Lenders scrambling to assess exposure from SolarZero collapse

Wednesday, 27 November 2024

Financiers that lent money to SolarZero, including the Government’s Green Investment Fund, may be the biggest losers from its liquidation.

ANALYSIS: When the dust settles on the collapse of the country’s largest rooftop solar installer SolarZero it may well be that changing interest rates and overly generous offers to homeowners are blamed for the business’ failure.

SolarZero’s business model was to pay for solar installations and home batteries upfront and then recoup that money with a profit over up to 25 years by in effect charging for the power they produced.

There was always a risk of things rapidly turning to custard if it got its financial assumptions wrong, for example over the cost of borrowing, which is what appears to have happened.

Home-owners who have installed SolarZero systems shouldn’t be too disadvantaged.

It’s not like having ordered house from a builder that has gone into receivership.

SolarZero customers are expressing understandable concerns about whether a slightly woolly-worded clause appearing to entitle them to a free replacement home battery after about 10 years will be honoured.

And whether maintenance or services previously provided by SolarZero will be run down as a result of the business failure.

One voiced fears on social media that just the general uncertainty over what might happen next might make it harder for them to sell their home as planned next year.

But the new owner of SolarZero’s systems post-liquidation will continue to want to be paid for the power they produce, so should have a strong interest in maintaining their side of the bargain with customers.

SolarZero itself has said, rather sweepingly, customers will not be affected by its liquidation.

Organisations that have lent money to SolarZero, on the other hand, would appear likely to take a bath.

In retrospect, it turns out the deal homeowners were offered was too good for SolarZero to be able to honour while also paying back their lenders.

The latter include taxpayer-funded environmental investor New Zealand Green Investment Finance (NZGIF) which had “committed” a total of $145 million in financing to SolarZero.

Information was being sought from NZGIF on how much money SolarZero owed it went into liquidation.

It was still calculating its exposure on Wednesday morning and its prospects of seeing any of that money back.

But it appears it was drip-feeding funding to SolarZero by advancing money linked to actual installs, so only a portion of the $145m would have been drawn down on Tuesday when the company was put into liquidation.

SolarZero installations comprise about a third of all such installations in the country.

It appears inevitable the collapse of Solarzero will significantly disrupt the uptake of rooftop solar, especially among people who couldn’t or didn’t want to pay for solar systems upfront.

The company employed 160 people, some of whom may struggle to find other opportunities in the industry.

But investment in solar power will continue apace by generators who are investing in more efficient grid-connected solar farms.

There is an overall limit on the total amount of solar energy the electricity market can absorb, so the upshot may simply be that more of that is produced from solar farms and less from rooftop installations.

Solarzero was bought by United States private equity giant BlackRock in 2022.

BlackRock’s decision to pull the plug certainly appeared from the outside to come out of the blue, although that may not have been the case.

The fact it all seemed to go wrong so quickly raises questions over whether BlackRock will want to be – or will be as welcome to be – a very active investment partner in renewable energy in New Zealand in future.

But that might not be a big step back for the energy transition either.

BlackRock announced in August 2023 that it intended to establish a $2 billion fund to invest in New Zealand renewable energy projects.

Then Prime Minister Chris Hipkins piggybacked on the back of the announcement to make it sound like a coup the Government was somehow involved with or responsible for.

But it is not clear much, if anything, has transpired from that announcement, and there is no shortage of other capital around to finance energy investments that have their sums done right.