A first-of-its-kind international investment of $170 million will give financing options to New Zealand-based solar providers, removing barriers to renewable energy.
In the largest investment the Crown-owned New Zealand Green Investment Finance has made since its creation in 2019, contributing $80m alongside $90m from First Sentier Investors and Natixis Investment Managers.
Jason Patrick, chief investment officer at NZGIF, said the programme aimed to fill financing gaps currently dissuading businesses from investing in solar energy.
Access to useful debt finance is at present a common barrier to developing solar generation projects in New Zealand.
The programme will allow solar developers to replace their short-term floating rate debt with long-term fixed rate financing, effectively increasing the financial feasibility of companies investing in renewable energy.
“This is part of our mission to accelerate decarbonisation,” Patrick said. “We’re constantly thinking of new ways make that happen.”
It comes as the green investment bank has recently been granted certification from the Climate Bonds Initiative – a first for a New Zealand-based financial institution.
BlackRock-owned solar providers solarZero were key partners in setting up the programme and will receive the first solar loan, but Patrick said other local companies in the sector will be able to access the programme soon.
“The initial application of the programme is for residential solar energy with solarZero,” he said. “But the intent of the programme is to have something much larger, in fact, in which we can bring in other forms of solar.”
Patrick said one of the things key to the work of the NZGIF was seeking capital from other investors, and to build the overall market for decarbonisation finance in New Zealand.
“One of the things we’ve learned in the four years we’ve been in operation now is that there are certain parts of the market that definitely face financing gaps,” he said. “For quality solar developers, access to long-term finance is really hard to come by.”
He said if you go to a main bank you’re more likely to get finance in the shorter term.
“There are so many great companies in the market who are trying to pursue decarbonisation plans for their business, but they often need long-term finance or other structured offerings,” he said. “We’ve done quite a bit of that ourselves, and we’ve also set out to build a programme that will work for operators like solarZero and for large investors.”
In doing so, NZGIF hopes to build the market for businesses seeking to invest in solar energy.
solarZero itself has already seen rapid growth – close to 50 percent over the past two years. Patrick said the programme would support not only this growth but also development of the company’s ‘virtual power plant’ (VPP) technology.
The virtual power plant is essentially a linked grid of hundreds of community-based smart energy storage and solar generation systems. The idea is this will provide stability to the system even as demand fluctuates.
It’s a technology that won solarZero the Innovation in Energy Award at the New Zealand Energy Excellence Awards earlier this month.
In the next year, solarZero wants to increase the scale of the VPP by a further 50 percent.
Matt Ward, CEO at solarZero, said the long-term nature of the funding – matching the timeframe of solarZero’s own customer contracts – was a rarity on the New Zealand market.
“It’s especially meaningful as it provides greater financing certainty, and improved operational cash flow which will allow us to increase our investment in R&D and accelerate the roll-out of residential solar and battery solutions across the country,” he said.
Ward said the focus of his company’s no-capital-down solar provision was in part to make sure renewable energy was accessible to earners across the income spectrum.
He said the typical home solar and battery system asked around $25,000 in up-front costs. In solarZero’s case, the company maintains ownership of the panels and batteries and uses them as a part of the ‘virtual power plant’.
“No capital down means our customer base is literally right across all socioeconomic groups,” Ward said. “And that’s essential to us, because our purpose is twofold – the first objective is to accelerate decarbonisation, but the second is that the energy transition is equitable, and it’s not just the big end of town who are benefiting.”
At the moment solarZero is installing around 400 units a month. Ward said the ambition was to grow the customer base from 10,000 to 100,000 – growth that would require over a billion dollars in investment over the next decade.
“We’ll need a diversity of capital in to achieve those goals,” he said. “What we’ve built is highly scaleable … and this programme is the vehicle with which we can bring in domestic and overseas investors to reach it.”
The solar energy investment is easily the biggest NZGIF has made since its creation.
Patrick said the organisation was constantly looking for new opportunities to bring capital to companies involved in decarbonising the New Zealand economy.
“Our overall mission is to make sure we accelerate the flow of finance for decarbonisation opportunities in New Zealand,” he said. “That’s never going to happen by doing little one-off deals one after the other – those are great, but in order to really accelerate finance and move the needle, we’re constantly thinking about ways to create bigger opportunities to bring more finance to the market.”
He said to meet policy objectives like NetZero 2050, we had to find ways to drive capital towards decarbonisation, as there would never be enough government money.
Craig Morabito, senior portfolio manager of global credit at First Sentier Investors, said the organisation was delighted to partner with NZGIF.
“The structure of this transaction was innovative, and we liked that this initiative took a whole-of-country approach to reducing emissions associated with electricity usage,” he said. “As an investor with a strong focus on sustainable finance and its potential positive long-term impacts, we look forward to contributing to New Zealand’s efforts to reduce carbon emissions in the future.”
Natixis Investment Managers, meanwhile, are investing on behalf of managed funds and a Hong Kong-based insurance company.
Natixis Asia-Pacific head of private debt and real assets Angus Davidson said the distributed renewables and storage solarZero offers were attractive parts of the market.
“Our focus remains on arranging and investing in attractive infrastructure debt assets with strong underlying trends. Distributed renewables and storage are compelling markets, particularly in New Zealand,” he said.
This story is written in partnership with New Zealand Green Investment Finance