Uncertainty in interconnection timelines is nothing new, but it nonetheless remains an issue in a number of solar markets. When looking to complete projects within an investor’s target commercial operation date (COD), often the biggest unknown is how long it will take the utility to enable a successful interconnection, which may include utility provide equipment, testing and commissioning, and issuance of approval notices. In the worst case, you might be waiting for someone to handcraft a transformer for you, or take care of some vegetation management.
Timelines and processes vary utility by utility. But ultimately, this uncertainty hurts the EPC who will face damages if the project is not done on time. This issue is especially relevant now as end-of-year deadlines approach.
In addition to timeline sensitivities, another issue lies in interconnection costs. If you go through the entire development process and then realize that interconnection costs make the deal challenging to finance, the deal may not fully materialize without additional solutions.
To avoid these issues, we recommend communicating with the utility early and often to get a better understanding of interconnection timelines and costs. We also recommend performing an upfront engineering and circuit penetration analysis to facilitate decision making. Basic efforts should be made to help understand site specific cost and upgrades, which can come in the form of both facility and utility costs. “Lawyer” up, too with 1MW+ projects, and we highly recommend you get your own distribution engineer so you can push back where and when necessary.
Upon execution of an LOI with the host, it is important to lock up incentives and interconnection to avoid issues later down the line. Once you have an understanding of these costs, bake them into your project cost structure. Moreover, realize timelines are real, and worst case scenarios can be true with utilities where interconnection departments are severely understaffed – or on saturated circuits. If you’ve ever been in the middle of a blackout and looked out on to your street to see a cherry-picker truck from six states away, you can begin to appreciate how field and engineering crews alike can get overcommitted. BONUS TIP: to be extra sophisticated with interconnection timelines, track circuits and map transformer stations to find hosts in locations easiest to interconnect.
Last but not least, be upfront with your investor so they can help troubleshoot issues with you as they arise.
This is an excerpt from our Solar Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail email@example.com.
About Sol Systems
Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 171MW distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. It has over $550 million in assets under management as of September 2014. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management. For more information, please visit www.solsystemscompany.com