PV asset securitization panacea or poison

Polaris solar PV net news: if overused or inappropriately, PV project asset securitization may affect financial markets into even the ticking time bomb of an economy as a whole.

“Financing, financing your” is restricting the sustainable and healthy development of the photovoltaic industry one of the key issues. With capacity excess and grid elimination na of increasingly deterioration, China PV industry of financing short Board further highlights: while, domestic financial institutions General tightened has on PV enterprise of credit financing, loan permission are has recovered to head office, on PV project of loan approval also requirements more of risk mortgage; on the, China PV enterprise of average loan interest rate has over 8%, part enterprise even up to 10%, and outside loan interest rate only for 3%~5%.

Asset securitization is enterprise mobility but future classification reorganization focused on generating stable cash flow and transformation for the sale and distribution of asset securitization process. Relative to other forms of financing, financing of asset-backed securitization financing cycle is short, threshold and low cost, long duration of use of funds, as well as optimizing structure of assets and liabilities and other advantages, so favored by more and more domestic PV manufacturers, many commercial banks also have to test the waters of photovoltaic project asset securitization business.

On March 18, 2016, the first photovoltaic ABS asset securitization products–Shenzhen Nanjing power PV right ABS special (hereinafter “Shenzhen Nanjing special”) listed on the Shenzhen Stock Exchange, opened the prelude of the asset-backed securitization financing of PV power station. Asset securitization is to cure disease medicine PV project finance it? Authors from asset-backed securitization financing PV projects strengths and weaknesses analysis in two ways.

PV project asset securitization financing process

Asset-backed securitization financing PV projects participants include photovoltaic project asset securitization to the original owner (sponsor or project investors), special purpose vehicles (hereinafter “SPV”), credit institutions, credit rating agencies, underwriters, servicers, investors, seven categories.

Core elements include three aspects: first, the true sale, original owner true underlying assets (that is, PV projects right) returns and risk transfer to the SPV. The true sale of assets can be achieved with the original owner of the business risk is completely isolated. Second, bankruptcy was a PV project asset securitization effective internal means of credit enhancement. Includes securitization of assets and bankruptcy of the original rights risk isolation, as well as the underlying asset and the bankruptcy of SPV are two aspects. Third, credit enhancement, original owner through the internal credit enhancement and external credit enhancement methods, improved solar project asset securitization products attractive to investors so as to reduce the cost of financing.

PV project asset securitization financing process as shown in Figure 1.


PV asset securitization: panacea or poison?

The advantages of asset-backed securitization financing PV projects

There is an old Wall Street saying: “If you have a steady stream of cash, its securitisation”. According to 2014 SFC released of securities company and the Fund management company subsidiary assets securities of business management provides (following referred to provides) and Shanghai Securities Exchange of related provides, as based assets of PV project returns right of securities of need meet following conditions: meet legal regulations provides, ownership clear; can produced independent, and can forecast of cash flow; based assets of scale, and acquired term should and assets support securities of scale, and acquired term phase match. In this sense, sustainable, steady, predictable cash flow is the first condition based asset securitization.

Through the PV project cash flow analysis shows that PV projects “looks like” have the basic conditions to carry out assets securitization financing:

First, the sustainability of cash flow, namely photovoltaic project cash flow from operations in the asset securitization products during the term sustainable. Term of operation of PV projects in China for 25 years, according to the documents of the energy Bureau of national development and Reform Commission, tariff and subsidy of the Executive term in principle for 20 years, during which full purchase of photovoltaic projects, wind power generation by grid enterprises. Duration of issuance of asset-backed securitization products in China is generally not more than 10 years, Shenzhen Nanjing special only for the duration of 5 years. Therefore, the duration of securitization products, PV project operation can generate sustainable cash flows.

