Every month, Sol Systems distributes a newsletter, the Sol Systems Project Finance Journal, to our community of solar developers and investors. The journal features solar finance statistics, trends, industry news, and SREC market information. We gather this information from our relationships and experience aggregating SRECs and financing commercial and utility scale solar projects.
We have included excerpts from our November Project Finance Journal below. If you have any questions about this information, wish to receive our monthly newsletter via email, or have a solar project in need of financing, please contact our team at email@example.com. We would love to hear from you.
Project Finance Statistics
Characteristics of “Hot Projects”
The statistics below represent some high-quality solar projects and portfolios that we are actively reviewing on behalf of our investor clients.
Capacity: 205 kW – 14 MW
Average Capacity: 1.78 MW
Developer all-in (asking) prices**:
- <500 kW: $2.65-3.00/Watt (rooftops)
- 500 kW – 2 MW: $2.20-2.65/Watt (ground-mounted)
- >2 MW: $2.00-2.36/Watt (ground-mounted)
** Note: Statistics represent projects with the strongest financial profiles; as a result, these developer asking prices may be “above market.” We have intentionally excluded statistics on projects that have abnormally high and low prices, including a California portfolio with single-axis trackers and operational projects in Ohio.
Average PPA rates & escalators (20-year terms unless noted):
- AZ: 12.0 cents/kWh with 2.0% escalator
- CA: 10.8 cents/kWh with 2.0% escalator
- CT: 15 cents/kWh with 3% or CPI escalator
- NJ: 10.2 cents/kWh with 2.0% escalator
- NM: 8.1 cents/kWh with 2.5% escalator (25 years)
Average Feed-in Tariff Rates (20-year terms unless noted):
- CA: 12.3 cents/kWh with no escalator (CREST)
- CA: 16.1 cents/kWh with no escalator (LADWP)
Trends and Observations
Here are some updates on a few of the U.S. solar markets.
- AZ: Solar had a major victory yesterday when Arizona’s Corporation Commission (ACC) ruled that solar owners may face a mere $0.70/watt charge on their bill ($4.90 for a 7 watt system). The charge is much less than APS’ proposed charge of ~$100/month, and existing solar owners are exempt from the charge for 20 years.
- MN: Minnesota’s largest IOU, Xcel recently announced plans to build “solar gardens” or community owned solar in order to help meet its solar RPS goals (1.5% solar carveout). Xcel will finance, construct, and maintain solar arrays, and homeowners and businesses will have the opportunity to buy specific panels or a share from these community arrays and receive a credit on their utility bills equal to their share of the systems. Minnesota is a regulated market meaning that utilities may own their own power production facilities (in addition to owning transmission and distribution). This means that utilities hold a lot of muscle, and there may be more limited opportunities for smaller companies within the solar industry. Xcel has met its RPS targets in Colorado ahead of schedule and the same may be expected in Minnesota. Read more…
- NC: The North Carolina market continues to shoulder a huge backlog of solar projects; some estimate that there are approximately 800 MW of late-stage projects. The limiting factor, of course, is state tax equity, which may or may not become more available in 2014. Some developers in the state have been able to build their projects without the state tax credit through highly aggressive pricing of around $1.50, and others have been able to sell projects to investors for a developer fee in the range of 3-10 cents/watt.
