Why system testing matters for utility solar project financing

rebecca rogers chilton live oak bank solar financing

Rebecca Rogers Chilton

By: Rebecca Rogers Chilton, Domain Expert – Renewable Energy, Live Oak Bank

More and more, utilities are seeing the advantages of renewables as part of their production mix. This leads to great opportunity–and competition–in the solar space, but first utility developers must secure debt and tax equity financing. System testing is key standard for lenders and investors as they review solar projects, so it’s important that developers understand what they’re looking for.

System testing–why it matters
Utility-scale solar projects are extremely complex systems that must be designed and engineered for precise performance and electricity production. System testing is critical for a number of reasons. One of the most important is that testing assures financiers their investment is secure.

Typically, the contractor for the project is required to perform testing pursuant to the engineering, procurement and construction (EPC) contract. Any financing party should review the protocols required by the EPC contract to ensure they meet industry standards generally, and the lender’s needs specifically. System testing looks at the performance of the equipment (modules and inverters) under average weather and sunlight conditions. System testing involves the following additional key steps:

  • Gathering input data from the remote monitoring equipment for a newly energized system over a set period of time. This will typically take about two weeks, depending on the time of year, weather conditions, geographic location and equipment installed. Here, the EPC contractor is looking for a statistically significant data set that represents as close to normal conditions as possible, so that the performance of the equipment is isolated. In other words, the question is: given normal circumstances, will this equipment produce the expected amount of electricity it is designed to?
  • Adjusting “outliers” within the data set for weather and other variables according to standard protocols.
  • Analyzing results to establish whether the system equipment is performing up to expectations.

Once the EPC contractor reports results, the owner’s independent engineer, and perhaps an engineer engaged directly by the lender, will review the results, along with the testing procedures, and confirm production expectations that are then used in the project’s revenue model.

While this offers a high-level look, anyone going through this process should consult the protocols set forth by ASTM International, a global standards organization. Because there are different tests for different sizes and types of systems, the project engineer can also be a helpful resource to understand how a given system will be reviewed.

System testing takes the project beyond the theoretical design universe, enabling engineers and investors alike to view how the system works under real world circumstances.  Because tests are performed after a project is effectively complete and online, but before the EPC contractor is done, developers reap the benefits of testing as well, and can address equipment and construction problems prior to final completion and well within warranty periods. Construction errors, interconnection issues and equipment flaws can also be caught by system testing prior to final completion and release of funds, so that any issues that arose during construction can be addressed before lenders and investors commit their dollars and before the owner releases the contractor.

Most lenders expect some type of system testing to prove the viability of your project, but be sure to look at what is required from the specific lender you are pursuing before beginning system testing. Live Oak Bank, for example, requires the standard ASTM E-2848 and E-2939 tests which should reflect weather-adjusted system output at or above 95% of P50 estimates.

Once you’ve accounted for system testing, you can begin coordinating with a skilled small business lender to complete your funding package.

Rebecca Rogers Chilton is a domain expert with the Renewable Energy team at Live Oak Bank. Prior to joining the bank, Rebecca was assistant general counsel and a commercial loan officer at Self-Help Credit Union. She built a renewable energy lending practice that deployed more than $175 million in project financing in two years and became the largest USDA REAP partner in the country. Rebecca is a graduate of Wellesley College and the UNC School of Law.

 

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