), helps companies build solar energy systems, cut their electricity bills, and lock in rates for decades--all with no money down. The San Francisco company has erected some $300 million worth of solar panels for clients ranging from Denver International Airport to Gap (GPS
MMA's approach brings together energy users, builders, and financiers. Essentially, MMA is the middleman. It contracts with companies to install the solar panels, which it owns and operates. Customers then pay MMA for the power the panels generate--like a traditional utility but with cheaper rates.
Next MMA packages a few deals and sells them to institutional investors. Investors collect regular income from the utility payments and benefit from the tax breaks on green projects. That means MMA's success could be derailed by regulatory changes or new rivals.
Still, amid the credit crunch that's killed investors' appetite for more complex structured finance vehicles, this one continues to attract big companies like Allstate (ALL
), Citigroup (C
), John Hancock, and Wells Fargo (WFC
). "MMA is driving cost out of an industry that's fragmented," says Barry Neal, director of environmental finance at Wells.
MMA traces its roots back to 1999, but this model started to get traction in 2006 when Cheney sold his first set of solar deals to big investors. Now others are following his lead. And given the runup in power prices and growing incentives for renewables, the market has potential: Commercial sales of solar installations should expand by 50%, to $1 billion, in 2008, based on data from the Solar Energy Industries Assn. MMA--a unit of Muni Mae, a real estate finance company with $19 billion in assets under management--has $1 billion worth of deals in its pipeline.THE LURE OF TAX CREDITSOften the biggest roadblock for green endeavors is the up-front costs. For example, Est?e Lauder would have had to pony up $4 million to install solar panels on one of its perfume factories, an investment that would have taken up to 10 years to earn back. Instead, the cosmetics company signed a 25-year contract with MMA to build solar panels and provide energy. Lauder now pays MMA for the electricity the system generates--roughly 40% of the plant's needs. The rest of its power comes from the local utility.
MMA's rates are equal to or lower than the local power provider. San Francisco bus operator AC Transit signed a 20-year contract this year with MMA to install solar panels that supply a third of its power. MMA charges it about 13.6 cents per kilowatt hour, less than the local utility's 13.9 cents. MMA's prices will go up by 2.5% a year, compared with 5% to 7% for a regular utility.
Those projects are typically too small to interest big investors, so MMA bundles them into multimillion-dollar deals. Investors like the diverse stream of profits. On top of payments from customers, investors also earn money on so-called renewable-energy credits (RECs), which can be traded for a profit. Controversy persists about those credits. But in states such as California and New Jersey, which mandate that utilities have a portion of renewable energy, those compliance RECs have emerged as a lucrative tool that benefits the environment.
Investors also get a tax break. For example, the 2005 energy bill offers a 30% investment tax credit that can be used to offset the tax bite. Of course, if those sort of enticements dry up, interest will wane. The 30% credit is set to expire by 2009.
Still, Cheney is confident it will be renewed, given green energy's growing popularity. So he's staking out other green plays. "We've got small-scale wind farms, geothermal, energy from waste, and solar water heaters all on our radar," says Cheney. "We like the messy stuff. By Adam Aston