Solar Photovoltaics

Solar Photovoltaic systems use solar energy to create electricity. In 2010, the solar PV industry was the fastest growing industry in the US, with a growth rate is 69%.

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Click here to join our linkedin group “Best Practices for Financing Commercial PPAs Between 200kW and 5MW” and continue the conversation about best practices.

Click here if you want to see 60 minutes of videos answering 8 questions about best practices for financing commercial solar power purchase agreements.

If you’re brand new click here to learn what is NABCEP and wether or not you should need to get the certification. If you’re serious about the solar industry and you want to get the NABCEP Certification, but you need to understand how exactly to apply, you can read more about getting the NABCEP Certification here.

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Solar 101 Reading List for Beginners
Solar PV Basic Terms 101
How to Design a Solar Array
Finance 101 for Solar PV Pros
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Free Course: How to use Solar Leases to Grow Your Business

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If you need to get in depth training on how to market, sell, design or installation solar PV project. Look at our solar trainings.

The Most Common Solar PPA Modeling Mistake, The Fix, and a Free Tool

solar modelling

This article will address the most common error that developers and EPCs make when modeling commercial solar PPAs. The video below will discuss the problem, the solution, and provide a free tool you can download so you can work through the answer yourself.

If you’re a developer interested in developing and owning your own solar project, click here sign up for the one hour webinar that Chris Lord will be running tomorrow at 2pm EST. The event is titled “How Commercial Solar EPCs can Develop and Own Their Own Solar Projects”.

This article is part of a series common topics and questions that professionals have about financing commercial solar projects. Past topics include how to price the risk of cash equity vs tax equity in a partnership flip and how to calculate the buyout process of a PPA.

This lessons will be on the most common modeling mistakes that Chris Lord see’s developers make. Chris Lord runs a consulting practice called CapIron and is a co-teacher of the Solar MBA (next course starts on April 14th). Tomorrow, Friday April 11th at 2pm EST, Chris will be hosting a webinar that will teach solar developers the 5 key issues they need to understand to develop and own their own projects.

The modeling problem has to do with properly discounting the tax benefits of a project. The result of that problem is two-fold. First, it’s an obvious beginners mistakes. If you want to look like a professional, you need to make sure that you’re not doing this. Second, if you do it improperly, it inflates project returns, which can hurt you when the investor does their due diligence.

Note: If you want to see what Chris is doing, click on the FULL SCREEN button on the bottom right of the video. You can also download the tool Chris is using by entering your email at the bottom of the article. 

We all know the importance of understanding and modeling the economics of a solar project, but what is the most common and easily corrected modeling mistake you see Developers make?

Failing to properly discount the federal tax benefits in a transaction, particularly the ITC. Most show the ITC as a direct and immediate reduction of the Capital Cost of a Project. In effect, developer is asking the tax investor to buy the tax credit by paying $1 for every $1 dollar of tax credit. Developers want to pay a discount. Sometimes the discount is expressed as a price per dollar, but the best way to account for the cost is show the purchase price paid in year zero and the ITC recovered in year 1. This ensures that the ITC will be discounted at least one year by the Investor’s discount rate.

How would you handle depreciation? 

Answer: You take the available depreciation for each year – let’s say that is the excess depreciation beyond what is needed to shelter the project’s current income – calculate the value of that depreciation as the amount of tax savings that such excess depreciation will generate. For example, if you had in year 2 $110 of depreciation and $10 of project income, you would have $100 of excess depreciation. For an investor with enough other qualifying income to use that $100 of excess depreciation, the value is equal to the applicable tax rate times $100. At a 35% federal tax rate, that would mean $35 of value in year 2. Discount that back to year 0 to determine today’s value of that $100 of excess depreciation in year 2.

Download The Sample Model

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Interview with Cory Honeyman, GTM Research Solar Analyst, on Emerging Trends in Residential and Commercial Solar

In this interview, GTM Research Solar Analyst Cory Honeyman provides some background on the U.S. Solar Market Insight Report and discusses trends in residential and commercial solar, including hard costs, important skills for salespeople, state incentives, common misconceptions, and financing. (The interview has been lightly edited for length and clarity.)

Tom McCormack (TM): Can you give some background on the U.S. Solar Market Insight Report?

Cory Honeyman (CH): The U.S. Solar Market Insight Report is a publication that we release with the Solar Energies Industry Association (SEIA) on a quarterly basis. The key takeaways from the report are a combination of understand installations across each state and market segment, our outlook on future installations, our forecast, by state and market segment on future installations through 2017. Within that, we break apart and identify the leading states and provide qualitative background on the key drivers and challenges to growth that are fueling or hampering installations across the top 10, and some of the newer state markets that are just beginning to hit the national radar. We also cover installation pricing trends, manufacturing and component pricing trends, and, finally, a breakdown of both PV and concentrating solar trends.

TM: What is the methodology for the report?

CH: The quantitative data comes from an extensive data collection effort that I take the lead on. We reach out to 60-80 sources, including utilities, incentive program administrators, and government program administrators, who provide figures on new installation capacity across the major market segments. One key element that sets this report apart from other reports that are tracking growth in the solar industry is the fact that I think we have the most robust coverage of actual utility interconnection data. We also conduct an extensive array of channel checks where we have discussions with people across the downstream value chain for solar about the major drivers of growth in the states where we’re seeing upticks in a given quarter.

TM: What is driving the increase in residential installations?

CH: Customer acceptance and the interest in going solar in the major state markets, especially in California, is increasing every year. When you see three of your neighbors go solar, it inevitably makes you want to go solar, too. Outside of the increased social acceptance, the economics for installing solar on the residential side have become increasingly attractive. The cost to install has gone down, but it’s also been driven by the introduction of a lot more innovative and attractive third-party financing options that have really scaled up growth. The entrance of companies like SolarCity that can enable homeowners to avoid a lot of the upfront costs of installing solar is driving a lot of the growth in the established state markets. We see, on the residential side, in most major markets, that third-party ownership accounts for two thirds to 85 percent of the market each quarter.

TM: What is making solar cheaper?

