If Sunnova Energy files for bankruptcy in the coming weeks, as it is widely expected to do, it will join a long list of rooftop solar companies that have gone bankrupt or shut down in the last year alone. These include SunPower, Titan Solar, Harness Power, Sununity, and Vision Solar.
Unlike most of its peers however, Sunnova’s potential bankruptcy will likely have ripple effects that stretch beyond the rooftop solar industry, and into the realm of politics. This is because of its affiliation with the Department of Energy’s Loan Programs Office, which awarded Sunnova a $3 billion partial loan guarantee in late 2023.
That deal was distinct from most others given out by LPO: Instead of a direct loan to help Sunnova itself, the federal government provided a guarantee for investors who were financing rooftop solar loans. This allowed for a higher percentage of loans that credit agencies would not otherwise have supported, largely to low-income homeowners around the U.S. and Puerto Rico. The partial loan guarantee operates between two “special purpose vehicles,” which are legally separate entities that hold the solar loans and issue bonds to investors.
In other words, the success of the deal with LPO relied primarily on homeowners’ repayment, not on the financial health of the company. Short of a catastrophic, 2008-like financial crisis where most homeowners defaulted on their loans, LPO’s $3 billion would never be called upon.
Sunnova has since pivoted away from this loan structure, moving more toward PPAs. As a result, it voluntarily stepped back from the loan guarantee, as Latitude Media reported last week. The company has since confirmed that DOE is de-obligating the unspent $2.92 billion; Sunnova has so far only obligated $371.6 million of the total.
The structure of the arrangement means that if Sunnova does go bankrupt, the solar loans that have been issued already would continue to be owned by the special vehicles, which are protected from bankruptcy. And as long as customers continue making their monthly payments — which they have so far been doing at rates of around 97%, in line with LPO’s modeling when the guarantee was signed — the government’s guarantee wouldn’t be triggered.
But that hasn’t stopped Sunnova’s loan guarantee from becoming something of a political football in the last several years. The company has found itself squarely in the crosshairs of congressional Republicans seeking examples of federal waste and mismanagement by the Biden administration. Those conversations often framed Sunnova as “the next Solyndra,” the solar company that went bankrupt just two years after receiving a $535 million LPO loan in 2009.
But Wyoming Senator John Barasso’s now-infamous prediction to reporters at the time of Sunnova’s deal with LPO — that it would make the government’s loss in Solyndra’s downfall look like “chump change” — remains unrealized.
In the year and half since Sunnova finalized its loan guarantee with LPO, the government has been slowly collecting fees, including at origination, and a monthly “risk-based charge,” which has resulted in a net payment to the government that, at one point, totaled over $13 million, according to one source familiar with the matter. In that time, Sunnova has installed solar and storage for thousands of homes that wouldn’t otherwise have qualified for loans, they added — and LPO hasn’t paid out a cent.
And as of March, according to data from Bloomberg, the two bond offerings backed by the DOE loan — which cannot be put into bankruptcy — are performing well. All scheduled interest and principal payments to investors have been made on time, and the underlying solar loan collateral is generating sufficient cash flow to cover all obligations, fees, and expenses without any issues.
Backing project Hestia
LPO’s partial loan guarantee to Sunnova was designed to back Project Hestia, a massive virtual power plant program that would expand access to rooftop solar and storage, and enable more homeowners to take part in VPP programs.
Sunnova didn’t need cash from DOE to start up that project, which targeted as many as 115,000 installations. The bigger issue, explained former LPO director Jigar Shah, was that credit rating agencies wouldn’t offer loans to low-income households, particularly those with low or no credit scores. The process of vetting Sunnova and approving the loan, Shah said, took two full years, in large part because the office needed to understand whether credit rating agencies would have approved the same loans otherwise.
“We don’t want to provide a loan guarantee for something that would have happened anyway,” Shah told Latitude Media. “This allowed Sunnova to go to slightly lower credit scores, and to increase the amount of Puerto Rico content.”
DOE had data spanning 30 years that showed low-income households, even those with low credit scores, pay their energy bills at very high rates, Shah explained. But credit rating agencies weren’t willing to factor in that payment reliability when evaluating companies like Sunnova without the loan guarantee from LPO.
As one Sunnova executive who spoke to Latitude Media on background put it: “it was a nice, elegant way to make these systems available to people that wouldn’t have had access to them before.”
The setup worked well while Sunnova was “in the business of originating loans,” the executive explained. Not only did the program provide more power to more people, they added, it also created another source of power for the grid. But Sunnova has since shifted its strategy toward “more towards leases and PPAs,” making the product LPO’s guarantee was designed to support essentially obsolete for the company.
“In some cases programs can go on forever, and in this one, the market shifted,” the executive said. “That was why we de-obligated the guarantee, because we just no longer used it.”
Shah, who stressed that the structure of the loan guarantee meant that the government “never, ever wired any money to Sunnova,” emphasized that the “partial” nature of the guarantee also meant that, even in the event of a “historic default on repayment,” the government isn’t responsible for the full amount. Instead, it would be on the line for 68% of each loan, stepping in if Sunnova’s portion — 32% — is wiped out first.
Determining the ultimate success of LPO’s loan guarantee to Sunnova, Shah added, ultimately comes down to whether rating agencies are ultimately willing to make those same loans without the backing of the federal government.
“The goal of LPO is not to take risks that no one else would take, ever,” he explained. “We’re saying no one else would take those risks now, but if we prove that these risks are actually manageable, then people will take those risks after some time has passed.”
As the bonds continue to perform — and ideally proving that they can meet or exceed the decades of DOE repayment data that LPO used to underwrite them — “you’ll start to see [credit rating agencies] use that data for all future deals, without a loan guarantee from us,” Shah added.