Secondly, the expected stability of cash flow, duration of PV projects in the asset securitization products generate predictable and stable cash flow. Solar energy resources are prerequisites for photovoltaic projects, one of the primary beneficiaries of the project will be based on weather station near the site of the project data, site data to evaluate solar energy resources, reach a certain rate of return requirements before they can start the project development and investment. Asset securitization and the photovoltaic project has experienced some of the operation test, with relatively good operations and credit records, provide clean electricity for the power grid and the electricity user, the original owner through the investment and operation of the project have made steady gains.

Finally, the predictability of cash flows, namely photovoltaic projects with relatively stable cash flows of history data. According to end of October 2015, released by the national development and Reform Commission on improving onshore wind power, photovoltaic power benchmark price policy notice (hereinafter referred to as the notice), the “2016 category and secondary resources area of PV on-grid price is 0.9 and 0.95 Yuan per kilowatt hour, three types of resources electricity prices in 2016 is 0.98 Yuan/kWh.” Therefore, the PV benefits depends primarily on the PV electricity with photovoltaic technology and operation in our country maturing on, generating capacity during the operating period of the project have been able to accurately predict, power gains can also be effectively recognized and protected.

Disadvantages of asset-backed securitization financing PV projects

As an innovative model of structured finance, asset securitization risks also exist, and since 2008 will deepen the financial crisis has exposed its destructive and dangerous side. If overuse or improper use of assets securitization may affect financial markets into even the ticking time bomb of an economy as a whole. To safeguard the legitimate rights and interests of investors in recent years, the Government regulator began adopted comprehensive laws and strict supervision and management to guide the healthy development of asset securitization.

Strictly speaking, the advantages of asset-backed securitization financing based on economic and market conditions. Consistent with other financing, securitization is natural, such as credit risk, market risk, liquidity risk, operational risk and other risks property, but compared with the other modes of financing, and vary in degree and scope. In addition, the ABS also has some unique risk attributes associated with securitization transactions, such as property rights risks. From this point of view, the asset-backed securitization financing PV projects there are still four areas of disadvantage conditions.

First, cash-flow problems. PV project expressly by the State to ensure the right to return, but closer inspection under, there are still worries. First, price cut concerns. According to the circular, PV project price will be lowered gradually in the subsequent four years, among them, the first class and second class resources area has fallen 3 cents; three resource areas declined 2 cents. Two-fold power problems. Subject to new energy resource center of gravity and load a geographical mismatch, and the status of planning of power systems and power grids, grid-connected PV projects in local areas to dissolve problems domestic story there is substantial improvement in the short term. In 2015, China’s cumulative abandoned photoelectric was 4.65 billion kWh, abandon rate of 12.6%, mainly in the Northwest, where most serious in Gansu and Xinjiang (as shown in Figure 2). Third, equipment problems. Current PV projects in the equipment production, still there is a defect in design, operation and maintenance in the early running after a period the quality of equipment and operations will be increasingly serious problems, resulting in power generation efficiency and output continues to decline, projects earnings below expectations, even the production run.


PV asset securitization: panacea or poison?

Second, compliance problems. According to the requirements of the regulations, photovoltaic projects should be clear ownership of rights in proceeds, the boundary clear, without any form of collateral and liabilities, there is no shared with others, on behalf of another person or in dispute with others, there is no prohibition or restriction of the circulation of the conditions. At present a considerable part of the interests of PV projects in the original human private enterprises and small and medium enterprises, funding demand is strong. Suffers from slower economic growth, abandoning power and scale factors, the financing of these enterprises are facing more and more pressure. In order to meet the project’s development needs, the original owner through mortgages, financing lease, industrial Fund and equity raising means such as early stage financing, which had a great influence on project ownership of rights in proceeds.

Third, the financing problem. The provision does not clearly limited to asset-backed securitization financing, but in General, including dealers, service providers, agencies tend to have a certain degree of financing projects like deep Nanjing special fund-raising total of more than 1 billion yuan. Assumptions price 1, year 2000 hours of sunshine, according to 5-year return in the future to calculate and achieve the goal of single asset securitization products to raise 1 billion yuan, PV projects needs up to 100MW. But apart from the five major power-led State-owned power generation enterprises, domestic PV projects are generally small, mostly at around 10MW or 20MW. 20MW solar project in resource, for example, the annual output of 34 million, annual revenue was only 30.6 million Yuan, it is difficult to dilute higher financing costs of asset securitization.

