Mining The Solar Gold Rush -

Burlingame, Calif. -
Earlier this month, Fetzer Winery flipped the switch on a new installation of solar panels that cover 75,000 square feet atop its bottling plant and barrel room in sunny Hopland, Calif.--the largest solar energy project at a U.S. winery. The 430 panels will produce 80% of the electricity needed for its bottling operations on the site.
But Fetzer didn't pay to install the panels, and it isn't responsible for maintaining them. The capital cost and operational details of the solar project are being handled by MMA Renewable Ventures, one of a small crop of firms that has sprung up to provide financing in the super-hot solar and renewable energy markets. Today, MMA Renewable Ventures announced it had syndicated its investment in the Fetzer solar project to a publicly traded insurance company whose name it will not disclose. This is the first investment in renewable energy for the insurance company, which was interested in the tax advantages that came with the deal.
Navigating the twists and turns of financing solar energy is complex. On top of the 30% federal tax credit, there are renewable certificates that solar-power owners can sell on a market that's similar to the carbon-emissions trading market. In California, the renewable certs go for between 2 and 5 cents a kilowatt hour.
In addition to San Francisco-based MMA Renewable Ventures, this new niche of financiers includes Sun Edison of Baltimore and New Energy Capital of Hanover, N.H. Bigger guns like Goldman Sachs (nyse: GS - news - people ) and General Electric's (nyse: GE - news - people ) GE Energy Financial Services have done some renewable energy financing as well, primarily of wind farms. All these firms are aiming to cash in on a rapidly expanding market. Solar installations grew 37% in the U.S. last year and are likely to keep growing at a hefty clip, spurred by a combination of high fossil fuel prices and a 30% federal investment tax credit.
For the Fetzer project, MMA Renewable Ventures paid to install the solar panels, and it will own them and maintain them. It has a long-term contract of up to 20 years to sell the electricity generated by the panels to Fetzer for a rate that is currently at least 10% less than what the local utility, PG&E's (nyse: PCG - news - people ) Pacific Gas and Electric, charges. The contract contains a low single-digit yearly rate increase that is half the rate of PG&E's historical rate hikes.
MMA Renewable Ventures' capital comes from investment banks looking for tax-advantaged investments. On top of the tax benefits, investors can expect a return that ranges in the high single digits, says Matt Cheney, chief executive of MMA Renewable Ventures.
Cheney's outfit makes money by charging a fee of less than 1% of the funds under its management. "Our sights are set on having a lot of volume and handling medium-sized projects," he says. He's got a $500 million pipeline of projects currently under review, and he expects plenty of appetite from investors looking for tax benefits. MMA Renewable Ventures has access to these investors through its parent company, Municipal Mortgage & Equity (nyse: MMA - news - people ), known as MuniMae, which provides financing to the affordable-housing sector, the current top destination for investors looking for a tax break.
Fetzer, a unit of beverage giant Brown-Forman (nyse: BFB - news - people ), likes the environmentally friendly sheen that comes from using solar power. But the decision to add so much solar capacity--901 kilowatts--was primarily a financial one. It should shave, at minimum, tens of thousands of dollars a year off its electric bill, says Susanne Zechiel, manager of facility resources for Brown-Forman's California wineries. "Economics is a huge part of this," she says.
The 30% federal tax credit on solar installations, part of the 2005 Energy Bill, is set to expire in 2007, so there's a sense of urgency among many companies about getting solar projects done now. New legislation may extend the tax credit, though.
"I think this is the beginning" of a wave of financing options, says Joel Makower, co-founder of renewable energy research firm CleanEdge. "There's a lot of interest swirling around in the investor community about how to make a market in renewable energy. This is one way."