CH: On the upstream side, we’re seeing declining prices across both components and polysilicon. Combined with that is the fact that we’ve seen increased electricity retail rates for customers. Those two things together increase the value proposition for customers to go solar. Also, in many of the established state markets installers have fine-tuned their internal operational efficiencies, cutting down on a lot of soft costs and have also even focused on customer acquisition.

TM: Do the current solar trends suggest any new careers or skills that will be more in demand in the coming years?  

CH: Our partner SEIA recently released a report on the number of jobs that have been created within the solar industry, and that goes into the types of jobs the industry attracts and how that has evolved over time. As we’ve seen really impressive and continued growth across the entire market, obviously that requires a ramp-up in sales capacities. So, if you go on LinkedIn and type in “solar,” all of the leading companies have positions open for outside and inside sales consultants, and I think that is an area where there will be constant demand. Although it’s becoming increasingly heterogeneous, the U.S. market is still concentrated in the hands of a few state markets. However, the dynamics within those states is changing, so I think there’s a need for more and more roles that involve a strong understanding of where the market is heading both geographically as well as in terms of financing trends and other major trends that can lead to increased acquisition of customers.

TM: What types of skills would make a prospective solar employee marketable today?

CH: It’s a different conversation depending on whether you’re pitching to a residential or a commercial customer. The requirements for commercial are more technical and focused on the financial returns whereas with residential, you really just need to shore up what your elevator pitch is when you’re reaching out to potential customers. Regardless of what the customer acquisition strategies are for a given company, if you’re in a sales position, a lot of that is going to be external-facing and either on the phone or face-to-face work. So, it’s important to understand financing options and be able to explain the key metrics that homeowners care about. So, what is the payback period? Or, what is the discount I can expect based on what I am currently paying for my electricity bill?

TM: What do you consider to be an overlooked or not-well-understood element of the current solar market?

CH: I think one of the prevailing notions about installing solar is that you need to have incentives to make it work, and I think we expect any project to take advantage of the federal-level incentives, which means the federal investment tax credit along with another incentive or accelerated depreciation. That will continue to be the primary driver of growth for the next couple of years. When a lot of people think about the economics of solar working out, it has to go hand-in-hand with the availability of really strong state incentive programs. That does fuel a lot of growth across many smaller and middle-tier state markets. But we’re really beginning to see a number of the leading states, that account for 80 percent of the market begin to shift away from needing any state incentives to make projects work. Last quarter was a hallmark moment for California, where over half of all the residential installations that came online actually came online without any state incentives. The trend is getting closer to this notion of retail rate parity, where a project can work with only the federal-level incentives. The misconception that you need incentives to make projects work is an important one because if you’re interested in making sales pitches and becoming an attractive candidate for jobs, being able to talk confidently about where the industry is heading and how it’s becoming increasingly independent of these state-level incentives is important.

TM: What are the main drivers of solar growth? Is it the political landscape of the state, the incentives in the state, or simply the availability of solar based on state geography?

CH: I think they all work together and are weighted differently depending on the state. The underlying market fundamentals that need to be there are: “What are the current retail electricity rates in a particular state?” and “What are the solar resources for that state?” When you have those two questions factored in, the role of incentives plays an important role, but when you think about the roles governments and utilities play in helping to promote solar growth, I think it really varies. From an outsider’s perspective, it’s probably surprising to hear that, in a number of states where you wouldn’t expect to see meaningful investment in solar, it’s actually taking place. Yes, California has and will continue to be the #1 state market for solar, but recently, for example, within the utility-scale market segment, North Carolina is the #2 state right now. Also, even farther south, Georgia, and specifically the utility Georgia Power, has made significant efforts an investment to begin ramping up solar development within its territory.

TM: Can you explain why that’s surprising? Is it because we’d expect redder states to be more reluctant to embrace the technology, or is it a different reason?

CG: I don’t think it’s surprising. The value of going solar is not driven solely by altruism and doing right. That’s an important piece to the puzzle, but the economics are structured in a way that, both for utilities and end users, there are strong cases to be made for integrating solar into the mix. So in Georgia, Colorado, and even Minnesota, the value of adding solar not for compliance reasons, but, for example, as a hedge against natural gas prices inevitably rising again. For customers in states where the incentive landscape isn’t as strong, and as project economics become increasingly attractive, the value of avoiding energy costs altogether is something that I don’t think people always factor in to the evaluation of what role solar can actually play across the U.S.

TM: What are the factors that impact how a utility company participates in the market? You mentioned that it’s a hedge against the price of other energy sources.

CH: That’s a second-order driver at this point. The #1 factor has been that states have set renewable portfolio standards (RPS), and a lot of those have solar carve-outs where the utilities are required to procure a certain amount of solar to meet annual compliance obligations. Those pieces of legislation have launched a number of procurement programs and incentive programs across all market segments. There are a number of states where those RPS are set. The most recent one was established in Minnesota.

TM: So, if there’s new legislation in a state, that’s going to be a major driver, forcing the utilities to get on board whether they like the idea or not?

CH: The prospects for new RPS legislation are going to be few and far between. There are a few states where we’ve seen an extension or revision of these standards, but a lot of the standards have been set over the past few years, going back as early as the mid-2000s, so that legislation is not something that will create new demand. It will just sustain demand that’s been set into place over the past several years.

TM: What types of new commercial projects are we seeing on the horizon?

CH: On the commercial side, the market saw a downturn in 2013 and kind of flat-lined. I think the market has shifted toward smaller-scale commercial systems, sub 100 kilowatt. In the past, especially in New Jersey, which was, for a while, the leading driver of growth in the commercial market, you saw a ton of 5 to 10 megawatt, ground-mount systems that were driving a lot of growth there. And, that market fall apart for a bit because its primary driver is SRECs, and the demand for SRECs dropped once there was too much investment in that market. Looking forward, I don’t think you’re going to necessarily see a shift in the types of projects; it’s more about the way in which that market can become reinvigorated. A lot of it has to do with mirroring what has happen recently on the residential side: figuring out ways to unlock capital to start developing projects again. On the residential side, we’ve seen really innovative platforms for linking investors with developers and linking third-party ownership agreements with customers. Coming up with innovative online platforms to facilitate and then unlock investment for commercial customers is a really important strategy that’s been employed on the residential side. Revising the financing structures that are currently in place in commercial markets is a really important trend to keep in mind. But there’s isn’t one specific type of project we can expect to see. It really depends on the state market. In Massachusetts, which is well on its way to being the #2 commercial market, looking at 2014, that market still sees a number of 1 to 5 megawatt, ground-mount systems. So, it depends on which state you’re in, what incentives are in place, and what those incentives are targeting.

