February Solar Project Finance Statistics

21 Feb 2013

Every month, Sol Systems distributes a newsletter, the SolMarket 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 February 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 seeking financing, please contact our team at info@solmarket.com.  We would love to hear from you.

Project Finance Statistics

Characteristics of “Hot Projects”

Capacity: 149 kW – 4.25 MW

Average capacity: 1,600 kW

Competitive EPC costs currently range between $2.15-$2.80/Watt

*Competitive prices depend on scale, location, and individual project economics

  • <500 kW: $2.40-$2.80/ W
  • 500 kW – 2 MW: $2.25-$2.65/ W
  • >2 MW: $2.15-$2.45/ W

PPA rates:

  • DE:  9.9 cents/ kWh (20 year term; 2% escalator)
  • MA: 8.6 cents/ kWh (20 year term; 1.5% escalator)
  • NY: 9 cents/ kWh (15 year term; no escalator)

Feed-In Tariff rates:

  • CA: 17 cents/ kWh (20 year term; no escalator)
  • FL: 29 cents/ kWh (20 year term; no escalator)
  • NY: 22 cents/ kWh (20-year term; no escalator)
  • RI: 32.2 cents/ kWh (15 year term; no escalator)

Recently Funded Projects

Cumulative capacity: 11.8 MW

Cumulative value: $38.7 million

Locations:   IN, NC, OH

Trends and Observations

Lean and Mean: Solar Project Margins Are Thin & Programs Are Competitive

It is no surprise that the economics of solar deals are changing, and in many cases, becoming more challenging.  Even after solar project developers have secured state incentives, project margins are thinning, and it is increasingly difficult for developers to ensure that project economics pencil for investor partners.  Solar developers effectively have two clients: (1) their host entity or lessee and (2) their investor.  The changing dynamics in the solar market mean that it is more important than ever for developers to focus on their financing partners needs and requirements.  This means that developers must:

  • Negotiate high PPA rates
  • Minimize site lease costs
  • Procure and utilitze financeable power purchase agreements and leases
  • Build flexibility into their offtake agreements so that they can make changes for investor partners when necessary
  • Procure the most recent and most competitive EPC quotes
  • Reduce property taxes and other cost centers that reduce project returns

The presence of state and regional incentives continues to play a pivotal role in determining which projects get financed. Subsequently, local incentive programs are typically competitive and oversubscribed. While it should go without saying, it is not enough to bid low and queue up for local incentives. Developers must ensure that they are bidding into programs in ways that allow them to build and finance the projects.  In other words, developers need to model project costs accurately so that the incentives align with other project costs and income streams, as well as provide sufficient cash flows for equity investors.  Ultimately, they have to balance these strategies with their own financial hurdles and embedded costs.

Given our experience with multiple investor clients, we suggest that sufficient cash flows typically mean a 20 year IRR of 11-12 percent or higher for smaller projects, and 9-10% or higher for 2 MW+ projects.  The smaller and more complex the transaction, the higher the required return.  Additionally,  developers’ models are likely to differ from that of your investor, which is why developers should accurately consider the same upfront costs and ongoing expenses that an investor incorporates into their model. Our team is intimately familiar with our investor clients’ models, and we recommend communicating with us as you consider project economics.

Manufacturers Getting Creative to Find Channels for Panels

With a glut of solar modules in the market and fewer developers warehousing panels, we have seen virtually all major panel suppliers become more creative in their efforts to procure sales channels.  In addition to partnering with and acquiring downstream solar players, we have seen module manufacturers attempt to secure direct relationships with hosts before a developer is involved, or provide developers with construction financing in exchange for a commitment to use their panels.

Manufacturers’ credit and reputation will certainly play a role in whether or not projects ultimately obtain take-out financing, but only time will tell which manufacturers’ efforts are the most successful.

The Sol Systems team welcomes and encourages all creative ideas that lead to successful project development, and we are in discussions with a number of manufacturers to facilitate project finance opportunities.

Sol Systems Call for Projects 50 kW – 2 MW

We are actively seeking solar projects 50 kW -2 MW in size.  Our investors are looking to close deals by the end of March 2013. Please contact Sol Systems as soon as possible if you have projects that meet the following criteria:

  • Rooftop, ground-mount, or carport
  • Located in California, Connecticut, D.C., Hawaii, Maryland, Massachusetts, New Mexico, New York, or Rhode Island
  • To be placed in service prior to September 1, 2013
  • Rated SREC contracts for D.C., Maryland, and Massachusetts preferred, but not required; Sol Systems’ investors will take on SREC risk

Of course, we are always interested to hear about solid projects, even if the project does not meet all of our above criteria. Please contact our team to discuss financing options for any of the projects in your pipeline.

Priority consideration will be given to developers with a proven track record of success and who have demonstrated progress on site control, interconnection, and permitting.  Learn more.

SREC Roundup

This month, Sol Systems increased pricing for Sol Annuity fixed price SREC contracts for systems certified within Washington, DC. The pricing increase was largely attributed to the aggressive change in the RPS requirement, which was amended in the summer of 2011 with the help of Sol Systems’ efforts. If you are interested in our Sol Brokerage clear prices and price movements on the spot market, please view our SREC clear prices, which are updated quarterly.
Sol Systems also offers its network the opportunity to view historic SREC marks and model future pricing using their own market assumptions.  To utilize our SREC supply and demand model, please view our SREC Analytics tool.

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 arranged financing for thousands of projects and facilitated 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.

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Sara Rafalson

Sara Rafalson