SolarCity, which earlier this summer said its lenders were holding back as Tesla Motors moved to buy the rooftop solar installer, has raised $305 million that will help fund future projects, the company said Monday.
The two-pronged financing deal will help provide SolarCity with some of the capital it needs to fund its rooftop solar installations, which in most cases are sold to customers with no upfront costs. That means SolarCity has to constantly raise money to cover the cost of installing those systems, which can run close to $30,000.
In the latest round of financing, a private equity fund affiliated with Quantum Strategic Partners Ltd. made an equity investment in some of the solar energy projects that SolarCity already has installed. Quantum was advised by a firm run by investor George Soros.
The financing also includes an 18-year loan arranged through a syndicate of five institutional investors.
The funding will be backed by the payments that SolarCity’s customers make on a portfolio of 230-megawatts of solar generation projects, spread across 15 states. The projects include a range of residential, commercial and industrial installations that mostly were completed in 2015 and 2016.
SolarCity said the latest financing has a cost of capital of 7.4 percent, which it said was “a significant improvement” over the financing costs from its first cash-equity financing deal in May. Analysts estimated that SolarCity’s cost of capital in the first deal was around 8 percent.
The financing is important because SolarCity gets much of its business by installing solar power systems on the roofs of residential customers who don’t pay any upfront costs, which means SolarCity has to cover the roughly $30,000 that a typical solar array costs. Instead, the consumers sign deals requiring them to make regular monthly payments to SolarCity for the power that those solar arrays generate. Those payments usually are for less than what the customer would pay their local utility.
That business model forces SolarCity to continually raise hundreds of millions of dollars from investors so it can front the costs of the roughly 950 megawatts of solar generating capacity that it expects to install this year.
In the latest financing, SolarCity is raising new capital by linking the loan to the payments that it will receive from those 230 megawatts of projects in the future. Quantum will receive the various tax credits, tax equity and rebates associated with the installation.
In its first cash equity deal, the entire package was sold to a single investor, John Hancock Financial. In the latest, SolarCity split the loan payments and tax equity among two different investors, which the company said allowed it to lower its financing costs.