Monthly Archives: November 2011

Public Sector Solar – Make Your Project More Attractive to Investors

To date, the public sector has been a large part of the solar business in New Jersey. Projects done via Power Purchase Agreements (PPAs) are everywhere and many schools and municipalities are already enjoying the benefits of clean, renewable solar energy.

Public sector projects involve public bidding. RFPs are issued by a variety of companies – engineers, consultants and architects – on behalf of their clients. These professional services firms provide a great service to the school district or municipality.

Financing public projects requires PPAs because the public sector doesn’t have the ability to monetize tax credits or depreciation.

A year ago, it was not uncommon to see RFPs for solar projects that included ‘free’ roofs, lots of carport canopies and large professional services fees built in. And when SRECs were trading for $650, the project’s economics could support that. But it’s a new day.

The companies that invest in and finance projects are the ones calling the shots. And they’re saying they aren’t interested in projects with high levels of non-solar costs. It’s not the solar integrators, engineers, architects or consultants…it’s the finance sector. But without financing, none of these projects can get off the ground. It’s not uncommon now for RFPs to get no responses when they have high non-solar costs. And that helps none of us.

So what can you do? A few things. First, prepare for more modest savings in electricity costs. You may have heard of deals done with costs per kWh of 2 or 3 cents. Maybe even free. Those days are over. Expect at least 8-9 cents on a large, very clean deal, maybe more. The second thing you can do is to make your project more attractive to investors than other projects. Insist that the fees are kept to a minimum. Forget about ‘free’ roofs. And for now, shy away from carports unless you’re prepared for higher electricity rates. Lastly, prepare yourself for contract negotiations with the PPA company. Certain terms have to be included in the PPA to make it financeable. It’s a collaborative process, not ‘take it or leave it.’

Going solar is a wonderful thing. Good luck!

Certainty of Execution and Why It’s Important

Financing solar projects has always been fairly complex. It involves tax credits, depreciation and state incentives. The ability to monetize these is key. We all know that the value of New Jersey SRECs has come way down from the prices they commanded less than a year ago. That has made financing projects even more challenging. And many projects have become ‘stranded.’

Not a day goes by that we aren’t contacted by some company claiming they can finance solar projects. Usually the story is that the principals of the firm are from Wall Street and they’ve got lots of money to invest. No problem with all of that. However, the ability to perform is usually suspect.

One of the responsibilities of my job is ensuring that the financial partners we go to market with can actually perform should we win the business. It’s one of the most important things to our business. Which brings me to the title of this blog entry. If you are considering several proposals from solar companies, you actually have two decision processes. First, ensure the solar company has done it many times before. Then, you also need to vigorously vet the financial partner. No question should be out of bounds. Ask how they are accounting for SRECs, whether they have rock solid firm financing commitments for your project, what contingencies are in their offer, etc.

If you do your homework, you can minimize the risk inherent in financing solar projects. Insist upon financing partners who can demonstrate their ability to perform. You need to be confident that they can execute. If you have the right financial partner and you’ve chosen the right solar integrator, you’re on your way.

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