TM: If there was something I needed to learn or familiarize myself with, when you’re talking about the more innovative financing for commercial solar, is that just a matter of getting comfortable with the all the different options that are out there, or creatively bringing investors to the table, or exploring new crowdsourcing options? What would I want to key in on to be on the cutting edge of that change as it happens?

CH: That’s one of the million-dollar questions for 2014 with commercial solar. There are a few companies that are beginning to introduce innovative financing structures. There was an announcement from Wiser Capital that they’re introducing a platform for scaling up commercial solar. Topics you’d really want to understand are how a power purchase agreement (PPA) is structured and expected returns and requirements from different types of nonresidential customers. “Commercial” is often used interchangeably with “nonresidential,” but a lot of the developers who are developing commercial projects are also developing projects for municipal, government, and non-profit entities, too. So, it’s important to recognize that the types of financing available for school projects, for example, are different than what you can secure for a commercial customer. And, I think there are trade-offs and benefits to both types of projects, but really understanding what types of debt instruments you can take advantage of with school and government projects, it’s perhaps a little more niche, but some of those opportunities are really important to leverage. Good case studies to reference are a number of school projects that have been developed in California and Arizona where they have PPA documents available to the public that you can review.

We plan to do an interview like this one each quarter to stay on top of quickly-evolving trends in the solar industry. What topics would you like to see covered?

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If you’re looking for solar training taught by industry experts, check out these online options:

Solar Executive MBA – The Solar Executive MBA is technical, rigorous, and challenging. It’s the most intense six-week course you’ll ever find but also the most valuable. We developed it for leaders who are responsible for the financial details that drive solar projects. The course is taught by two instructors: Keith Cronin, who built and sold his solar installation business to SunEdison in 2007, and Christopher Lord, a lawyer with deep banking experience who works with solar companies to find viable projects and investors for those projects.

Megawatt Design – Spend ten weeks learning from Ryan Mayfield, the Solar PV Technical Editor at SolarPro Magazine. Ryan, along with help from other industry leaders, has developed this course to help experienced solar professionals get their projects permitted and installed faster and cheaper. This course goes beyond traditional solar training: it is technical, rigorous, and for experienced professionals only. We cover all types of large solar PV systems, with a heavy emphasis on commercial rooftop systems.

Batteries in Solar PV Systems – Six-week intensive training with solar legend Christopher LaForge. PV systems that employ batteries require significant design considerations. Whether using batteries to “back-up” your utility grid or having them as the basis of a “stand-alone off grid system,” choosing the correct battery and sizing it correctly is challenging. This workshop will be an in-depth analysis of the issues surrounding the use of batteries for PV applications.

40-Hour Advanced Solar PV Installer Training – For experienced solar professionals looking to take the NABCEP Installer Exam and advance within the industry. Includes 40 NABCEP approved hours of training on advanced solar PV topics. We’ll cover electric code, installation, design, commissioning, sales, and begin to prepare you for the NABCEP Installer Exam.

Solar PV Installer Boot Camp + NABCEP Entry Level Exam Prep – The best way into the solar industry. This ISPQ-accredited, 40-hour solar training teaches you to design, install, and sell solar PV (electric) systems and helps you pass the NABCEP Entry Level Exam.

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How to Price the Risk of Cash Equity vs Tax Equity Positions in Solar Partnership Flips

This article is part of a series common topics and questions that professionals have about financing commercial solar projects. Chris Lord of CapIron provided some insights into pricing certain types of investor risk in partnership flips. Chris is a co-teacher of our Solar MBA which starts on Monday April 14th. Chris will also be presenting a webinar on Friday the 11th titled “How Commercial Solar EPCs can Develop and Own their Own Solar Assets”.

Now onto the question.

In a partnership flip, just how much riskier is the Cash Equity position, compared to the Tax Equity position? How do you put an IRR or Discount on that?

In a partnership flip, the cash equity’s return is subordinated to the tax equity’s return. In other words, the lion’s share of all cash and tax benefits for a project are allocated to the tax equity, with only a small allocation to the cash equity. This continues until the tax equity achieves its target return. That target return could range from an upper single digit return for the best of the best projects, and more typically in the low to mid double digits for typical mid-sized DG projects. This allocation favoring tax equity could extend for anywhere from 3 to 10 years depending on the strength of the project’s economics. Only after the tax equity realizes its target return, does the allocation of cash (and tax) benefits swing back to strongly favor the cash investor. This means that cash equity returns are pushed back later into a project’s lifecycle, and that longer term and subordinated role mean a cash equity position is always “riskier” than a tax equity investor and ought to receive a return greater that than the tax equity investor.

How do you put an IRR or Discount on that?

Hard for a developer to put a price on it, but the real test is what kind of a return does the market require.

Posted in Financing, Solar Photovoltaics | Tagged , , , | 1 Comment

SolarPro, HeatSpring, Ryan Mayfield Launch Megawatt Solar Design Class

 The online technical training experts at HeatSpring have teamed up with photovoltaic design and instruction professional Ryan Mayfield and technical media specialists SolarPro to launch a 10-week online course in megawatt-scale solar PV system design. To learn more about the course, register for one of two premium webinars being offered:

The Megawatt Design class is a technically rigorous and challenging 10-week course. Click this link for a complete class description and to sign up or enter your email address to claim a $500 early bird discount available to the first 30 respondents only.

The course has been developed for professionals who are responsible for designing, specifying, permitting, and managing the construction of megawatt-scale large-commercial solar projects and who need to stay current on equipment selection, design, budgeting, and code compliance. It is tailored to professionals with previous experience in large-commercial PV system design as well as those seeking to expand into the commercial market from a base of experience in residential PV system design. Students will use computer aided drafting, industry specific design tools and spreadsheet tools to complete the course.

