Today the US solar market is booming–67% growth in 2010, according to SEIAs 2010 Solar Market Trends Report–easily the fastest growing industry in the US. In the US Solar photovoltaic market, there are largely two main obstacles to growth. The first is stable long-term policy and the second is financing.
More and more HeatSpring alumni, students and prospective students have begun to ask more about financing, and while we understand financing from a very broad level, we wanted solar financing experts to discuss many aspects related to financing. If you’re interested in writing an article for our series on solar financing, please email me at firstname.lastname@example.org. We are confident that an installer’s ability to understand the various ownership structures and tax equity options, as well as structure PPAs and SRECs, will make them better able to develop projects.
If you’re very interested in learning more about financing commercial solar projects, I have three resources for you
- Learn how to Finance Commercial Solar PPAs from A to Z Sign up for our Solar Executive MBA
- Take a free course from our expert solar finance instructors Mastering Commercial Solar Finance
- Access 60 minutes of videos answering 8 questions about best practices for financing commercial solar power purchase agreements.
The purpose of the series is to help small and medium size solar installers who are in a specific situation. Each article is written to help a small installer who has only been doing cash projects but suddenly have a large commercial installation that could be completed if only they could help the client with financing.
Our first article is about the development of solar PPAs from Heather South, who works with One Globe Renewables in Colorado.
Small commercial solar integrators typically install solar PV systems that range in size from 20kW and up to 500kW. If their client does not have the capital to self-fund the solar PV project, a PPA (power purchase agreement) can enable the property owner to install solar on their property with no up-front costs. In turn, they will buy back the electricity that the system produces at an often times reduced but definitely stabilized rate. The PPA company will own, operate and maintain the solar system. However, the building owner gets to take advantage of all LEED (Leadership in Energy and Environmental Design) points associated with the installation, as well as the positive effects on the buildings energy star rating.
Size Requirements of a System
In order for a finance source to be attracted to a project, it must fit certain size requirements. Typically the smallest project size that is attractive to investors is 100kW. If there are several sites with the same owner, it is possible to bundle smaller systems, as long as their total is at least 100kw. Some investors only accept systems of 500kW minimum, in which case the bundled project will have to equal up to at least 500kW. The size requirements vary and depend on who is funding the project. When seeking financing, the PPA company or project developer will be able to outline their specific size requirements.
What’s the Structure of a PPA?
PPA’s are all structured differently. There are typically no identical PPA’s, unless it is a blanket PPA that has already been negotiated with a particular owner to use per building that he owns. However, even that is extremely difficult, due to the different laws and regulations by state and utility area as well as the different incentives and structures.
What role does a building owners credit play?
Credit plays an extensive role in getting a PPA financed. Typically investment groups like to see owners with a credit rating of BBB or greater. Privately held companies may also receive financing, however audited financial statements will be required to look into their credit history. Non-profit organizations can also be financed as there are some investors specializing specifically in non-profit projects. Once an owner decides to move forward with a PPA, an actual rate cannot be given without a credit check. A preliminary PPA proposal with a preliminary price per KWH (kilowatt hour) can be provided, but the rate specified may change depending on the hosts credit and financial approval.
What technical information about a building needs to be submitted?
If a solar integrator is looking to have a project financed, they need to submit all electricity information on existing buildings, or submit electrical consumption assumptions on new buildings that have not yet been built. The integrator should have some idea of the credit worthiness of the client and include the specific property information to the PPA company or project developer. It should also be indicated if the system will be ground-mount, roof-mount or a carport-mount system with the system size and type of PV desired to be installed. In addition, integrators need to send over the production that the system is anticipated to produce. All of this information is required before an initial project analysis can be completed and before an integrator can receive a preliminary PPA proposal with a preliminary price per kWh. The preliminary proposal can change depending on credit check and financial review.
What is the PPA negotiation process like?
After the proposal has been reviewed by the client and they wish to move forward, all necessary credit information needs to be obtained for final financing approval. After this is complete, the client is apprized the actual cent per KWH and sign a non-binding letter of intent (LOI) if they wish to proceed. LOI’s typically state that as long as the quoted KWH rate is achieved the price will not be shopped and the process will move forward, provided the project can be financed at that rate. After the LOI is signed, if credit is approved and financing is secured, PPA negotiations will begin.
PPA negotiations are often cumbersome because both the PPA company and property owner have to agree on all contract terms. The length of PPA’s can range from 15-25 years with options to extend. Usually PPA’s will include a buy-out option on equipment, typically in the 6th or 7th year, in which the system is sold at fair market value to the building owner. The PPA will include details on transfer of ownership in the event the property is sold. A PPA is structured so that the building owner is obligated to buy all electricity the system generates and incorporates repercussions in the event the building owner defaults. As previously stated, each PPA is structured differently, based upon the investors criteria and what the customer is willing to accept.
After all terms and conditions are agreed upon by both parties, the PPA contract will go into effect and installation begins. With the 30% federal investment tax credit, depreciation and utility rebates/incentives, there has never been a better time to get a project financed. If any solar integrators have clients that need projects financed, look into a PPA today!
About Heather South:
Employed at One Globe Renewables for over a year, Heather South helps to spearhead the Business Development department in financing and developing solar project all across the United States. With a BBA in Business Administration from The University of Toledo and five years of business development experience, she cultivates viable commercial and industrial solar leads and determines a way to make projects financially feasible for commercial and industrial business owners nationwide.
One Globe Renewables, LLC (OGR) is a solar finance and solar project development company with national reach. OGR offers financing by way of a Solar Power Purchase Agreement (SPPA) or commercial Lease. Our mission is to help businesses better utilize vacant space on rooftops and land by turning them into energy producing solar-assets. Our mission is to reduce the planets energy demand and carbon footprint, through the use of solar energy. OGR finances projects for a variety of solar integrators and commercial building owners that seek project funding.