By Nathan Homan, Special To Solar Power World
A lot can go wrong when attempting to transform sustainable energy into a bankable asset. As many in the solar power community have learned, a project that has been poorly evaluated can result in a bad investment and a colossal waste of time.
There are, however, a number of steps parties can take to properly assess the risk and reward of a sustainable energy investment opportunity, and dramatically increase the chances of striking a beneficial deal.
In a look at commercial-scale photovoltaic (PV) systems, one of the most common missteps is determining the viability of a project based on assumptions or inaccurate data. An overly eager system integrator might reel in a live sales lead without knowing whether the project makes financial sense.
A single utility bill or an average of utility bills, for instance, won’t provide a clear picture of demand curves, generation rates, or power consumption patterns of the host facility itself. Integrators must have data to accurately predict what can be achieved in terms of the cost of power. There should be a detailed analysis of 12 consecutive months of utility bills on every host facility – and that’s something every investor should expect as an industry standard. The solar community should also be skeptical of data analysis tools that don’t require that level of detail, and leave open the ability to use overly rosy numbers.
There must be quality data and quality analysis behind every project. That’s what determines whether it’s bankable. No party should let an aggressive sales environment cloud its judgment. Just because an integrator is eager to sell its system and sign that power purchase agreement, doesn’t mean the deal is actually fundable.
It’s important to identify tools that can help assess those critical functions for solar development, evaluate projects for their economic viability, and quickly determine if they are fundable. That process is no different from that of an applicant who undergoes a credit check when asking for a loan at a bank. The solar industry needs to accept that these are the standards that must be met to properly fund a project.
A quality ratings system, for instance, is invaluable. A ratings system that can highlight the quality of a sustainable energy investment by quantifying its risk and reward is ideal. That means one that functions as a benchmark to assess the factors that determine whether an investor will achieve the desired rate of return. Those factors should include host facility creditworthiness, project development, servicing and administration, system performance, legal and policy issues, and first loss position.
Integrators also need to have reliable information about the structural integrity of the building – and not have to worry about whether the roof, for example, has a warranty or needs to be replaced. The list goes on. How long does a business plan on occupying a facility? If it’s not staying long term, does it make sense financially to sign a 20-year agreement? Are there tenants in the building or is it unoccupied? If it’s a multi-tenant building, is there a master meter or meters for individual units?
With the average proposal taking roughly 60 to 80 hours to craft, from lead generation to final product, the stakes are considerably high. A decent sized system integrator focused on the commercial sector can average between 15 and 20 proposals a month—but the success rate of closing those deals is often very low. The sustainable energy industry is, to say the least, complex , challenging to navigate and challenging to understand. Recognizing the barriers and knowing how to remove them is the key to accelerating growth.
A successful PV installation requires technical, legal and financial expertise, as well as a serious capital commitment. In the end, conducting thorough research, launching a detailed evaluation and applying a tested benchmark can mean the difference between a bankable asset and one that falls flat.
Nathan Homan is Managing Partner with Wiser Capital. The firm provides services via a web-based platform that evaluates the solar analytics and economic value of third-party financed mid-scale commercial PV developments, and educates stakeholders seeking to participate in them.
Tell Us What You Think!