Getting into a sector before capital floods in, then refinancing once it does, sits at the heart of how GCP Infrastructure Investments (LSE:GCP) built its rooftop solar position. Bianca McMillan, Associate Director at Gravis Capital Management, sets out the case in the first of a series of real asset studies.
GCP became the first significant backer of domestic and commercial rooftop solar in the UK when it lent in 2011. The initial senior-secured loan of £15 million went to A Shade Greener, funding 1,500 panels. Over the following years that exposure grew more than tenfold.
A Shade Greener, founded in 2009, invented the free solar model. Customers rent their roof for 25 years and receive free electricity, while the company owns, installs and maintains the panels. No upfront capital is required from the household, and bills fall by roughly a third for an average consumer, according to government estimates.
Why the tariff structure appealed to GCP
The investment rationale, McMillan explains, rested on the feed-in tariff introduced in 2010, which subsidised these assets for the first time. Payments split into a generation tariff and an export tariff. Domestic installations earned 41.3 pence per kilowatt hour generated, plus 3 pence for each unit exported.
Export volumes are not metered. They are deemed to be 50% of generation, which strips out volume risk. Both tariffs run for 25 years, are fixed on the first day of generation, and rise annually with RPI. The result is long-term, inflation-linked, public sector-backed cash flow that matches the GCP mandate. Operating costs stay low because the technology is simple and monitoring is largely remote.
How the position was scaled and refinanced
Between 2011 and 2015, GCP made a series of senior loans to A Shade Greener covering around 50,000 domestic panels. Entering the sector early let it secure interest between 9% and 9.2% on a senior-secured basis.
In 2016 and 2017, with senior lenders now willing to enter the market, GCP refinanced the portfolio and brought in Aviva and BlackRock. That gave access to cheaper funds and freed capital to recycle into other sectors. McMillan frames this as a template for how Gravis operates: enter early, capture elevated returns, then refinance.
UK solar capacity stood at just 1,000 megawatts when GCP first invested. By the refinancing it had risen more than tenfold. Across the full period GCP funded around 50,000 installations, equivalent to 184 megawatts of generating capacity, or power for 53,000 homes.
The early move is what separates GCP from those that followed. On a subordinated basis it now earns interest between 9% and 13%. Later lenders, by contrast, received indexed debt service running at 2.85% during 2024. On the valuation at 30 September 2024, an exit would represent an IRR of 11.1%.
That gap between 2.85% and up to 13% is the whole argument for arriving first.
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