Department of Energy would provide a loan guarantee to back $344 million in loans that BofA's Merrill Lynch unit and private equity firm U.S. Renewables Group had agreed to provide. But the Energy Department wasn't able to finalize the loan guarantee before a Sept. 30 deadline to close such transactions.
Under the new agreement, BofA Merrill will provide $350 million in loans. SolarCity said it plans to raise at least $650 million from other investors to build out the entire project, although the company didn't provide details.
The Energy Department has been under increasing scrutiny following the September bankruptcy of solar-panel maker Solyndra Inc., which obtained a $535 million loan guarantee and a $527 million government loan to build a factory in Fremont, Calif. A second company, Beacon Power, filed for bankruptcy in October after obtaining a $43 million loan guarantee to build an energy-storage facility in New York state. Both the White House and House Republicans have been conducting separate reviews of the program, through which the Energy Department has issued loans and loan guarantees for $40 billion in clean-energy projects.
SolarCity, of San Mateo, Calif., plans to install solar panels on the roofs of as many as 120,000 privately-owned homes on U.S. military bases across the U.S., to generate up to 300 megawatts of electricity, the company said. The company expects the project to create thousands of temporary and full-time construction and other jobs, primarily for veterans and military family members.
BofA Merrill is also the lender for $1.4 billion in loans for a similar solar project being developed by NRG Energy Inc. (NRG) and Prologis Inc. (PLD) that obtained a government loan guarantee.
The loan guarantee program was crucial for both solar deals, even though the SolarCity project didn't get a guarantee, said Jonathan Plowe, head of new energy and infrastructure solutions at BofA Merrill.
"A year ago, it wasn't possible to achieve large-scale debt financing for distributed solar generation," Plowe said in an interview. "We feel this is a giant leap forward for distributed solar generation."
The DOE put "a great degree of rigor and scrutiny" into the SolarCity project, and the loan guarantee application process yielded standardized documents and processes that helped form the basis for making the SolarCity loan, he said.
Debt financing is less costly for developers than other forms of financing they have had to use, such as equity financing, Plowe said. BofA Merrill's large debt financings for the rooftop solar projects pave the way for other developers to raise capital in the same way, even for smaller projects, he said.
SolarCity said it plans to partner with private military housing developers to install, own and operate the rooftop solar systems, and sell the electricity to military families living in the homes, at lower prices than they are currently paying their local utility.
SolarCity will be able to use federal tax credits equal to 30% of the cost of a solar-power project.
"The fact that [the project] can move forward without a federal loan guarantee is a clear indication that long-term incentives such as the investment tax credit are working," said SolarCity Chief Executive Lyndon Rive.
Rive said SolarCity has already started construction on the first project, on military housing at Joint Base Pearl Harbor-Hickam near Honolulu.
U.S. Renewables Group served as financial advisor for the project.
-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; firstname.lastname@example.org