More than 1,550 community solar, battery storage, and hydrogen firms in the United States were rushing to regroup after last week’s collapse of the Silicon Valley Bank (SVB), which had issued them billions of dollars in operating loans.
The bank, which folded on Friday after about a year of gradual decline, was involved in financing 62% of the country’s community solar projects, which are often meant to serve lower-income neighbourhoods, the New York Times reports. “The devastation comes at a critical moment for a nascent industry that is central to the effort to cut the greenhouse gases dangerously heating the planet,” the Times says.
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“While the Biden administration took steps over the weekend to prevent the immediate failure of thousands of climate technology and clean energy companies that relied on Silicon Valley Bank, it hasn’t been able to find a buyer willing to take on SVB’s domestic lending portfolio—leaving some major companies scrambling to secure new lines of credit,” E&E News writes.
“The administration’s moves, which include backing all of SVB’s cash deposits, also have failed so far to quell broader concerns about midsize regional banks, which often are more willing to support new companies and up-and-coming industries,” E&E adds.
It was the biggest U.S. bank failure since the 2008 financial crash. Forbes contributor Mark Le Dain has an account of how the collapse took shape and what happens next, while Politico chronicles the U.S. government’s rescue effort.
The ‘Climate Bank’
“Silicon Valley Bank was in many ways a climate bank,” Kiran Bhatraju, CEO of Arcadia, the country’s biggest community solar manager, told the Times over the weekend. “When you have the majority of the market banking through one institution, there’s going to be a lot of collateral damage.”
And the crash came at a moment when climate tech “is one of the few bright spots in an overall tech downturn,” added Sarah Sclarsic, managing partner at climate venture capital firm Voyager. “This isn’t folks in Silicon Valley building photo sharing apps. These are folks across the whole country, in Detroit and Texas and everywhere in between, building things that matter.”
The Times talked to some of the companies affected by the crash and traced the uncertainty they face over the next several months. Forbes columnist Le Dain points to the big hole the bank’s departure leaves in the private financing driving the U.S. clean technology boom.
“SVB formed a dedicated cleantech practice approximately 15 years ago, well ahead of most of its financial peers,” he writes. “This was a signal to many cleantech entrepreneurs that this was the bank for them, and it also meant the bank typically had more experience in the sector.”
Last year, the bank committed US$5 billion to sustainability loans and investments, compared to the hundreds of millions available from larger public banks. “If you were a builder in cleantech you liked everything they were doing, but you now find yourself unable to access your funds,” Le Dain said before the federal rescue plan was announced. Now, even with those deposits secured, SVB’s demise leaves its former clients without the credit they depend on to maintain and expand their operations.
SVB “was the bank that would always pick up the phone when other large money center banks wouldn’t,” tech sector analyst Daniel Ives of Wedbush Securities told E&E News, and its failure will “put much tighter financial conditions for banks around startups.”
How Many Additional Headwinds?
That makes the bank’s collapse “a major blow to early-stage and even late-stage tech startups looking to get financing,” he said.
“These things start to add up,” said sustainable finance analyst Daniel Firger, founder of Great Circle Capital Advisors. “How many additional headwinds can early-stage climate tech founders sail upwind against?”
Galvanize Climate Solutions co-founder Tom Steyer recalled SVB as a bank that was willing to work with northern California start-ups with neither assets nor cash flow to bring to the table. Despite those risks, “this wasn’t the part of the business that got them into trouble,” he told Bloomberg Green. “What failed is the way they ran their balance sheet.”
But several analysts told multiple news outlets that the loss will be felt keenly—and the country’s cleantech entrepreneurs aren’t out of the woods yet.
“When we talk about climate innovation, we’re often talking about cutting-edge, highly experimental, and at times risky developments,” said Amali de Alwis, CEO of Subak, a non-profit climate accelerator based in the UK. That can mean large, long-term investments in hardware and technology, she told Bloomberg.
“The question is, if it’s not SVB, who is it?”
But “if the flywheel of financing for early-stage climate innovation stops during these critical years, that’s going to be a big problem,” Firger told the Times.
Solar Companies Step Up
While Bhatraju told Utility Dive the collapse will “have an impact on the broader industry,” he and other industry executives were already pointing to the steps they could take to stabilize their operations.
Mary Powell, CEO of rooftop solar giant Sunrun, said her company had less than $80 million on deposit with SVB, adding that she was “pleased” the federal government had made sure those funds were available. Beyond that, “Sunrun has long-standing banking relationships with a large number of financial institutions, and we remain confident in our ability to replace SVB’s undrawn commitments,” she said.
Community solar company Nautilus Solar Energy said it was unaffected by the collapse, but expressed support for “those in our industry negatively impacted,” Utility Dive says. Home solar company Sunnova said its exposure was limited to SVB being a lender to one of its warehouses.
Raymond James renewable energy research analyst Pavel Molchanov said U.S. banks have a “strong appetite” for solar and other renewable energy projects because of the “low risk involved”. That interest will ensure that other lenders step up to take SVB’s place.
“Of course other financiers will fill the gap because these are some of the best infrastructure projects in America,” Bhatraju agreed. “But [financing] pipelines will be in flux for some time as those new relationships get sorted out and due diligence processes get under way.”
Molchanov said the “more substantive issue for project developers in recent months has been the cost of capital, which of course has risen along with higher benchmark interest rates.” That means community solar companies have “plenty of cash is available, just at a higher cost.”
