Houston (Platts)--7Sep2011/359 pm EDT/1959 GMT

Private equity firm US Renewables Group said Wednesday it will provide $344 million in financing for a project to install 371 MW of solar photovoltaic systems on up to 160,000 privatized military residences located on as many as 124 military bases in 33 states.

The five-year project, valued at over $1 billion, is to be managed by San Mateo, California-based SolarCity and is being called Project SolarStrong.

Also on Wednesday, the US Department of Energy said it offered US Renewables a conditional commitment for a guarantee of roughly $272 million of the $344 million loan. The loan guarantee is being issued under the DOE's Financial Institution Partnership Program, otherwise known as FIPP, which guarantees up to 80% of a loan provided a renewable project by qualified financial institutions.

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USRG is the lead lender on the project, but said Wednesday it is providing the financing through a partnership with BofA Merrill Lynch.

"This will be the first time that long term debt has been successfully deployed to finance a residential distributed generation project at such a large scale, resulting in a lowered cost of capital for the project that will enable an unprecedented expansion of US residential solar power," said Ed Feo, managing partner of USRG Renewable Finance, the USRG affiliate that provides debt financing to renewable energy projects.

Feo said the private equity firm was "extremely pleased" to be partnering with BofA Merrill Lynch.

In June, the DOE announced it was offering a conditional commitment to provide a FIPP guarantee for a $1.44 billion loan to support a 733-MW commercial rooftop solar project that is being managed by Prologis. BofA Merrill Lynch was the lender-applicant for the commercial rooftop project, which is called Project AMP.

On Wednesday, Energy Secretary Steven Chu called the SolarStrong Project "the largest domestic residential rooftop solar project in history," and said, "This groundbreaking project is expected to create hundreds of jobs for Americans and provide clean, renewable power to our military families."

He said the project "can also be a model for other large-scale rooftop solar projects that help America regain its lead in the solar industry.

The SolarStrong Project, according to the DOE, will have the added benefit "of helping the Department of Defense, the single-largest energy consumer in the US, secure its energy needs from domestic renewable sources that are independent from the utility grid, at no additional cost to taxpayers."

The statement said that the DOD has a stated goal that 25% of all energy consumed by 2025 shall be supplied from renewable sources.

SolarCity, which was formed by two brothers in 2006 and financed initially by the founder of Tesla Motors, Elon Musk, said that at each military base the company will seek "to hire and train veterans and/or family members of active duty military service members to install and maintain the solar systems."

The residential rooftop project starts with a four megawatt installation at Hickam Air Force base in Hawaii, with construction currently under way.

SolarCity is principally known for its solar lease program and its power purchase agreements that are designed to make it cheaper and easier for home owners to install solar systems.

In June, SolarCity and Google announced the creation of a $280 million fund to finance residential solar projects. At the time SolarCity said it had created 15 project funds with seven different partners to finance $1.28 billion in solar projects.

The DOE has now either closed on or issued conditional commitments for 32 loan guarantees under its 1705 loan guarantee program that was set up and funded under the American Recovery and Reinvestment Act of 2009 which was signed into law by President Barack Obama on February 17, 2009.

The closed guarantees are for $8.1 billion in loans, while the yet-to-be- closed conditional commitments are for $10.7 billion in loans for renewable projects that, according to the eligibility rules of the program, have to be under construction by September 30, 2011.

--Jeffrey Ryser, jeffrey_ryser@platts.com