Structuring commercial solar deals for third party ownership
Posted 3 May 2016 12:00 AM by Brian Lynch
Selling a project directly to a customer and allowing them to realize the full benefits of the solar array is always the best option. It’s generally the easiest transaction to contract, has a minimal number of parties involved in the transaction and provides everyone with the greatest benefit. However, there are several types of projects that end-up in third party ownership (TPO) transactions – generally in the form of PPAs.
TPOs offer several benefits including allowing a project that otherwise can’t monetize the Federal Incentive Tax Credit (ITC) to benefit from the 30% tax credit, and asset depreciation, to eliminating the upfront cost of a solar array for the end-customer. They also remove ownership risk and liability to hosts, enabling them to benefit from lower power from solar.
SolarWorld’s development team uses a stage-gate process in selling solar projects, which includes identifying, as early as possible, how the project is likely going to be financed. If we determine early on that a third party ownership model is a high probability we change our sales and development tact as soon as possible.
When faced with selling a TPO project it’s important for the developer to fully think through the structure prior to putting any paper in front of the client. It’s also advisable to set-up a Special Project Entity (SPE) that can be sold to the ultimate owner / financier. Any site control documents should allow for transferability.
When to Bring the Money In
Developers often ask at what point outside money should be brought into a deal. Bringing in a potential funder earlier in the process helps ensure the deal you’re structuring will get funded, but it minimizes the development value you can realize. Because no two projects are alike there’s no perfect answer other than to say you should bring a project as far as you can before bringing in outside money. That point is different for everyone and, I’d suggest, that if this is your first time selling a TPO project you’d want to bring the money in sooner rather than later.
Although selling a fully baked deal realizes the best value to a developer it can also create a situation where the developer has developed a deal that the market can never fund. Either contracts aren’t sufficient, technical data is lacking, or project economics aren’t aligned with what the market requires.
Going through due diligence for a project acquisition can be very intrusive. Make sure everything you are providing is defensible and you have backup information. If you are using tools like PV Watts to generate your yield calculations you are likely going to position yourself as an unsophisticated developer that a financier will either pass on or will take advantage of you. And, it is safe to assume no asset owner will want to hold a solar array that is not using tier 1, proven components.
SolarWorld Can Help - Partner with us for success
Partnering with SolarWorld for more than a module can help ensure your TPO commercial project is a success. In addition to leveraging SolarWorld’s financing relationships, SolarWorld’s development experts can help you prepare for due diligence and provide you with pre-engineered drawings, PV Syst models, and other technical advice.
Contact the SolarWorld Projects and Solutions team through our commercial projects form.