In the Quest to Finance Smaller Commercial Deals, Pipeline is King

22 Jan 2015


Why are developers going smaller than the traditional 1MW+ deals? We’ve got some theories.

Is the solar industry starting to pay more attention to the commercial solar market? From our vantage point, it seems that way, even if just slightly. We are increasingly being approached by developers looking for ways to finance portfolios of smaller projects, as well as standalone sub-1MW deals. Why are developers going smaller than the traditional 1MW+ deals? We’ve got some theories:

  1. Incentive design in Massachusetts, Connecticut, and New York is pushing developers toward the rooftops and away from the larger utility-scale projects. Some not-so-attractive contracts for utility-scale projects (like RE-MAT in California) are encouraging developers to do the same.
  2. Smaller projects have shorter timelines; they are done quicker, have fewer logistics to worry about (interconnection timelines, etc.), and provide a faster way for developers to get money in the door and move onto their next opportunity. For a developer looking to grow their business, deal velocity is everything.
  3. National developers are snatching up the 1MW+ deals, and local developers are unable to compete given their higher cost of capital. This competition has pushed them toward smaller deals where good margins can still be found. Read our advice to local developers from an earlier Project Finance Journal>>

(The Sol Systems team would also like to think that we are seeing more financeable portfolios of smaller projects because we have long advised developers to “portfolio-ize” in our Project Finance Journals and day-to-day business interactions. But we digress…)

When it comes to financing smaller deals, pipeline is king. A developer will be more likely to find financing for a sub-1MW deal if there is proven pipeline (meaning hosts, sites, and/or incentives secured) to follow. The question becomes less about the size of the individual project, and much more about the scope of the developer’s entire portfolio.

Even tax equity investors are willing to lower their size threshold if pipeline can be demonstrated, though the initial project still needs to be 1MW+ in size, and the portfolio should be several times as large. Sol Systems recently invested in a portfolio of 50-100kW projects with our partner, Nextility, for example. At the same time, for directly acquired deals (where a third-party investor buys the project outright), a portfolio over 1MW will do the trick.

Developers, don’t be shy about showing your investor future pipeline; the results will be in your favor. If you can demonstrate a pipeline and a willingness to commit to repeat deals, pricing and returns will only get better.

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

About Sol Systems

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 171MW of distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems has $550 million in assets under management as of December 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

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Sara Rafalson

Sara Rafalson