The U.S. Export-Import Bank: Secret Solar Finance Powerhouse
Mandated by its congressional charter since 1992 to support renewable energy exports, the U.S. Export-Import (Ex-Im) Bank is a powerful – yet relatively quiet – financing force for solar energy projects and equipment manufacturing.
The Ex-Im Bank’s programs – which include loan guarantees, export credit insurance, working capital guarantees and other services – tend to attract far fewer headlines than the U.S. Treasury Department’s popular Section 1603 cash-grant program and the Department of Energy’s (DOE) equally well-known loan-guarantee program.
However, despite the lack of fanfare, the Ex-Im Bank authorized $363 million in financing to support an export value of $640 million in "environmentally beneficial" goods and services in 2009, according to Craig O’Connor, director of the bank’s Office of Renewable Energy. This total included 1,820 individual transactions.
The Ex-Im Bank was created during the Great Depression in order to finance the export sales of U.S.-made goods and services, O’Connor explained during a recent webinar sponsored by the Solar Energy Industries Association. The Office of Renewable Energy & Environmental Exports was added in 2008.
Recently, President Obama became only the second U.S. president to attend the Ex-Im Bank conference – which sent a strong signal of the Obama administration’s support of building a renewable energy market in the U.S. through agencies such as the Ex-Im Bank, O’Connor noted.
Ex-Im Bank products expected to play an increasingly popular role in solar market finance include the bank’s export credit insurance, which enables U.S. exporters to offer short-term and medium-term credit directly to their customers, and allows banks to insure credit lines and letters of credit. According to O’Connor, export credit is an "attractive substitute" for such options as cash-in-advance and potentially expensive local bank financing.
Available as both single-buyer and multi-buyer insurance, the program requires a U.S. supplier to submit an application that includes documentation verifying that the foreign buyer meets certain requirements, depending on the credit limit requested. For instance, a $10,000 limit requires only a favorable trade or bank reference, while a $100,000 to $300,000 limit requires both a reference and a current credit report.
"We’re not in the business to make money," O’Connor pointed out. "We try not to lose money, so we select projects that have a reasonable chance of repayment."
The program benefits the foreign buyer as well as the in-country distributor, explained O’Connor, as the buyer’s order size can be increased. Meanwhile, the exporter can process receivables immediately, rather than being forced to wait for its foreign customers to repay.
For instance, Norcross, Ga.-headquartered solar cell and module manufacturer Suniva Inc. used short-term export credit financing insurance to offer credit to a foreign distributor as part of the build-out of a 3 MW PV project in Karnataka, India.
Wireless Energy, a Chile-based distributor of SunWize products, initially sought to finance its expansion through a local bank, which commanded a 13% rate on a 16-month credit line. The company opted instead to receive a credit expansion through SunWize, which utilized the Ex-Im Bank’s export credit insurance program. This arrangement enabled both Wireless Energy and SunWize to expand at a lower cost than through other means, O’Connor said.
The Ex-Im Bank’s most popular programs for renewable energy have undergone a shift in the wake of changing economic and policy conditions. "Before the financial crisis, a lot of our business was providing loan guarantees," O’Connor recalled.
Now, companies may be more likely to apply for options such as Solar Express, a program designed to provide quick credit approval for small ($3 million to $10 million) solar power projects that meet a strict set of credit standards. According to O’Connor, Solar Express’ consistent parameters allow companies to reduce their legal fees and processing time.
These defined standards include a minimum 25% sponsor equity contribution, a debt-service reserve account of six months’ debt service, and a tariff fixed by a power purchase agreement or a legally mandated feed-in tariff.
In addition, the minimum debt-service coverage ratio for a Solar Express transaction is a potentially challenging 1.5. "We know it’s a little high, and if it comes in a bit lower, we can often still approve the deal," O’Connor noted.
The bank generally makes its final credit decision in one of three ways: based solely on the borrower’s (or guarantor’s) balance sheet, as limited-recourse project finance with a special-purpose company borrower and project cashflows as the source of repayment, or as a structured-finance transaction with the borrower’s balance sheet enhanced by special features.
One notable participant in the Solar Express program, SolarWorld, used a $60 million guarantee to finance a project in Korea using SolarWorld modules. "As long as the modules are produced in the U.S., the ownership of the project doesn’t matter," O’Connor pointed out.
Finally, the Ex-Im Bank’s working capital guarantee program provides a 90% repayment guarantee for working capital loans made by commercial lenders in order to enable exporters to finance foreign-sales receivables, materials, labor and overhead.
Rochester Hills, Mich.-based United Solar Ovonic, for example, received a $25 million revolving credit line through this program. "We’re very proud of this transaction," O’Connor said.
Overall, the Ex-Im Bank has returned $5.2 billion to the U.S. Treasury since 1992, according to O’Connor, and it has made money on larger transactions. Before long, this self-sustaining agency may finally step into the spotlight alongside the Treasury and the DOE as a universally recognized source of much-needed financial backing for the growing U.S. solar market.
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