- NJ: On November 12th, PSE&G closed the first round of competitive solicitation applications for their 3rd Solar Loan Program. In this round, SREC floor prices will be determined by a competitive bid-in process, and loan terms will be 10 years – not 15. This program will not include a call option on SRECs, providing additional security for investors. Read more…
- NY: NYSERDA will be opening a green bank for clean energy projects. When fully capitalized, the program should have a $1 billion balance sheet. The bank would provide financial products such as credit enhancement, loan reserves, and loan building through private-public partnerships. The New York PSC is expected to approve the program in December, with full operation expected in Q1 2014. Meanwhile, NYSERDA’s PON 2112 rebate level for systems in the 50-200 kW range has dropped twice, and the current rebate is at $0.75/watt. This incentive can make for attractive projects, particularly when paired with PPA rates in the 11-14 cent range. LIPA also opened its second solar incentive program, which will be open until January 31, 2014; the results for the LIPA II solicitation will be available around February 28, 2014. With uncertainty of the NYSERDA PON 2589 and LIPA II incentive levels, many developers are unsure of what energy rates to bid and how to price host lease payments. To solve for this uncertainty, in New York – and all competitive incentive programs – we recommend that solar developers structure their host lease payment as a percentage of revenues (electricity rate + incentives) instead of a fixed price. By structuring lease payment agreements this way, developers and hosts align their interests and ensure the greatest likelihood of receiving incentives and being able to attract third party financing. Moreover, in LIPA, developers and hosts can actually receive incentives that are higher than those they bid because the auction is set with a single clear price. Read more…
- VT: Vermont is becoming a small, yet appealing solar market. Although Vermont’s SPEED program was restructured in March 2013 into a competitive RFP process without a fixed 25 year tariff, Vermont’s net metering policy remains attractive, and developer interest in the program is increasing. Green Mountain Power recently won SEPA’s IOU of the Year Award for its “disproportionately large commitment to clean, renewable solar energy, customer choice and the communities it serves.” Through the Vermont net metering program, PV systems in the 150-200 kW range may sell solar electricity back to the utility at the highest retail rate plus 6 cents. Unfortunately, Vermont’s fragmented utility patchwork means most utilities are fairly small, and a few have already hit or are close to hitting the statutory net metering cap of 4% of capacity. In a solar-friendly state, observers are hopeful that this cap can be lifted.
Solar Chatter Stew
- Investors seem optimistic that by 2017, solar financing, permitting, and BOS costs will have fallen enough to support a drop in solar ITC from 30% to 10%. Until then, tax equity will remain a critical component of the capital stack.
- Battles are heating up between the solar industry and utilities, especially in Arizona. At the MD–DC-VA SEIA conference earlier this week, Rob Binz and Jigar Shah referred to Arizona utilities (APS) as the “devil” and the “devil with white horns.” APS recently admitted donating funds to 2 nonprofit groups that aired an anti-rooftop-solar advertising campaign meant to turn Arizona ratepayers against net energy metering.
- Chatter about module prices has tapered off, as prices seem to have stabilized for the interim. However, some researchers are saying prices will increase next year with increased demand from Japan, China, and within the U.S.
- Thanks to falling battery costs, there is increased interest in solar energy storage. Initially, California’s 3 major utilities were resistant to battery- backed solar; however, a new mandate from California’s public utility commission will require the IOUs to deploy 200 MW of customer-sited storage by 2020. On the East Coast, Solar Grid Storage has recently deployed battery storage systems in Maryland, New Jersey, and Pennsylvania. Read more…
Chicken, Egg, & Construction Financing Debate
It goes without saying that investors put a high price on development risk, which means that the closer a developer can get their project to commercial operation before seeking financing, the higher its project valuation will be. Stated another way, access to low-cost construction financing can improve a developer’s position when negotiating with investors. For this reason, many developers within our network are interested in learning about construction financing options. Over time, rates for construction debt for distributed generation projects have come down a bit, and the rates currently hover around 10% plus a 2% origination fee.
Before committing to a financing strategy that includes construction financing, however, we encourage our clients to consider all their options. Construction financing often requires a commitment from a long-term equity investor. Yet, attracting an equity investor can be difficult without having construction financing in place — the old chicken and egg debate. Sometimes our developer clients realize that they can move their projects forward more efficiently by working with one of our take-out investors who can provide “construction financing” via milestone payments.
Nevertheless, if a developer has the resources and desire to take on the risk of constructing a project before securing an investor, there are financial rewards to be had. Because construction financing options are a bit limited, Sol Systems is developing debt funds to meet our clients’ needs.
Sol Systems’ SREC contracts for 3-year strips in New Jersey increased this month, while 5 and 10-year strips remained constant.
In Massachusetts, we continue to offer 3, 5, and 10-year annuity SREC contracts for SREC I projects. We are also offering a spot market brokerage service for projects that will be in SREC II, and in certain cases, Sol Systems is offering upfront financing for SRECs in Massachusetts.
About Sol Systems
Sol Systems is a boutique financial services firm that offers investor clients direct access to the renewable energy asset class and provides developers with sophisticated project financing solutions. Founded in 2008, Sol Systems focuses on meeting the most critical needs of the industry, including SREC monetization, capital placement, tax equity, and New Market Tax Credits. To date, the company has facilitated financing for thousands of projects and hundreds of millions in investment on behalf of Fortune 100 companies, private equity, family offices and individuals. For more information, please visit www.solsystemscompany.com.