How Wall Street Capital Is Standardizing Commercial Solar Due Diligence

NOTE: If you’re coming from HeatSpring’s newsletter and you want to watch the video presentation, please scroll down near the bottom of the article. 

One of the largest trends happening in solar right now is Wall Street capital flooding into the industry looking to buy projects quickly before 2016. One could suggest that in some markets, project capital is actually over-supplied. This is happening because many other places in the market are not seeing amazing returns, so Wall Street is looking for places to invest that will get high yield, low risk returns. I’ve heard stories of this trend impacting the wind industry as well, where there is a small secondary market opening up as Wall Street is buying wind projects that have already been operating for years.

Back to solar, this is impacting the solar market because these funds are increasingly okay with investing in mid-market commercial solar projects.

In this section, Noel Lafayette from SHR Energy describes how he is seeing the influx of Wall Street project impacting the commercial solar industry. If you’re a solar developer, you’ll learn the pros and cons of dealing with Wall Street funds. The funds can close quickly and may pay high prices, but they can also require substantial due diligence and have limited flexibility.

Quick Background

Two weeks ago, I hosted an event called “Going Beyond ‘It Depends’ – Trends on Commercial Solar Finance.” The Massachusetts Clean Energy Center hosted the event. We had two great speakers and another 25 solar professionals from around Massachusetts. If you want to read the other sections that were published, here they are:

1. How Commercial Real Estate Owners Deal with PPA Pricing Risk
2. Step-by-Step Guide on How to Sell your Commercial Projects to Investors

The purpose of the event was to bring together a group of experienced solar folks to have a candid conversation about what needs to happen to close deals in today’s market in a format that allows for answers to be detailed and nuanced.

If you’re brand new to solar commercial PPAs and need to brush up before watching this video, sign up for our Free Course: Commercial Solar PPAs 101. If you’d like to connect with other solar finance professionals, join our Linkedin group on Best Practices for Financing Mid-Market Commercial Projects.

Wall Street Capital Getting into Commercial Solar 

Here’s what Noel discusses in the video below.

1. What do yieldcos signal about the development of the solar industry?
2. Are yieldcos having an impact on PPA prices?
3. How Wall Street is standardizing the due diligence process for commercial solar projects.
4. Why there’s an oversupply of project capital coming out of Wall Street right now and why there’s more money than projects.
5. The negative side of dealing with Wall Street (they might be uneducated about solar) and how this impacts their due diligence process.
6. The positive side of dealing with Wall Street, they are well funded and can close deals quickly.
7. The advantage of dealing with high net worth family funds.
8. Why the solar industry is getting pushed into mid-market solar projects.
9. Why Wall Street is looking for “good commercial paper,” 3 years of audited financials from a PPA off-taker and not just investment-grade M.U.S.H. customers.

Further Reading and Resources on Commercial Solar PPAs

If you want to learn more about commercial PPA finance, we have a number of free resources for you.

1. Free Course: Commercial PPAs 101
2. Free Tool: Calculating Solar Leverage
3. Archive of All Solar Finance Articles
4. Linkedin Group: Best Practices for Financing Commercial Solar Projects