January 2013 Solar Project Finance Journal

17 Jan 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 information about SREC markets that we garner from our relationships and experience aggregating SRECs and financing commercial and utility scale solar projects via SolMarket.

We have included excerpts from our January SolMarket 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 for which you are seeking financing, please contact the SolMarket team at info@solmarket.com.  We would love to hear from you.

Project Finance Statistics

Characteristics of “Hot Projects” on SolMarket

Capacity: 149 kW – 3 MW
Average capacity: 1,284 kW
Competitive EPC Costs: For mid-size commercial projects, EPC costs in the range of $2.25 to $2.50 are currently competitive.

PPA rates:

  • CA: 10.8 cents/ kWh (20 year term; no escalator)
  • 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:

  • 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)

Characteristics of Recently Funded Projects

Capacity: 100 kW – 12,000 kW
Average capacity:  1,194 kW
Locations:  AZ, CA, CO, DE, HI, IN, MA, MD, NJ, NC, OH, PA, TN

Trends and Observations

Solar Investment Quickly Getting More Mainstream

Solar investments in the U.S. are becoming more mainstream –and quickly.  In the last two weeks alone, we have seen interest in solar as an investment from small investors to billionaires.

On one end of the investment spectrum, we saw developments from Solar Mosaic – a company that offers the opportunity for individual investors to “crowd fund” their money into solar projects through an online marketplace. Minimum investments start at $25.

On the other end of the spectrum, we saw the announcement that Mid-American would acquire SunPower’s Antelope Valley projects for $2-2.5 billion, which incited a rally in solar stocks.  As many know, Mid-American is backed by Berkshire Hathaway and Warren Buffett, one of the world’s wealthiest and most influential investors.  Buffett is considered by many to have the “golden touch” when it comes to choosing investments.  We hope and expect that other investors will follow suit in regarding solar as a safe, long-term asset.

Here at Sol Systems, we have seen increasing investor interest in the middle of the spectrum with corporate investors and hedge funds.  Most recently, we partnered with a Fortune 100 company to deploy tax equity into the solar space.  With this investor, we closed two 2.5 MW tax equity deals. Our hope is to bring on additional investors that will bring much needed capital to this middle market segment.

3 Tips for Attracting Investment to Your Solar Projects

Of all the good and bad projects that our team diligences, there are a few key attributes that arise time and time again. To give your project the best chance of attracting investment capital, we would offer the following advice:

1. Keep Project Costs Down

Panel pricing still represents a significant portion of total project costs, so it should remain important as you assess potential cost reductions.  In addition, make sure that you are using the most recent, most competitive EPC costs, as these have been declining significantly over the past few months.

And perhaps most importantly, do not lose sight of other cost centers that do not increase the project’s value to prospective investors.  For example, a cost that improves the system’s energy production, such as a tracker system, may be economical, whereas a roof replacement cost will simply lower the project’s IRR and decrease the investor’s ROI.  There are always exceptions, but in general, we would also advise developers to steer clear of sites that have high permit costs, high interconnection costs, or additional interconnection upgrade/infrastructure costs.

2. Secure Local Incentives

Investors want to see reliable, long term income for their investments.  Often, a significant portion of that income will come from regional incentive programs, such as a feed-in tariff, a long term SREC program, or another type of multi-year rebate.  If you operate in one of these regions and have a strong understanding of the local incentive programs and hosts, we would encourage you to leverage your presence, get in line, and secure those incentives (at a competitive price, of course).

For example, we recently helped fund a 1.8 MW project portfolio in Indiana – a state that is not typically regarded as a strong solar market.  The critical factor that made these projects attractive to investors was that the developer had done a great job of securing a 20-year contract from its regional feed-in tariff program.

3. Use Strong Lease/PPA Agreements & Use Them Consistently

We continually run across clauses (or entire agreements) that are unfinanceable because they grant too much value or flexibility to the host.  While it is important to write a contract that works for the host, developers should remember that they have two sets of clients: the host and the investor.  Both sets of clients need to be satisfied before a project will be built. It is, of course, always possible to renegotiate agreements once you find an investor, but it is much easier to move a project forward if it has strong agreements in place without much need for rework.  Sol Systems provides our community with access to bankable solar agreements (available at no cost on www.solmarket.com) developed by our law firm partner, Cooley LLP.

Likewise, we encourage our developer and installer partners to use agreements consistently.  Project due diligence, and legal fees in particular, represent a huge cost center for investors.  In fact, one major reason that investors often do not like projects under 1 MW is because they have to spend so much money on legal fees to analyze the various contracts.  In an ideal world, all developers would use a standardized set of agreements so that the projects could be easily grouped into portfolios for investment.  While the solar community is not there yet, we encourage developers to stay as consistent as possible with contracts from project to project.

Markets: What’s Hot

If you have projects in any of the following markets, please contact the SolMarket team to discuss financing options:

  • Rhode Island and Vermont have small FiT programs that are paving the way for some attractive projects.
  • Colorado’s solar market is plugging along with it’s SREC program through Xcel Energy. We have seen a few good projects with municipal hosts in the 500 KW range coming through.
  • New York with its LIPA FiT and NYSERDA grants continue to generate interest.
  • DC and Maryland remain attractive due to their strong SREC markets. DC in particular is a great market in terms of SREC pricing, but available space for solar projects is highly limited due to DC’s urban landscape.
  • Connecticut’s ZREC program has launched and is accepting bids for systems over 100 KW.

SREC Roundup

SREC pricing did not change for any Sol Annuity and Sol Upfront solutions for the month of January.  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.

If you would like more detail on SREC market conditions, please contact our team at 888-235-1538 or info@solmarket.com. The SolMarket community also has 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 visit https://www.solmarket.com/srec-prices.

About Sol Systems

Sol Systems is a solar finance firm and a leader in financial innovation in the renewable energy industry. Since its inception in 2008, Sol Systems has partnered with 350 solar installers and developers to bring over 3,000 solar projects from conception to completion by offering innovative financing solutions for residential, commercial, and utility-scale projects.

Sol Systems’ financing programs catalyze investments for a broad set of solar projects by simplifying their origination, diligence, and financing processes. Developers seeking financing for solar projects can access over $2.5 billion in capital through the Sol Systems investor network.

In addition to providing financing, Sol Systems also offers project due diligence, deal structuring, and asset management services – all designed to reduce overhead and transaction costs and quicken project development timelines.

For more information, please visit www.solsystemscompany.com.

Print Page


Sara Rafalson

Sara Rafalson