Finally, financing costs. Asset-backed securitization financing costs include the initial costs and the interest rate in two parts. The initial costs are relatively fixed, interest rate arising from the original owner and there is a big difference depending on underlying assets. Banks as initiated by the original owner of the securitization of credit assets rate of around 4%~7%, and by non-financial businesses, as initiated by the original owner of asset securitization products offering relatively high interest rates, usually 5.5%~9.5%. For the PV industry of private enterprises and small and medium enterprises, through assets securitization financing aimed at access to low-cost funds. But factors such as project financing, to abandon power, confidence in investors buying asset-backed securitization products and underpowered, may result in asset-backed securitization financing costs (interest rate) higher than bank borrowing costs (interest rate) situation. Holds a lot of power plant assets in State-owned enterprises, if the loan is not limited by the asset-liability ratio, the same asset-backed securitization financing PV projects may be lower than bank lending.

Countermeasures of asset-backed securitization financing PV projects

Green asset securitization is an important part of green finance. In the context of global warming, environmental degradation, green finance has caused Governments around the world attach great importance to enterprises, financial institutions and entities. Hangzhou green financial G20 Summit will for the first time, G20 meetings. Under the framework of future cooperation in the G20, China will further encourage and support innovative financial services financial institutions, increase monetary supply, promote include Green Green finance, asset securitization development. Thus, securitisation is expected to be an antidote to cure PV projects in financing woes. But if it cannot overcome the unfavourable conditions that restricted asset-backed securitization financing PV projects, then the medicine be reduced to eating tasteless chicken.

First of all, comprehensive strategies, and effectively safeguard the photovoltaic project stable and sustainable profits. PV project return on investment depends on two aspects, namely generation revenue and costs. From improve power returns and reduced cost spending of angle view, guarantees PV project stable, and can continued of returns from three a aspects starts with: a is from mechanism innovation, and technology progress, aspects integrated Shi policy, vigorously promote PV grid elimination na, solution abandoned light power problem; II is continued promoted technology and equipment innovation, reduced PV project cost, reduced project cost and costs spending; three is upgrade PV project early development and late shipped dimension of management level, improve PV project of power efficiency and electricity.

Second, clarifying ownership, ensure that PV projects in the proper nature of rights in proceeds. From a legal point of view, PV project asset securitization is a clear legal relationship between the parties by means of contract, makes the lack of liquidity of the usufruct into negotiable securities transaction, PV projects yield the proper nature of the right is to determine the important factors of successful realization of this process. Photovoltaic projects as underlying assets income right of proper nature consists of three main areas, namely project legitimacy, certainty and tradability of rights in proceeds. Therefore, before the photovoltaic project asset securitization, SPV, underwriter, credit rating agencies and other related institutions to PV projects in three aspects of proper nature of rights in proceeds and a full due diligence and assessment, and the necessary and sufficient disclosure.

Finally, well-designed, effectively reducing the rate of asset securitization products. A is according to itself financing requirements and PV project operation status, by original interests people on assets securities of of based assets and scale for planning, building suitable of assets pool; II is design reasonable of risk isolation mechanism, ensure SPV can breakthrough project original interests people of credit status and financing conditions of limit, improve assets securities of products pricing, achieved more low cost of financing; three is select suitable of credit increased level way, effective upgrade assets securities of products of credit quality and cash flow of stability, In order to better attract investors and to meet the needs of investors; four are based on market conditions and credit ratings, by the SPV to the underlying asset pool of assets restructuring and forecasting and cash flow analysis, in order to achieve optimal design of securitization products, ensuring that issuing the maximum economic benefit.

(Author: Jade Wu, PhD, researcher, engineer)

Original title: PV asset securitization: panacea or poison?

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