Managing the Unpredictable in Solar Project Finance
North American Clean Energy – November/December 2020
By Kimberlee Centera, CEO, TerraPro Solutions
In solar project development, there is a 100% certainty that things will change along the way. Changes can originate from a myriad of places across the development spectrum. The engineering design team may have found a newer, better technology than originally planned. A crossing agreement might need to be negotiated. Sometimes an endangered species will be discovered, thus requiring a new placement of the equipment. During development, the various teams such as engineering, survey, or construction, may make decisions that can impact the entire project. What appears to be a small change, often requires painstaking curative work to meet the legal requirements for the title work, which is an essential piece of the financing puzzle.
The various surprises that are likely to occur, can never be anticipated at the front end. If risks cannot be avoided, what can you do to ensure the success of your project? You can follow these best practices to mitigate risk:
2. Develop a strategic plan. Schedule your project phases from the completion date backwards. This identifies critical milestones, so that you are not blindsided by unexpected issues or delays. The plan maps the entire scope of the project from inception through construction. Key points include:
- Site feasibility analysis and review of permitting, jurisdictional issues and government agencies that may be involved. Solar ordinances vary from county to county, special use permits may be necessary.
- Title review establishing the scope of rights and property under a site lease, easement, or government right-of-way; addressing water rights, statutory solar easement requirements, and other real property matters.
- Identification and management of the environmental implications of the project.
- Compliance review to ensure that the project adheres to pertinent regulations.
- Comprehensive analysis of the title environment for title insurance.
- Mechanics lien coverage and ALTA 35 endorsements, which provide insurance coverage for damage sustained by the insured for the removal or alteration of an improvement.
- Supply chain monitoring to determine availability of critical parts and confirm delivery dates.
- Evaluation of the time required for the off taker to build the transmission line to ensure that it meets project completion deadlines.
- Future phases – negotiation must consider reasonable provisions for future phases. Pre-approvals that facilitate future project phases are easier to obtain during the initial planning stage than farther down the line.
2. Create a community strategy. A common first touch point is knocking on doors. This often relies on ill-prepared advocates who cannot answer the tough questions that arise. Successful community solar marketers drive the conversation by crafting a positive narrative about the project. This begins with fact finding that identifies issues and addresses them honestly. Developers should design a dedicated website that provides an overview of the project, offers relevant Q&A and regularly updates stakeholders. Front-end community research includes:
- Is there a similar project in the area, what has it revealed?
- Is there opposition to the project? What is the agenda of the opposition? Is it political, environmental, or aesthetic?
- Is there a need that will rally the community around the project, such as discounted energy? Better air quality? Job creation?
- Who are the leaders in the community? How can we make them our champions?
3. Assess and mitigate investor risk. To make informed decisions, investors require an in-depth analysis of potential risks and how they can be managed or alleviated at every stage. To survive the close scrutiny that lenders and investors require for financing, all aspects of the project must be aligned, such that the end result will be a fully functioning, revenue-generating, and legally permitted project returning revenue to the investors.