Graduates of the Megawatt Design class will:

  1. Submit a complete set of drawings, equipment, budget, code references, and calculations for an actual megawatt PV system design project.
  2. Understand how to design projects that are cost effective, structurally sound, high performance and code compliant.
  3. Understand the current best practices for line side connections, grounding, rapid shutdown, fire regulations, and other complex and common design challenges for large projects.
  4. Be confident that their permitting package will be Code compliant the first time.

Course Outline

  • Project Qualification: In this opening week, we will review best practices for technical sales on large-scale commercial projects. Topics include: Establish major project goals, array location possibilities, rooftop/carport/ground mount, roof loading considerations, electrical infrastructure.
  • Equipment Selection: In this module we dive deeply into equipment selection. Pricing and equipment change rapidly in our industry. We’ll make sure you’re up to speed on the latest thinking. Topics include: Product selection thresholds, first cost, warranty, manufacturer service, module considerations including warranties and PID, inverter considerations, dc-to-ac ratio, micro/string/central inverter options, tracked and fixed racking, and system BOS.
  • Site Selection: This week we’ll cover requirements and best practices for siting your projects, covering both ground mount and rooftop systems. Topics include: Permissible shading allowances and  grading requirements for ground mounted arrays.
  • Software Tools: What software should you use to design large commercial solar projects? We’ll review the available options and help you to get the most out of your current or future program of choice, enabling fast, efficient design.
  • Designing Systems for Different Criteria: Every system design requires trade-offs. This week will cover how to optimize your designs for different criteria and how to minimize the downside of the trade-offs you make. Topics include: Lowest first cost, maximized energy production and targeted energy production.
  • NEC Considerations: Code, Code, Code. We could spend the entire course covering code, but we’re going to assume everyone in this course has a firm grasp of the NEC. This week we’ll discuss some of the 2014 updates and nuanced details to help you make fewer mistakes and get your jobs permitted faster.
  • Fire Code Considerations: Large-commercial rooftop systems require an in-depth understanding of fire codes and techniques for coordinating with fire departments, inspectors and owners.2012  International Fire Code (IFC) requirements will be covered.
  • Operations & Maintenance: Develop a detailed O&M plan that can be refined and re-used on your next large-commercial PV project.
  • Permitting: How do you get your permitting done faster and cheaper? That’s the multi-million dollar question. In this module we’ll provide tips and tools for getting your projects permitted more easily than your competitors.
  • Capstone Project: Students will receive all the inputs for a large-commercial rooftop installation, and develop and submit drawings, equipment and budgets to get the project installed as quickly and inexpensively as possible without compromising performance. Data for the capstone project comes from a real job. We’ve masked the identity of the project, but you’ll get to see all of the choices that were made and discuss the pros and cons of each as you do the work of designing your own system.

Continue reading

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[Interview] How to Provide Solar Financing to Any Non-Profit Solar Project Larger Than 50kW

solar crowdfunding

Lee Barken and his team at Collective Sun have figured out the holy grail of commercial solar financing.

Collective Sun can provide solar financing to non-profit solar projects from 50kW and up. Currently, they’re offering their product in California but are interested in doing the securities and legal work to open up shop in other states, if there is a non-profit that has serious interest in working with them.

Listen to the interview below to learn more about Collective Sun (CS) and how, specifically, their underwriting process is different than a traditional investor. Their key advantage is their unique underwriting process. It’s a really interesting strategy. Their process has more to do with selecting investors that see specific non-profits as low risk, rather than finding the non-profits that meet the stringent constraints of a tradition solar investor’s risk profile.

Why focus on non-profits?

There are several reasons why there has been such focus on non-profit clients.

  1. Non-profits operate on small budgets and they always need cash. Having lower and predictable operating expenses is very valuable to these organizations. It’s an easy sell to get your foot in the door.
  2. Non-profits have a social mission that tends to fit well with solar.
  3. There’s A LOT of non-profits! So the potential target market is huge. According to NCCS, there are 1.4 million non-profits in the US. Figuring this problem out will result in a huge increase in sales for the firms that provide this service.
  4. They can’t purchase a system in cash, because they don’t have a tax appetite, so financing is a natural fit for them.

A few months ago, we did a live Q+A that was specifically on performing due diligence, using crowd-funding,  and finding investors for financing non-profit solar projects. You can see the 50 minutes of video answering 5 question here. If you want to learn how to finance commercial solar projects from start to finish including all of the legal contracts, financial modeling tools, click here to read more about Solar MBA that starts on Monday April 14th. You’ll walk through the financing of a project in 6 weeks. Click here to enter your email and get one of the 30 discounts to the class.

Listen to the Interview

In this interview, here’s what you’ll learn.

  • How many projects Collective Sun (CS) has financed.
  • The types of non-profits that CS is focused on.
  • The size of non-profit that CollectiveSun will work with.
  • The spark that made CS decide to focus on financing non-profits.
  • Lee Barken’s background and how that led him to CS.
  • Why financing non-profits is more than a tax problem.
  • How CS deals with non-profit risk by working with a very specific type of investor.

Continue reading

Posted in Financing, Solar Photovoltaics | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

5 Perspectives for Using Solar Subcontractors for Residential PV Installation

This is a guest post by Fred Paris. Fred teaches our 6 week Solar Startup Accelerator where students get the tools (budgeting, planning, pricing, project management) and business plan they need to start new solar business or solar division within an existing company, in 6 weeks. You can read more about the Solar startup class here. You can enter your email to get 1 of the 30 discounts available here. Fred is also hosting an awesome webinar on “How to Profitably Price Residential Solar” on Tuesday April 1st at 1pm EST. 

Enter Fred -

1. Define the Skills Needed of a Solar Subcontractor. 

To sell, design, and install PV without employees, you will need to work with subcontractors (subs) that have skills, tools, and construction savvy to implement PV projects to your specifications. Sounds a lot simpler than it is.

We sell, design. and install residential systems between 2 and 15kW. We need to hire three professional trades: electrician, roofer, and a general construction contractor. The electrician and roofer are required for most rooftop projects, while the construction contractor will work with the electrician for ground and pole mounts. We also use the construction contractor to reinforce trusses or roof rafters – as may be defined by a structural engineer.

