SVB failure leaves small U.S. renewables projects needing new ally

Climate tech startups averted a crisis when the U.S. government moved to backstop the failed Silicon Valley Bank. But the lender had developed a specialty for smaller renewable projects – and those may now need to find a new ally.

SVB was best known in the industry for managing smaller renewables projects – including community solar projects – that other companies often avoided because of the legal and tax paperwork burden involved.

“Since deposits were guaranteed, the risk has moved from small, early-stage companies that might have struggled to make payroll, to those that might be reliant on the bank’s credit facilities for infrastructure projects,” said Mark Daly, head of technology and innovation at BloombergNEF. So-called community solar projects, which tend to be smaller than utility-scale projects, allow a wide variety of individuals, businesses and nonprofits to benefit from sun-generated power.

Community solar projects allow customers to get power from local solar farms if they aren’t able to install their own panels, helping to lower their power bills. The developments tend to be smaller than utility-scale projects. About 5.6 gigawatts of community solar have been installed in the U.S., with that figured slated to double in the next five years, according to the Solar Energy Industries Association.

It’s not yet clear how much financing SVB was offering to community solar developers. The firm’s website says it was leading or participating in 62% of financing in U.S. developments. It had more than 1,550 customers in the broader climate technology and sustainability sector, and it has committed $3.2 billion to innovation projects in the field.

The bank financed about $357 million of residential solar – which doesn’t include community solar – in 2020- 22, according to BloombergNEF. Those who may step in to fill the void include regional banks and other types of debt investors.

“Other financiers will step in, but pipelines will be on hold for some time as those new relationships get sorted out,” said Kiran Bhatraju, chief executive officer of Arcadia Power Inc., a Washington, D.C.-based startup that operates a software platform to sign up and manage community solar subscribers.

Renewables developers across the world are facing financing pressures from rising interest rates and higher inflation affecting raw material costs. For companies in the U.S., the Inflation Reduction Act, which offers $370 billion in subsidies and tax credits, should help offset some of the burden of higher costs and encourage manufacturing that will diversify supply chains.

SVB customers will get all their insured and uninsured funds starting Monday, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement Sunday evening, easing wider concerns about potential fallout from bank’s collapse on climate tech. That crucial move has reassured the industry that the failure won’t mean a dramatic slowing of the energy transition.

Still, “companies have been reminded that risks they probably were not even thinking of, such as deposit security, can unexpectedly emerge.” said Varun Sivaram, group Senior Vice President for strategy and innovation at Orsted. “Fortunately this swift resolution means that startups might conduct a risk review and then go on with the important work of scaling their businesses and technologies, which, in the climate space, is absolutely critical for meeting our collective goals.”