Enhanced Capital discusses widening capital deployment options for lower middle market developers
Lower middle market renewable lender Enhanced Capital provided a development loan in its recent commitment to fund a 50.5 MWdc portfolio of Solar Landscape’s community solar assets.
The deal augments an existing relationship as its deployed roughly USD 40m in the form of preferred equity and tax equity on behalf of the developer over the past several years.
“It was really a sign of good partnership and respect for the company they are building in terms of being a true market leader,” said Ed Rossier, Enhanced Capital’s managing director and head of climate finance in an interview with NPM.
Rossier, who formerly was an executive in US Bank’s renewable energy investments group for a decade before arriving at Enhanced Capital in December 2020, said the lender, inclusive of the climate finance group, focuses on the lower middle-market. Within climate finance, this has meant lots of business in community solar, but it is also eyeing storage, wastewater treatment and recycling amongst other verticals.
Overall, the firm has helped finance over 85 solar projects across 16 states which have generated over 780 GWh of energy from 2015 to 2022. Other clean energy developers that Enhanced Capital has worked with recently include Green Street Power Partners, Cambrian Innovation and Clean Planet.
The capital stack they have participated in has varied, in line with Solar Landscape’s relationship, from bridge loans, preferred equity to growth capital investments.
“We are averse to high-risk technologies and markets and the investments we look at are not necessarily big enough to attract commercial banks,” said Rossier.
Community solar fits the bill given its smaller sale, but also the different offtake profiles as it is mostly routed in subscription rights as opposed to long-term PPAs. There is also risk as growth can be tied directly into states enabling new legislation for community solar.
In an interview with NPM this past September, Solar Landscape’s chief development officer John Moran talked about his company’s focus on workforce training and low-to-moderate income (LMI) families, elements of which were part of the Inflation Reduction Act of 2022 (IRA2022) and will help the company moving forward as it continues to build in its native New Jersey and other newer markets such as Illinois and California.
“It’s hard when companies have to maintain long-term bets in all of these markets and hope something unfolds in the next two-to-four years,” notes Rossier, adding that success is often tied into a company’s “ability to be nimble and have strong local relationships.”
As for other parts of the IRA2022, Rossier said it will allow other technologies such as batteries, biomass and hydrogen to take long-term preferred equity and as a result help accelerate a lot of projects.
Due to the passage of the IRA, deals that were previously pitched as preferred equity investments can now be restructured using tax credit bridge loans to provide non-dilutive development and construction capital to projects. In addition, Rossier expects the tax transferability clause, as expected, will widen the amount of market participants since it simplifies the process and eliminates the partnership tax return.
*This story was originally published exclusively for NPM subscribers last month.
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