Leyline Renewable Capital has raised $150 million from private equity firm Newlight Partners to finance early-stage solar projects and anaerobic digesters backed by other developers.
The Durham, North Carolina-based outfit wants to help developers that have multiple projects in the works but could benefit from additional working capital. Smaller, often-bootstrapped developers can struggle to meet interconnection payments or post security deposits that lock up millions of dollars. Leyline will lend capital to meet those obligations, taking a small equity stake as part of the deal.
This preconstruction phase carries higher risks than later-stage development, but Leyline CEO and founder Erik Lensch homed in on it because he had experienced the challenge firsthand.
Lensch founded Argand Energy Solutions in 2006, developing and building qualifying facilities in the 2- to 5-megawatt range as North Carolina's solar market began to take off under the 1978 federal PURPA legislation.
But the company felt the crunch when two projects were about to incur several million dollars of interconnection fees at once. Argand ended up choosing financial stability via acquisition by a hedge fund, rather than juggling the capital needs on its own.
“Some of our most valuable development assets were on short fuse, so we did feel we had limited options,” Lensch recalled. Absent that time pressure, “We could have been more deliberate and thoughtful about the process for how we wanted to exit.”
After a few more years building projects, Lensch transitioned to solar lending in 2017, working with just a few investors. He started growing the team and raised a $12.5 million fund which was fully disbursed by this summer, right around the time Newlight decided to invest. Lensch formed Leyline Renewable Capital as a new company, majority-owned by Newlight.
Small but mighty
While project development requires local knowledge and contacts, Leyline can play a broader role in the solar market by issuing early-stage loans from its base in Durham, Lensch said.
“We can scale and place a lot more capital because we’re relying on the developers to do the day-to-day development activities,” he said.
Lensch wants to focus on small to midsize solar developers that have experience developing multiple projects and could benefit from freeing up their internal capital. Typical projects fall under 20 megawatts, with check sizes up to $10 million, and can include energy storage. Leyline is looking across the U.S. and overseas into markets like Canada and the Netherlands.
The deals typically include a loan product with a piece of equity to give Leyland some upside on the project's success. The argument is that even if a developer can self-finance, doing so makes a project riskier and limits bandwidth for other projects that will impose their own capital demands.
“Getting 10 or 20 projects through using our capital as opposed to two or three using internal sources is attractive,” Lensch said. “Because we come out of the development world, we understand development [and] we understand the risks.”
Anaerobic digesters, which refine biogas for injection into gas pipelines, could take up more than half of the dollars Leyline distributes. Lensch sees a “window of opportunity” in that market, which is smaller than solar and less liquid, and tends to revolve around regulatory structures like California's Low Carbon Fuel Standard. Customers tend to be major corporates with a substantial carbon footprint, like refineries and delivery companies, which can use biogas production to offset some of their compliance obligations.
Developers of anaerobic digestion incur considerable engineering costs in order to determine firm pricing for a potential project, Lensch said. That's a capital need that Leyline can fill.
The company plans to disburse the $150 million over the next two and a half years.
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