Define the skills you need and specialize. Be careful of the subcontractor that says they can do it all. Perhaps they can, but as the PV project owner, you need to understand the detailed costs of the individual tasks. Only by understanding, the granularity of cost can you negotiate with contractors with clearly defined ‘scope of work’ statements.

2. Apply People Management skills

As the PV systems integrator, you may not have direct employees, but you will have vested interests in how the subs get along with each other. Having a clear scope of work is a good start, but you also need to see a working relationship develop between the subs. Subs need to work with each other ‘practically’ to determine that they will not be in each others way, and ‘financially’ to capitalize on such common needs as renting a lift. Both the electrician and the roofer might rent a single lift for roof top equipment and modules.

There is a need to recognize that installing rooftop solar energy requires ‘working on the roof’. There are good electricians that do not like high steep rooftops. In these instances, the roofer is ‘supervised’ by the electrician from a safe position or from the lift, bringing the electrician into visual and audible range of the roofer.

It is important the subs know how to work with each other and the management skills of the PV integrator is critical.  Help the contractors work with each other. Make sure they understand the scope of their individual tasks and how they integrate with the other trades. If your trades cannot work together, or are having inter-trade conflicts, find a new mix of subs.

Beyond the roofer and electrician, you will need access to general construction.  A general construction crew will build all the reinforcement for ground systems, ballast, or foundation, and will install pole-mounted systems. This contractor installs any rafters and truss reinforcement that may be required on a project.

The electrician is always positioned as the primary trade. The licensed electrician will often be the point of contact for rebate communication and relations with the state.

3. Define the Scope of Work

You will get to a point where you can call your electrician and say something as simple as: “Hi Joe, I have a new 7500 watt rooftop system going in downtown. They have 200 Amp service and I am planning on two inverters. When can you look at the project for me?”  You then make the same call to the roofer.

After a few projects the electrician and roofer know where one trade stops and the other starts.  For rooftop projects, the roofer and the electrician work it out to see who will install the mounting system and modules. In some instances, the roofer will install the mounting system and the electrician the modules. Understanding the details of work for each of the trades can avoid misunderstanding or ‘change of scope charges’

It’s key that you provide a very specific and detailed scope of work for each party involved and a process to verify that the work was done, and done how it was specified.

4. Make Payment Arrangements and Cash-flow Management

You need to be right up front with your subs about when they can be expected to be paid and how much. As the PV System provider, you may likely arrange a three-payment schedule with your customer. Perhaps you get some money up front, a payment when construction begins, and a final check when the system is turned on and all documentation completed.

That incoming revenue is part of your project cash flow. The other part is what is being paid out for hardware and services. Tracking “Cash Flow” on a project basis and plotting the payments to subs when they expect to be paid is important. Your payment arrangements with the customer need to cover hardware, software, labor, and fees. Your cash flow objective is to stay on top and in the green.  This is cash-flow management.

5 Document all Insurance

As we hire subcontractors (subs) you need to be sure they have the proper insurance coverage.  You need to ask the contractor for proof of liability insurance and workmen’s compensation coverage.  In many jurisdictions, if the subcontractor does not have workmen’s compensation you may be required to pay a premium for the people on your project.

Posted in Geothermal and Solar Design and Installation Tips, Solar Photovoltaics | Tagged | Leave a comment

Part 1 – Loopholes. A step by step story of a 14.25kW community solar project in Maine

FarmLayout.001

This is the first article in what will become a series about a 14.25kW community solar project that I’m building in Maine for my friends. In Maine, community solar is technically allowed, but the regulations around it make it functionally impossible.  But, there’s a nice loop hole that does make it possible.

This article will briefly explain the project details, the economics, and the loop hole that I found that allows for a community solar project. In following articles I’ll share the three line diagram, specific equipment bills of materials and costs, a video walkthrough of the installation.

Experienced solar professionals will chuckle at the loop I’ve found and laugh at the maze of policy craziness that we still have to go through. Professionals that are new to the solar industry will find the methodical step by step process with pictures, tools, very specific examples to be very useful. If you’re brand new, I’m not going to go over the details of a lot of the definitions, so you want to to read some basics before reading this. Don’t worry, I have you covered. If you need technical information start reading this article on Basic Solar Terms, if you need to understand the financial terms that I’m using, start with Finance 101 for Renewable Energy Professionals then move on to Finance 101 for Solar Professionals. If you’re looking to start a solar business, download the solar startup guide. Lastly, if you’re looking to write your solar business plan, get all of the quoting and project management tools that you need, click here to get a discount on our Solar Startup Accelerator.

The background – The Building and the Situation

  •  I’m doing this project for super close friends in Maine. They own a farm and two separate building in Monroe, Maine. I no longer work in the field doing EPC work, so my rule now is that I’ll only do this work for family and friend that I really like, for free. This way it’s a gift (a pretty badass one at that!) and not a chore.
  • They are farmers that are committed to reducing any and all fossil fuel use. While Maine has a relatively clean electricity supply, thanks to hydro, solar is even cleaner.
  • They have a lot of land, so I expect to be electrifying their cars and trackers over the next 5 to 10 years with ground mounted solar.
  • They own their land and plan on living there for the rest of their life. Also, being farmers they’re used to thinking really long term anyway.
  • We’ll be doing all of the work ourselves. This impacts equipment selection, because we want the simplest possible installation. But it will also impact economics. We’ll be able to get gross installed costs at around $2/watt and and get net installed costs after the ITC to 30% less of that. I will provide in-depth cost analysis in follow up posts.
  • The system will produce around 19MWh AC per year. At $160 per MWh ($.16/kWh) that’s around $3,040 of electric production per year. I’ll show a more in-depth PV watts analysis later as well.

The Policy Landscape in Maine. This is where the fun starts.

In the past Maine had a small cash grant program but this has lapsed and not been renewed. Systems are still being installed due the drop in equipment costs, labor costs being very cheap and expensive power.

Maine has a community solar pilot project program. At first, thought “perfect!”, we want to do a community solar project and it could fit into the program. The program provided an addition $.10/kWh payment so it would have made the economics amazing. So, I called the Maine PUC and tried to get an application into the program. The specific program was created under Chapter 325. You can read more about and download the project specifications here, just looked for Chapter 325 and download the word document.

