DOE closes $3B partial loan guarantee with Sunnova in agency’s largest single commitment to solar

Dive Brief:

The Department of Energy has made the federal government’s largest-ever commitment to solar energy, finalizing a partial loan guarantee agreement with Sunnova to back loans for distributed energy resources in disadvantaged communities, the agency said Thursday.
Sunnova “anticipates the loan guarantee agreement will support over an estimated $5.0 billion in Sunnova loan originations, reduce the company’s weighted average cost of capital, and generate interest savings,” the company said in a statement.
With DOE’s support, the company expects to provide loans to between 75,000 and 115,000 homeowners in the U.S. through its 568 MW Project Hestia program.

Dive Insight:

“The DOE loan guarantee agreement will support the origination of Sunnova loans associated with solar, storage, or other Sunnova Adaptive Home technologies that utilize Sunnova’s purpose-built demand response and [virtual power plant] enabling software throughout the U.S. and its territories,” Sunnova said.

The deal marks DOE’s first loan guarantee for a VPP, the agency said. The agreement equates to a 90% guarantee of up to $3.3 billion of term loans originated by Sunnova under Project Hestia, the company said.

DOE’s Loan Programs Office had announced a conditional commitment for the loan in April, and LPO Director Jigar Shah said in an interview that the deal first began to take shape in 2021 when he took office and began reaching out to energy CEOs to suggest they work with the LPO.

Shah said that during his call with Sunnova, he found out the company was receiving pushback from ratings agencies due to its 10-year commitment to Puerto Rico despite good repayment histories from clients. This led Shah to wonder if a guarantee from DOE could make renewable energy financing “more inclusive.”

At least 20% of the loans will go to customers with FICO credit scores of 680 or lower, DOE said, and up to 20% will go to homeowners in Puerto Rico.

The finalized guarantee is “an important step in structured solar investments that will accelerate solar adoption and bring our best-in-class service to more underrepresented customers,” said Robert Lane, Sunnova’s CFO. “We expect the Hestia I issuance to generate spreads commensurate with the expected credit uplift and introduce new, investment-grade investors to Sunnova’s long-term strategy.”

Sunnova said that Project Hestia will provide increased access to the company’s services by indirectly and partially guaranteeing the cash flows associated with consumer loans. In addition to supporting the deployment or residential solar and storage, the company will provide consumers with access to technology that monitors their power usage and provides insights, with the aim of “facilitating” demand response behavior.

“Project Hestia is designed to accelerate the deployment of new digital engagement and behavior modification technologies,” Sunnova said. The company hopes to reduce emissions and support grid stability by providing consumers with “near real-time insight” into their energy system, then provide location-specific emissions data to DOE.

The company will give DOE “monthly servicing reports supplemented by hardware and software deployment information,” it said.