U.S. Bancorp has committed new tax-equity financing to private equity-backed KDC Solar LLC to fund a string of New Jersey rooftop projects, the parties announced Thursday.

KDC has already completed its first installation — a 3.25-megawatt system atop a warehouse in central New Jersey — and is set to break ground on a second 3.5-megawatt project this month, the company said. KDC focuses on so-called behind-the-meter solar installations, which help buildings cut their energy costs or, in some cases, become net energy producers.

“We are extremely pleased to partner with U.S. Bank on this unique transaction,” KDC Solar CEO Hal Kamine said. “This addition to our capital structure will allow us to continue to pursue and accelerate our commitment to 'behind-the-meter' solar electric systems for businesses, governments and institutions in New Jersey.”

KDC did not say how much financing U.S. Bank had committed or give a price tag for the pipeline of planned projects.

The company closed a $70 million loan from Prudential Capital Group LP on Monday, and is also backed by $225 million from Diamond Castle Holdings, a New York-based private equity fund.

U.S. Bank has committed $550 million tax-equity financing to renewable energy projects through its community development subsidiary since 2008, the bank said. In May, it made its biggest such investment to date, financing SunRun Inc.'s $200 million purchase of residential solar power systems.

“As U.S. Bank continues to drive clean-energy growth through investment, we value new partners like KDC Solar, whose experience in developing commercial scale projects ensures a sound relationship,” said Adam Altenhofen, an executive in the bank's renewable energy division.

Tax-equity financing allows profitable companies to invest a portion of their federal tax bill toward projects in approved sectors, including renewable energy. The market took a beating during the recession, when most financial institutions saw their profits — and their need for tax credits — evaporate, according to a report commissioned by the Bipartisan Policy Center, a Washington think tank.

As their profits have returned, so has an interest in tax-equity financing, the report found.

But it's hard for small or mid-sized solar power companies to access this type of financing, said Adam Boucher, CEO of Adam Capital Clean Energy Asset Finance LLC, which provides small-scale lending to clean energy projects.

The process is time-consuming and requires an army of lawyers and accountants, which puts it out of reach of smaller energy companies. High transaction costs also make smaller investments — anything under $10 million — not worth the hassle for investors, Boucher said.

“It's hard to get anything under $25 million from the big banks,” he said. Adam Capital makes investments of $500,000 to $5 million.

Bundling smaller projects — as KDC said it was doing with U.S. Bank — can go a long way toward enticing big investors, Boucher said. KDC said it had more than 50 megawatts of solar projects in development, 12 megawatts of which were expected to be operational by January.

Experts say this financing vehicle will be more important than ever when President Barack Obama's cash grant program — which pays developers 30 percent of the capital cost of projects upon completion — expires at the end of this year.

US Bancorp was advised by Nixon Peabody LLP.

Counsel information for KDC Solar was not immediately available.

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Liz Hoffman
Reporter
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