Utility-scale solar is booming, and residential solar is on the rise, but the small-commercial solar market is still largely unrealized, despite wide open potential for growth. It's clear that moving into this space holds a lot of opportunity and potential for business growth, but how do you get started? In this three-post series, we're covering the basics of what you need to know to take the next step. This first post is based on information presented by Chris Fraga, Founder & CEO of SolarSense, in our Small Commercial Solar webinar.
Financing small commercial solar projects can be complicated. The good news is that small commercial solar is a hot growth market sector; the bad news is that this sector has attracted hundreds of competitive firms, and the basics now matter more than ever. Here are a few key tips to help you ensure that your small commercial project gets financed.
Is It Financially Viable?
When developing a project, ask yourself whether you'd invest $500,000 - $2,000,000 of your own personal retirement savings on it. If so, there's a high probability of financing success. If not, you need to be prepared to get a no--or to put in the hard work to fix the issues.
The Basics Matter
- Be clear and realistic with the type of financing you seek
- Be thoughtful with the overall design of the project, and ensure that there is a focus on quality
- Consider the strength and viability of the developer, the state's incentive structure, and the host customer off-taker (you should be confident that they will be in business for at least 25 years)
- Develop a project financial pro forma model
The Essential Financing Documents
You need to make sure you have sufficient documentation to make sure your project will actually be financed. Some of the key financing documents include:
- Solar PV design/system output summary
- Product selection, cut sheets, warranties
- A realistic timeline
- Site control documentation (lease, license, easement)
- A power purchase agreement (PPA) with financeable terms
- Information on the host customer and the developer
- Summary of business qualifications
- Three years of financial statements and CPA/auditor-prepared tax returns
One of the areas where projects most often run into challenges is the power purchase agreement (PPA). Ensuring that you have an annual PPA rate increase and early termination values (particularly for on-premise systems) will go a long way towards making your project successful. On the financing side, one of the top challenges is finding a product that will fit into the EPC costs--too often, installers go with sub-par products in the interest of making the finances work. Expectations also can be challenging: developers can often have unrealistic expectations on project structure and terms, or on timing. Keeping these potential issues in mind as you begin planning your first small commercial solar installation will help you come up with a proactive plan to make sure your project does not get derailed and is financed successfully.
Want to learn more about the ins and outs of small commercial solar development? Watch a recording of our webinar on Small Commercial Solar: Growing Your Business With This Untapped Sector.