It’s turns out the program is not so easy to use and was almost filled out. However, the gentleman that I spoke with told me that under Maine’s Net Energy Billing legislation “share ownership” is allowed. You can read more about the Net Billing Legislation from Central Maine Power here.

You can read more about the Maine’s shared ownership here. Here’s the basics

  • “Shared ownership” allows for community net metering, where several people invest in an eligible system and are therefore allowed to benefit
  • Shared ownership customers must maintain ownership interest in an eligible facility. These customers share the responsibilities and costs of the facility and resulting proportional benefits. Up to 10 meters can be net metered against a single eligible facility. The shared ownership customers must designate one contact person to serve as the liaison between the owners and utility.

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[Interview] How Faze1 Used Data to Acquire a 5kW Residential Solar Customer for $0.25/watt

Marcpicture.001

This is the story of how Faze1 learned how to acquire a 5kW residential solar customer in Massachusetts for $1,250 or $0.25/watt. This is  about 50% lower than the $0.49/watt that is typically referred to for average residential customer acquisition cost in 2014.

Faze1 used three strategies to achieve this goal, which we will describe in detail in this interview: mapping technology, predictive analytics, and software automation. They used mapping technology to pre-screen all 1.2 million single family detached homes in Massachusetts in order to narrow their search to the most attractive 25% of all roofs. They narrowed down the 300,000 homes with the best roofs by using predictive analytics to identify the homeowners that most closely matched the demographic characteristics of the existing 6,000 solar customers in Massachusetts. Lastly, they used software to automate the entire process.

What’s More Amazing?

Now any solar company operating in Massachusetts can use Faze1 software to quickly and easily grade your own leads to identify the best leads.

Faze1′s SunVIEW is faster, cheaper, and better than using Google Maps to screen potential solar customers.

With Faze1, you’ll be able to instantly get site suitability information (roof size, tilt, azimuth, usable solar sales, shading) and important demographic information (FICO score, house size in square feet, occupancy and ownership, expected yearly electric use in kWh, utility territory and bill, years in home, and more) so you can identify customers that are both willing and able to purchase solar. Click here to download Faze1′s complete data dictionary to see what you can learn about each of your solar leads.

Finding the best customers with the leads that you’re already generating will lower you customer acquisition costs because you’ll spend less time on bad leads.

Faze 1 vs. Google Maps = Faze1 Wins, Hands Down

faze1 vs google maps

And What’s Super Amazing? 

Because you’re a HeatSpring reader, we’re giving away 30 free trials to residential solar companies that are located in Massachusetts. Insert your information below to sign up. These will go fast.

Faze1 + HeatSpring --> RSVP to get 1 of 30 Massachusetts Free Trials

Let’s Get into the Interview

This is an interview with the three members of the Faze1 team. Full disclosure: I’m a Faze1 advisor. The team members are Marc Guy, Elliot Goodwin, and Adam Hannah.

The interview tracks the story of Faze1 from the company’s beginning to where they are currently with SunVIEW. There are three significant stages to the history of the company that will be useful to anyone interested in product development and the solar industry and tell the story of an “okay” idea (sorry guys!) to an extremely valuable product.

Interview Highlights

  1. Marc and Elliot had early experiences doing statistical analysis with the Massachusetts Clean Energy on Solarize campaigns that showed them lead generation and project size doesn’t necessarily equal profits. You can see 2012 Solarize data here.
  2. How a used car salesman (yes, the stereotype is true) helped groSolar standardize and improve their sales process.
  3. How the team applied proven mapping technologies that were already being used in the other established industries to screen the 1.2 million single family homes to find the most attractive homes.
  4. Most solar companies focus on revenue instead of profits which mis-directs their marketing. They think they wanted more leads and site visits, but what they actually need is a more profitable way to process and screen their existing leads to find the most profitable ones.

3 Stages of Faze1 Product Development

Roughly speaking, Faze1 developed their Sunview product in three steps:

  • Stage 1. Faze1′s initial goal was to use data to find the best customers and in Massachusetts and sell the list to EPCs.  They found 30,000 of the best solar leads in the state, based on the characteristics of the existing 6,000 solar customers in Massachusetts, and the goal was to sell these leads to companies. This didn’t work. Why? The value of these leads is directly proportional to the ability of a company to process them. This ability was very low.
  • Stage 2. The second step was create a direct mail campaign and market directly to those leads and sell site visits to EPCs. Faze1 was able to generate leads extremely effectively and found out that their site screening predictive model was effective. This allowed them to find customers very cheaply. They didn’t have the cash to sustain long direct mail campaigns, but they learned that their process and software worked very well.
  • Stage 3. Faze1 decided to sell access to their model through a software product that EPCs can use to quickly, easily, and cheaply identify the best leads from the leads that they’re already generating.

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Posted in Solar and Geothermal Sales and Marketing Tips, Solar Photovoltaics | 1 Comment

[30 Minute Interview] Why SREC Markets Will Grow in a Post-ITC Solar World + Other Trends in Commercial Solar Finance

Chris Lord of CapIron, Commercial Solar Finance Expert

All eyes are on the reduction or expiration of the 30 percent federal solar tax credit (ITC). While it’s the prime goal of SEIA (Solar Energy Industries Association) to maintain the federal ITC, some have argued explicitly that it’s time to dismiss solar tax credits on the local level, while others have argued the federal tax credit SHOULD be reduced or eliminated to help the solar industry.

In this 30-minute interview posted below, I talk with Chris Lord, of CapIron Inc, a solar finance expert. Chris works with property owners, developers and financiers to develop mid-market solar projects. Chris has extensive experience financing solar projects and because he deals with stakeholders on all sides of a project, I’ve found his perspective to be extremely valuable. We’ll discuss investor trends in the commercial solar market, the possible impact of the expiration of the ITC, non-recourse bank lending trends, how EPCs should find investors in their local market, and the impact of crowdfunding.

My takeaway: The impact of the possible ITC expiration will depend on the local market. In markets that have flexible programs, namely SREC markets, it could actually increase the adoption of solar PV by increasing the value of SRECs — after a short drop in supply — which would then open up an entire markets for both properties and investors that could not use the ITC before. While in markets with more rigid structures, like feed-in-tariffs, cash rebates, or tax credits, it might have a more long term negative impact.

