Solar Feasibility Study Saves Time and Creates Value
Every day I speak with hard working commercial solar installers and developers who think they need project financing. They’ve invested weeks of effort prospecting, qualifying, designing, engineering, presenting, proposing, negotiating… and they “just need financing” to seal the deal. Problem is, they’ve often negotiated a deal that can’t be financed - or could have been more valuable – because they took a shortcut assessing the solar feasibility. Skip these three steps and you’ll fall down on the job too:
3. Sell the Solar Sizzle…
Salespersons want to sell solar installations to energy consumers… after all they are paying for the system. Or are they?
Before you propose, find out if your solar prospect has the resources, tax appetite and stomach for a lump sum cash purchase. Odds are that they do not, and instead they will pursue a financed solution. They are not buying hardware – they are buying inexpensive kilowatt hours and cash flow - so don’t sell them layouts or panels, and for goodness sake, don’t sell them carports! Acknowledge that financing comes with additional selling costs and scope requirements: don’t paint yourself into a corner by providing a cash price to a customer who might want financing. Selling the wrong product at the wrong price destroys value.
2. …Serve the Solar Stakeholders
Before putting a proposal in front of an off-taker, it is important to know whether you can meet the needs of all project stakeholders – the parties who are contributing resources and taking risk:
- System Host – Site Control is an important early milestone. For shared solar, virtual net metering, feed-in-tariff and other systems the off-taker may not be the system host, and the site lease may represent a material expense to the system owner. Even in rooftop solar projects, financing can be delayed or even killed by an unmotivated lienholder… many PACE projects die because of lender acknowledgement and expensive Subordination, Non-disturbance and Attornment Agreements (SNDAs).
- Utility and Authorities having Jurisdiction (AHJ’s) – You will need their blessings. And oh by the way… those utility-side upgrades are not eligible for the Investment Tax Credit.
- Installer – They take construction risk and deserve a fair margin. In our competitive marketplace you’ll get what you pay for.
- Investors – One simple approach is to sell the project to a turnkey acquirer. That buyer’s investors still have to hit their credit risk and return hurdles, and those hurdles are going to be different for each member of the capital stack: tax equity, sponsor equity and debt. Transaction costs, operating expenses and investment hurdles differ by investment type as well – loan, Property Assessed Clean Energy Financing (PACE), clean renewable energy bonds (CREBS), tax leases and Power Purchase Agreements (PPAs)… to help navigate these project finance options see our Solar Project Finance Guide.
- Developer – Phew! If you’ve met the needs of all of those stakeholders and the project’s value still exceeds your installation, interconnection and other development costs, congratulations! You have good potential for a development fee to reward your hard work. Let's explore how we can maximize returns.
1. Study Solar Feasibility and Financing First.
We know from experience that most of a project’s value is created at either the origination or the ownership end of the value chain: in between there is a lot of blood, sweat and tears. Companies that take the up-front time to qualify projects for technical and economic feasibility enjoy low Cost of Sales and high EPC margins and development fees. Solar developers, installers and contractors tend to be capable of assessing technical feasibility, but few smaller organizations in our industry can afford qualified full time project finance staff, and so economic modeling and the financing aspects of solar feasibility studies become an easily ignored need.
Sounds complicated, but it’s not. GreenZu / Helio Micro Utility helps solar developers, installers, EPCs and electrical contractors save time and create value by providing free solar feasibility study and modeling consultations. In one 30-minute screen sharing session, we can transparently model your commercial-scale solar project to allocate economic benefits among stakeholders and determine your reward potential. We’ll objectively explore the challenges and opportunities together, and establish scope and off-taker pricing that clears investor and other stakeholder hurdles, so your team can sell sizzle, serve stakeholders and close with confidence. Contact us today for a free, no-obligation solar feasibility and project modeling session.