SolarCity, whose stocks are traded on NASDAQ, operates in the area of installation and deployment of energy efficiency products and services. It is the biggest firm in the US operating in residential solar systems solutions alongside Sungevity and Vivint Solar.
SolarCity generates money primarily through the sale of long-term contracts (typically 30 years). The American Recovery and Reinvestment Tax Act (ARRTA) program is also a huge contributor to renewable energy companies. In line with ARRTA, companies sector may be awarded up to 30 percent of a project’s total eligible cost.
Another important way to generate income for SolarCity is raising money through banks and financial institutions. In its SEC registration statement, SolarCity stated that it was able to raise $1.57 billion as of the filing date, October 5, 2012. SolarCity uses means such as entering into revolving credit agreements, issuing senior convertible notes, and securitization. For example, SolarCity’s first securitization helped raise $54.23 million, and the company has done two more securitizations since.
In order to sustain its ever-expanding investments, SolarCity is planning to raise another $200 million by offering bonds to the public. It should be emphasized that although the concept of direct-to-consumer offering is not original to the company, it remains highly innovative. The first direct-to-consumer offering in the solar energy sector was made by Mosaic.
Issuing bonds is a complex and lengthy procedure. It includes financial analysis of the issuing company, governmental filings, market research, determining the term/return ratio, assessing the risks of a bankruptcy and so forth. Many bonds have a fixed rate of interest to be paid either at the end of their maturity or throughout their term. There are also floating (or “floater,” as widely known) bonds whose interest rate floats depending on the market interest rates. The rate on those bonds is not fixed, but instead based on a benchmark such as U.S. Treasury bills, the London Interbank Offered Rate (LIBOR) or the Prime Rate. The bonds issued by SolarCity are named zero-coupon bonds as they do not make any periodic payments but make a single, lump sum payment at the end of the maturity term.
SolarCity’s offering and participation requirements were announced in a press release made on October 15, 2014:
“Solar bonds will be available online through SolarCity’s investment site to all U.S. investors who are at least 18 years old and meet SolarCity’s eligibility requirements, with no fees for purchase. Investors will be able to purchase solar bonds for as little as $1,000, with maturities ranging from one year to seven years and interest rates of up to 4 percent.”
SolarCity Corp. Issues Bonds To Raise Money For More Clean Energy (PDF)