In this interview, you will learn:

  • Why there are a lot of banks and funds investing in 2-MW+ and residential solar projects, but few focusing on commercial. I’ll will share why I do not see a trend of more and more project investors focusing on smaller and smaller commercial projects even though there is a huge opportunity. (Note, there are some funds focusing on mid-market projects, click here to listen to an interview with a $20MM solar tax equity investor that only finances mid-market commercial projects.)
  • Why mid-market commercial projects are the hardest part of the market for investors to deal with. Hint: It’s because of the high transaction cost relative to the size of the deal and the inability to aggregate deals.
  • Even though commercial financing is difficult, Chris will share how he sees projects are still being built.
  • The four characteristics of the right investors for mid-market commercial projects.
  • What are the three steps a developer must take to find project investors for their projects.
  • How an EPC’s development plan for a project and the tax appetite of an investors are intimately linked.
  • How the tax appetite of an investor will be the limiting factor to an EPC’s development plan and how you can quickly reverse engineer the tax appetite required from an investor to fund your development pipeline.
  • Why the standardization of documents (note: you can see the results of NRELs working group here and Tioga’s open source PPA here) will only have a minimal impact on reducing the transaction costs for mid-market deals.
  • Why developers should work on creating a specific formula with their investor partners with a specific jurisdiction that can be replicated as much as possible.
  • How tax benefits are a double edged sword and how the expiration of the ITC could greatly simply financing and increase adoption of commercial solar.
  • The maximum transaction cost-to-project deal ratio that I see in the market.
  • The impact that the expiration of the federal ITC could have on local solar markets and how it will be different based on the rigidity of state incentive programs.
  • How low gas prices could shut down coal plants and increase electric rates, increasing solar adoption.
  • Why non-recourse debt is not getting substantially involved in the commercial solar market.
  • Why the expiration of the 2016 ITC could switch the market to using a hosts debt and their own balance sheet to finance projects, eliminating the need for a PPA because tax credit monetization is no longer needed.
  • Three advantages of crowd-funding over borrowing from banks for developers.
  • Two reasons why crowdfunding is attractive to investors.

If you’re interested in more information about the post federal solar tax credit era, check these out

Do you have feedback or questions about this interview?  

Please leave them in the comment section or send me a note on twitter.

This article was originally posted in Renewable Energy World

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50 Minutes of Video Answering 5 Questions on Finding, Pitching, Managing Solar Tax Equity Investors

Photo credit: www.LendingMemo.com

Photo credit: www.LendingMemo.com

This event has already happened. Please scroll down to see the recording and read the answers to the questions. 

This week our focus has turned to a question that everyone wants answered. Investors, investor, investors! Everyone needs more capital for projects, so they can build even more projects. Everyone thinks that lack of investors that can provide capital for projects is holding their business back, which may or may not be true.

We reached out to a few HeatSpring friends that are doing commercial solar work and asked them what issues they were facing with project investors. There are 5 questions below that we’re going to answer on Tuesday.

Interested in more information on the financing commercial solar projects?

We have a lot of awesome information on the subject for you to sink your teeth into.

The 5 Questions

Question 1 – Where do investors come in in the development process of a project? I have 8 acres of land and it has the potential of building a 2MW facilities. I’m in EPC with a strong relationship with the landowner, when should an investor be brought in on the project?

Investors should always been in your orbit and you should develop a prospectus template for your projects. You should first have site control for any project you consider developing. A letter of intent is critical to have executed and if it can be binding for a period of time- 3-6 months as you perform your due diligence, the better. Explaining this to the landowner first is essential and once explained “why” they usually understand that the process is detailed and often one item could kill a deal. Creating a development plan, which consists of specific activities and events that need to happen in order to see a project go from idea to interconnection can be the difference in not only completing a project, but providing potential investors with the confidence in you. Investors have alot of places to park their money today and they need to know that you’re a strong EPC and also that you have a solidified relationship with the land owner. This helps everyone be efficient with their time and reduces the potential for the “cry wolf” types of projects that invariably never get built.

Crafting a timeline with specific milestones and assignment of responsibilities is essential, if you want to attract the most qualified investors. A development plan should also be included and be circulated to the investor pool to show them when you will hit the specified milestones. From a cash flow perspective, this is going to be also important as an EPC, so you’re not carrying the weight of the economics of the project throughout the development process.

Question 2 – What are the most important topics to include in the first page of an executive summary on a project when dealing with an investor for the first time? What will get them interested and afraid?

An executive summary can be as detailed as it needs to be to garnish the attention of an investor. Some things to highlight in the summary should be:

a. Project summary- tell them a story

b. Project financials- what is in it for them

c. Project team- who are you and why you are better than other providers

d. Project details- technology to process- (development plan)

e. Project risks- and how you will overcome them

Investors are being pitched by everyone and anyone and its not just in the solar sector. Returns balance risk- higher returns, higher risk and vice- versa.

What is your unique angle on your project that will get them interested? Are you appealing to their wallets, their altruism goals, more projects in the pipeline, simple project, low risk, high returns, etc.?

Ask them questions: what do they want? Listen and take notes as they will tell you what they’re looking for in a one off project or a portfolio of projects.

Question 3 – I’m an EPC in the northeast and I’m in the process of negotiating a deal with an investor on a 450kW rooftop project. The investor is a local real estate investor that has the passive income to invest in these projects, but he’s new to solar investing. What are my biggest risks and how to I avoid them?

Congratulations – you are well on the way to mastering two of the most challenging parts of a middle-market commercial solar transaction: finding a customer and an investor. As an EPC you probably have a lot of experience finding and landing the customer. The challenge is that financing is not normally in the job description of an EPC, and yet it is a critical component of the puzzle you are trying to put together. So, what are your risks? Where do you need to pay attention?

In a nutshell, your risks arise from your investor’s inexperience and ignorance. That means you must be sure they understand the economics and the structure you are using. Now let’s look at the detail behind that short answer.

The biggest risk you have comes from the fact that your investor is not experienced in the solar arena. Let’s assume though that he or she is a successful and confident real estate investor. We can extrapolate and say that – whether your investor verbalizes this or not – he or she will not want unexpected surprises in the structure or economics. Those are your two biggest risks – failure to understand economics and failure to understand the subtle complexity that comes from a tax equity structure.

