Five steps to create a high yielding solar portfolio ready for investment
Unless you’re living under a rock, you know the solar industry is booming. There is already enough solar installed in the U.S. to power 8.3 million homes and the solar industry employs over 260,000 people. In the record-breaking 2016 alone, a year in which U.S. solar installations grew 95% over the previous high, the U.S. installed 14.6 gigawatts of solar from nearly 375,000 projects. It’s safe to say there is a lot of operating solar assets in the U.S. It’s important to understand that not all projects are created equal and CleanCapital is committed to finding the top solar assets for investing, making capital more accessible and accelerating clean energy growth worldwide.
Learn a little bit more about how a solar asset is evaluated for a CleanCapital investment portfolio.
1. Find operating solar projects for sale!
The CleanCapital team has an extensive background in the solar industry with a over three decades of combined experience ranging from managing origination and acquisitions to managing clean energy initiatives for the federal government. This has allowed our team to close $210 million in operating distributed generation solar projects acquisitions, with a robust pipeline behind it for future investments. But this is just the beginning, our recent partnership with Generate Capital enables the efficient acquisition of additional operating clean energy assets. We’re now reaching out to our comprehensive network to find new operating assets to evaluate for investment potential. If you have a project for sale, we’d love to talk to you! Or simply give us some details about your project and we’ll follow up.
2. Gather basic intel about your project(s) to evaluate investment potential
Key information we collect to make first determinations about a solar portfolio.
- What type of power offtake agreement is in place? Power Purchase Agreements (PPA) are often the most common, as are Energy Service Agreements (ESA), or Master Solar Power and Services Agreements (MSPSA).
- How long is the term of the agreement? Many projects have around 20 year terms with options for extension, though this can vary. We typically look for projects a few years into these terms with 10 or more years remaining.
- What is the set up in terms of lease agreement, and access rights for this portfolio?
- Why is this project available for sale?
- What is the credit quality of the offtakers? Who is paying the energy bills? Schools, municipal buildings, large companies, etc. are common and attractive as creditworthy offtakers. If the offtakers are unrated — we do a deeper dive into financials.
- What is the size and location?
- What is the revenue stream? Common secondary revenue streams come from Solar Renewable Energy Credits (SRECs) or Performance Based Incentives (PBIs). SRECs are sold separately from the electricity they produce. This means CleanCapital as the owner of the solar array can sell the electricity being generated on-site and then also sell the SRECs off to another buyer, typically a local utility.
- What type of equipment is being used and what warranties are in place? (Modules, inverters, etc.)
- Can the seller provide a financial model or financial information so that CleanCapital can plug it into our own model and access the expected returns?
3. It’s all about the details
Once we’ve gathered the basic information about your portfolio, we can make a preliminary offer, deliver a letter of intent (LOI) which gives us exclusivity for a fixed period of time to dig into the portfolio’s data room so we can review and perform diligence on the project with real data and information. This is when the real fun begins!
There are a lot of details that go into developing and managing a solar project that impact its risk and viability as an investment. Most of these items just require getting a signature or checking a box, but missing information can delay or even terminate a prospective sale.
- Documentation: Depending on the type of agreements, the revenue stream, and the lease agreement, there are dozens of documents that need to be in order and signed by the correct entities. The seller needs to ensure all the t’s are crossed and i’s are dotted before we acquire a project.
- Permitting and Surveying: technical documents are all in place.
- Historical Information about the Facility Information: This is where the real data comes into play. What operations and maintenance (O&M) has been done on the project and are there any O&M red flags that arise? How have these assets been performing? Proper asset management is key to profitability for a portfolio (stay tuned to learn how CleanCapital can maximize the earning potential of a portfolio in another upcoming blog).
- Get proper consent for a sale: Depending on the arrangements of the site lease and ownership agreement, there are different parties that have to give consent to a sale.
- Legal Diligence (3rd party consultant): Have legal experts dig into the contracts and lay out any concerns/weakness — address any issues, lawyers are important!
- Independent Engineer Reports: Evaluate current real-time data and details about every operating project. Look at energy production levels. Understand any equipment issues. Evaluate onsite production/data history.
4. Communicate any information gaps to seller — fill those gaps and close the deal
The final steps in the process, once all the information has been provided, sign all the contracts and consents. Once CleanCapital acquires the projects, we build out a solar portfolio offering for our investors to participate in!
5. The work doesn’t stop at acquisition — now the it’s time to optimize our/your investment
Once CleanCapital acquires a project, we put our decades of industry knowledge to work and optimize the project to maximize the return on your investment. Operating solar projects are predictable cash flowing assets. Managing an asset is a key part of the process and next up we’ll share some of the details that go into managing and maximizing the solar assets in our portfolios.