5 Basic Elements You Need to Know to Finance any Solar Project

If you’re new to the solar industry, go to the Solar 101 Reading list. It has free tools and articles on solar design and installation, sales and marketing, policy, finance and best practices.

Second only to long term, clear and consistent policy, financing is the largest bottleneck that is facing the solar industry. For this reason, I’m going to be spend more and more time discussing issues around financing with other industry expects as well as explaining some of the basics.

• Read the List of Everything You Need to Understand to Finance Commercial Solar Projects
• Sign up for our Solar MBA and Learn how to Finance Commercial Solar PPAs from A to Z.
• Take a free course from our expert solar finance instructors Mastering Commercial Solar Finance
• Click here to join our Linkedin group “Best Practices for Financing Commercial PPAs Between 200kW and 5MW” and continue the conversation about best practices.
• How to Finance Non-Profit Solar Projects – 50 Minute Session Answering 5  Key Questions
• Listen to 60 Minute Interview: Advice from a $20MM Solar Tax Equity Investor to Commercial Solar Installers – Focus on a Niche, Be Fast, and Standardize your Operations
• 60 Minutes of Video Answer 7 Questions on Best Practices for Setting up Commercial Solar Power Purchase Agreements.

There are 5 elements to financing a solar project and over the next few months these are the subjects we’ll be exploring more in depth:

1. The Interconnection Process. The interconnection processes is the process by which a solar facility is allowed to interconnect and provide power into the electricity distribution grid. Any solar project planning on selling power into the grid must apply for interconnection. This can be a time consuming and potentially expensive process, especially for large projects so its a good idea to understand it if your company is working on more than residential work.
2. Structuring PPAs. Power Purchase Agreements are used in commercial and utility scale projects that determine that rate that the power will be sold from the owner of the solar power plant to the utility. They are increasingly being used in residential applications. Understanding how to set up a PPA will be key to attracting investors and selling larger projects. Now that projects are abundant and investors are a little more scarce, only the best projects are being financed. This typically means that they already have a PPA established.
3. Net Metering. Net Metering is an electricity policy that allows solar owners to “sell” and use power from the grid at the retail rate and not wholesale rates. The increased value of retail power over wholesale rates makes solar projects much more economically appealing.
4. SRECs. Solar Renewable Energy Credits (SRECs) are the primary policy mechanism being used in the east coast markets of the US to stimulate the development of solar projects. Understanding what SRECs are, how they work, how they affect project economics and how to communicate their value to customers will be critical in selling any size project. Take this free course on SRECs to learn more about how they work.
5. Tax Equity Finance and Ownership Structures. The US has a long history of using tax credits to stimulate new industries and the solar industry is no different. Especially on commercial projects, understanding the tax laws that are applicable to projects will be critical. Along with various tax breaks, you’ll also need to understand the various ownership structures that can be used to insure that each party; the EPC contractor, investor, developer receives their needed returns.