In this scenario – ignorant and inexperienced solar investor – some people may take the strategy of give them as little information as they can – a “just get the deal done” strategy. But there are serious legal risks to you and your EPC business if the investor experiences unexpected and unpleasant surprises after the deal. There are business risks as well from this strategy, but they pale by comparison to the legal risks. Losing a million dollars could be pretty painful but nothing like prison. Violating legal rules regarding investment disclosures can carry not just civil but even criminal liability. Besides, your business reputation depends on a successful venture from start to finish, and you want to tap into this investor and his social/business circle for future deals, so there is a great deal of value in getting this right.

Your challenge lies in teaching solar investment as thoroughly as you can over the course of your negotiations, and the build out. But at the same time, you don’t want to confuse or discourage him or her.

Given that your biggest risks stem from a failure of the investor to understand the economics and the structure, you need to prepare a simple but effective model so that the investor or his/her specialists can thoroughly get there head around the economics and related risks. You also need to prepare effective material to explain the tax, legal and business ramifications of the solar investment structure you are selling to the investor. We will cover both in the course in greater detail, but that is the answer in a nutshell.

For our discussion here, I would also add that you must recognize that you cannot explain the structure and get an investor comfortable with an economic model in a single meeting. This will take at least a few weeks and you must be patient. Even once you have an agreement in principle, you must be sure to communicate regularly with your prospect about the deal and its progress.

So, cutting to the chase, don’t assume you can slip a fast deal past an investor. Business models and deals built around assuming the gullibility and shortsightedness of the investor are inherently flawed.

Question 4 – How do you manage an investor communications during the development and construction process?

Carefully and diligently!! The answer to this questions flows from the risks we identified in the preceding question: investor knowledge and understanding of the economics and structure of a deal.

For simplicity sake, we will assume an experienced investor and an inexperienced investor. In both cases, you have the same objective, but the detail and tools may vary.

For the experienced investor, a solid and detailed presentation on the deal, coupled with an online due diligence data room will probably be sufficient to get you most of the way there. You not only want to communicate the substantive aspects of the specific transaction to your investor, but you also want a good record of what you disclosed and when. Whether you are an EPC, customer or professional advisor/broker, you are legally responsible for disclosing the investment risks to the investor.

For an investors with three or four deals completed and a couple of years’ worth of payout under at least one deal, you don’t have to worry as much about global, big picture risks as you do specifics that are peculiar to your deal. Cover the most meaningful ones in your presentation. The due diligence data room should cover all aspects of the deal – from the customer through the EPC. Often an experienced investor will have their own due diligence checklist, and you want the structure of your online data room to mirror that checklist to make things easier for the investor. You probably don’t have to share an economic model in this scenario but you need a single document that contains all of the economics assumptions and data. For example, an investor does not want to have to hunt through your data room to get the PPA price and escalator, or the annual O&M Costs.

What that covers the substance and means of communicating with your investor, you must still figure out the pace and timing of your communications. You don’t want to be haphazard, elusive or an obsessive pain, but you do want to be regular, thorough and timely. Schedule each of your follow-up conversations at the end of your current meeting or call. Make sure your emails are timely and have all of the necessary data. Give a heads up if there are unexpected developments. Remember your investor is a human too, and he or she will be communicating internally with bosses, credit committees and other team members. Help them to look professional and competent, and you will be valued accordingly.

For the less experienced investor, you have a lot of work to do. As we noted earlier, you must combine not only the usual disclosure requirements and procedures, but you must also be educating your investor on the economics and structure. For example, you are going to probably have to share an economic model with the investor. You need to make sure it is a good one, and that it can grow with the sophistication of your investor. As hard as it will be to remember, you are trying to build a long-term relationship with a prospect. Even if they do not have the capacity to make multiple investments, they will have a circle of business and social colleagues who may well follow them. Remember – local investors know and watch one another and so your professionalize and performance will precede you in the local community.

Question 5 – There are only 15 or so large banks offering tax equity in huge funds to residential providers or 5MW+ facilities. I run a successful contracting business in the mid-atlantic but we’re new to solar, we have a great reputable and an existing book of business so I have a pipeline of 1MW of projects that I can install at around $2.35/watt  I can build over 4 sites and I see this growing by about 25% per year. What is the specific profile of an investor that I should be looking for for these size projects and how would I about finding them?

My first recommendation for all solar projects – residential, commercial or institutional – is, first and foremost, to find as many customers as possible who will do the projects without financing. Doing deals without the complexity of financing is far more profitable than doing deals with financing. Always.

Residential deals have the challenge of being smaller and so an investor can afford very little in the way of legal and due diligence costs. That is why residential went to aggregators first.

Now, in your hunt for financing, don’t overlook the fact that there are residential aggregators out there who will work with multiple EPC’s. They are essentially in the finance business and pull together a raft of deals that one of the larger institutional investors will then put money into. Of course, there is the middleman’s cut, so you need to be sure you have enough economics in the deal to pay them and still make your EPC/Developer margin. They will also require you to use their documentation or at least markup and approve your documentation, which means you must lock up with such an aggregator before you enter the deal with the residential owner. The aggregator will also want to be comfortable with you as an EPC and a credit risk. So have good data on your construction experience, and be ready to walk them through the details of your design for a specific solution. The aggregator will also want to see your pipeline because they only make real money – and recover their investment in you – over time.

And this brings us to your challenge if you are looking for locally, well-heeled investors looking for a few smaller deals. The economics are challenging when you throw in legal fees, appraisals and accountant’s advice. To find these investors – and make a deal work – you will need to create your own aggregation. You probably need at least ten deals with a common structure, identical documentation, single utility and preferably located in the same taxing authority. As you already know from the size of your pipeline – four deals a year – this could be difficult.

So, I recommend the following profile: a savvy real estate investor with commercial solar investment experience, a large tax appetite and a comfort with solar risk. This type of investor will know and understand that the due diligence must be focused but limited, and the documentation kept as standard as possible. Ideally, this investor might also be an investor in your EPC business. That would give the investor insight on your track record and responsiveness to the “unexpected”.

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