In May, the Bethel AME Church in the Jamaica Plain neighborhood of Boston had solar panels installed on its roof. Now, it pays the system’s developer and owner, Sunwealth Power, 20 percent less than prices charged by the local utility company.
The historically African-American church—which recently made headlines for offering refuge to an undocumented immigrant from El Salvador—is one of three houses of worship with solar installations developed and financed through Sunwealth’s Interfaith Solar Project. With investments from the Boston Impact Initiative and three high-net-worth individuals, this $500,000 pilot project led to the launch of the firm’s 2017 Solar Impact Fund, a $7.5 million commercial solar fund consisting of roughly 15 projects in Massachusetts, New York and California.
Sunwealth is a Boston-based clean energy investment firm that aims to provide investors both market-rate returns and a concrete measure of their impact. The firm’s model works by pooling a variety of commercial solar projects—installations on retail space, office buildings, schools, firehouses, churches, etc—all of which it develops, underwrites and manages.
Investors partake in the Solar Impact Fund by financing groups of projects, with each tranche consisting of a bond and a tax equity offering. In addition to their quarterly financial statement, these investors—high-net-worth individuals, family offices, foundations, and boutique firms—also receive an impact report that quantifies the environmental and social impact of their investment in the previous quarter.
Measuring impact is key to growing the impact investing market because, without a way to quantify it, many investors remain skeptical as to how much good the strategy of investing for both financial and social/environmental returns does.
Sunwealth tracks the carbon offset of each property’s solar panel system. For example, the firm expects the 70 kW rooftop system on the U.S. headquarters of Clark’s Shoes in Waltham, Mass., to offset 145 metric tons of carbon per year—the equivalent of a year’s worth of CO2 emissions from generating electricity for 78.5 homes. It also calculates the customer’s energy savings, as well as the jobs created by relying exclusively on local installation partners.
The firm reckons the 2017 fund will reach full funding by the end of October, at which point it will kick off the 2018 Solar Impact Fund—an effort that, given the current pipeline of projects, will be in the $20 million to $30 million range, says Ryan Dings, Sunwealth’s chief operating officer.
On the tax-equity side, investors need a minimum of $25,000 for a 5.25 year investment. The expected after-tax internal rate of return is in the mid-teens. The 10-year bond has a minimum investment of $10,000 and an expected rate of return of roughly 6 percent. It also repays principle quarterly.
“We want to transition these folks from making an impact investment to being impact investors,” Dings says. “The goal is that if we serve them well, they reinvest the principal we return to them” for impact.
The development of commercial solar has lagged behind its residential and utility counterparts because banks and other financial institutions have been loath to finance commercial projects, largely for two reasons: the lack of a credit rating system and the small size of the projects, which makes transaction costs prohibitive.
While underwriting of residential solar is based on the homeowner’s FICO score, and the utilities and large companies—such as Google and Wal-Mart—that purchase utility-scale power have ratings from the likes of Moody’s or Standard & Poor’s, there is no such system for small commercial entities. So Sunwealth developed its own underwriting process to assure the credit worthiness of its customers. And by pooling small commercial projects together and standardizing documentation, the firm reduces transaction costs enough to make financing these deals attractive.
Sunwealth retains a piece of each project and has structured the fund so that investors are paid out first. “So we are highly incentivised to choose the best projects,” Dings says. “We are eating our own cooking.”
