Over the years, we have been following the industry trend whereby an overabundance of interested capital has been chasing a shortage of bankable opportunities in the fragmented commercial and small utility-scale sector. While there are still a number of investors out there chasing the same projects, the pendulum is finally starting to swing; project supply is on the uptick.
A number of factors are leading to this shift: a maturing market with more origination channels, a greater number of state markets with acceptable project economics and volume, investors accepting lower returns, and more repeat deals among parties allow projects to be closed and deployed faster than ever. (Full disclosure: for Sol, one of the reasons for the uptick in projects has been the expansion of our origination team). On top of it all is the race to December 31, 2016 and the effect that’s having on project supply.
Despite this uptick in project pipeline, not all deals will complete the race. One key to ensuring that pipeline makes it to the finish line will be the amount of tax efficient capital ready and willing to get teams moving quickly to deploy capital and close deals. Developers, beware of the bottleneck with equipment suppliers, but also your financing partner’s ability to diligence projects and close in a timely manner.
To ensure that your project is prioritized over others in a financier’s queue, keep in mind that investors will prefer projects that are further along in the development cycle where the host has already agreed to lock into a financeable PPA, or the PPA is largely negotiated, if not already executed. Investors will also prioritize larger projects, or projects with other pipeline behind them. Some projects may also take precedence over others when there is a strategic reason to favor the host (e.g. a high profile brand), or if they have stronger return profiles.
When racing to the end of 2016, do not think of December 31 as your deadline. Give yourself an August 2016 cutoff date to get everything closed, and plan for blips that may lead to delays in either closing or construction. As always, the winners in solar project development are those who plan ahead, and plan for bumps along the way.
This is an excerpt from our September edition of SOURCE: the Sol 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 firstname.lastname@example.org.
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Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 333MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. 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. Inc. Magazine named Sol Systems on its annual Inc. 500 list of the nation’s fastest-growing private companies for a second consecutive year, ranking it No. 6 in the nation’s top solar companies in 2014. For more information, please visit www.solsystems.com.