SunPower Corporation (SPWR), Microsoft Corporation (MSFT), Facebook Inc (FB): When Will We See the Next Big Solar IPO?

In short, Sunrun isn’t going public now, but it will likely do so sometime in the future. What may be attractive is finding ways to use public markets to lower financing costs.

Could securitization, MLP, or REIT structures bring Sunrun’s assets to the market?
One interesting alternative to going public would be selling assets to an investment vehicle. The industry has been pushing to allow solar MLPs or REITs, and Fenster said having a public entity to push assets down to may be attractive. The challenge is in the tax consequences because equity financing is usually used to build residential solar today.

Securitization is another interesting option. Like many others, Fenster thinks SolarCity will likely lead the way there. The challenge with securitization would be the terms required by investors. If a company could securitize 95% or 100% of an asset the way a mortgage is sold this may become attractive. If companies like Sunrun are expected to keep 30% of the asset on their balance sheets, then they’re borrowing 70% at a low cost and 30% at a high cost of capital makes it financially unattractive. Eventually, the industry will likely move in this direction, but until securitization is proven to investors, Fenster doesn’t think it will be all that attractive to lease companies.

My personal expectation is that eventually the REIT or MLP structure will be prevalent in the industry, just like it is in oil and gas. This may require assets that are beyond the tax benefit portion of their lives but eventually I think investors will be able to buy a company that invests in residential solar assets, generating a fixed return per month.

Demand for solar investments is growing
Sunrun may not come public this year, but there is a growing demand for solar investments. I think in the next year we’ll see securitization, a federal bill allowing solar REITs or MLPs, and potentially the sale of lease receivables. These financing options will help lower the cost of building solar and therefore lower the cost of solar power. That should help everyone from Sunrun to SolarCity to SunPower Corporation (NASDAQ:SPWR) and everyone in between.

The article When Will We See the Next Big Solar IPO? originally appeared on Fool.com and is written by Travis Hoium.

Fool contributor Travis Hoium manages an account that owns shares of Microsoft and SunPower. Travis Hoium personally owns shares of SunPower and has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, long January 2015 $15 calls on SunPower, long January 2015 $25 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool recommends Facebook and Goldman Sachs. The Motley Fool owns shares of Facebook and Microsoft.

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