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European solar ABS: a mixture of optimism and uncertainty

Solar panel on a red roof

Path towards public solar deal remains murky

Excitement in European ABS for the first public solar securitization deal is building, but how and when the inaugural transaction comes remains unclear. Some are hopeful that there could be an announcement as early as this year, while others fear 2024 is more realistic.

ESG has, unsurprisingly, been a central theme throughout the Global ABS conference in Barcelona this week, and solar ABS was of particular interest, especially as the market continues to grow in the US.

A number of sources told GlobalCapital that there have already been private solar securitizations in Europe around the €25m-€50m mark. But the wait for a public deal lingers on.

While on a panel at Global ABS on Wednesday, Gordon Beck, director of securitized product solutions at Barclays said that “we could see something later on this year… if not, it will certainly happen next year”.

However, an adviser said 2024 would be the earliest a deal will come to market.

“Right now, we will see portfolios or warehouses privately going at the end of this year, beginning of the next,” he said. “And then, if what they promise is reality and the business plans are met… we can start working next summer on something public for 2024.”

Obstacle course

Demand for solar deals is ripe, with investors increasingly including ESG mandates in their portfolios. Meanwhile, a source told GlobalCapital that potential buyers are falling over themselves to be involved in what would be a landmark transaction.

But while the demand is there, the hurdles elsewhere are many.

A researcher told GlobalCapital he was “hopeful” for the asset class, but that governments in Europe are “missing the picture”.

In the US, funding for homeowners to renovate their roofs with solar panels is paid for through increases in what could be translated as council tax, the researcher said, while the government pays upfront. In Europe, no such system exists.

Separately, another researcher said current European models of attaching funding for solar panels through mortgage refinancing looks less and less appealing as cost-of-living concerns rise throughout the continent.

Fragmented European market

Following the path made by the US market was clearly desirable for the panel that Beck spoke on at Global ABS, but there was an acknowledgement that there is a marked difference on the originator side.

US solar ABS is dominated by four or five main players who have, as Beck said, “grabbed it and ran with it”, but the European market is much more fragmented around national boundaries and suffers from a lack of standardisation.

Emile Boustani, director of asset-backed products at Société Générale, who spoke alongside Beck, said the smaller players in the European market made swift progress to a public deal “difficult”.

However, one source said that while this may hamper the development of the European market in the short term, it could eventually stand to benefit.

He argued that issuance in the US was fast reaching a ceiling, owing to the dominance of the likes of Tesla and Solar Mosaic. Issuance size can get bigger but dealflow would be quite slow with just five issuers coming to market to date.

Whereas in Europe, with the emergence of lots of small issuers slowly ramping up volumes before going public, dealflow could eventually turn out to be more advantageous for a healthy new asset class.

“The US market can give you ideas,” he said. “The US is actually an example of a beta test of what will come to Europe, because the regulations are different.”

While optimism is strong, the route ahead is uncertain. Mirroring the US may prove impossible.

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