After a commercial and industrial (C&I) property owner has made the investment decision to deploy solar on their property based on an objective analysis of the opportunity, the next step will be to carefully plan for a successful solar project deployment. A successful solar project, like any complex project, depends upon several fundamental factors: assessment, engineering, financial analysis, regulatory agencies, capital, and people. Efficient management of these factors will enable the C&I property owner to realize the maximum benefit from the deployment of solar.
These key considerations are:
- Project siting, qualification, and feasibility analysis
- Engineering, procurement, and construction (EPC) and operations and maintenance (O&M) selection
- Accurate financial modeling
- Strategy in working with utilities and muni/state regulatory agencies
- Complete financing plan
Project Siting, Qualification, and Feasibility Analysis
The project site and the condition of the chosen site are critical aspects of the process. The building and property assessment must include a detailed assessment of the physical structure (roof, parking lot/garage). The age and condition of the roof and the design of the existing parking lot/garage will have a major impact on the feasibility of solar on the property. Project operational considerations such as the number of electric meters and interconnection points to the utility will also factor into costs. The overall system design of the solar system for solar production will need to be optimized given the constraints of cost and the roof or parking lot/garage configuration. Finally, a thorough assessment of the permitting process, incentive application and approval process, and interfacing with the local utility will be important to eliminate or minimize any cost overruns. An established working relationship with the local utility will be a great benefit to the project.
EPC and O&M Selection
The process by which a high quality EPC and O&M vendor is ultimately selected to build and maintain the solar system must be both objective and comprehensive. The selection process, which often times is through a request for proposal (RFP), should utilize critical information such as the EPC firm’s reputation among customers and the industry and track record and expertise in building similar solar systems at similar sites and geographies. Customer references should support the EPC’s proposal and the EPC’s balance sheet should provide a strong indication of company’s financial strength to be able to not only deliver a quality system but to also stand behind its work for the duration of any warrantees or guarantees. The design philosophy of the EPC should be compatible with the C&I owner and the hardware selection including PV modules and inverters should be consistent with the reliability specifications. Third-party performance validation of previously built systems should be available and insurance and bonding should be at market rates. A reliable and quality O&M provider can ensure trouble-free, long-term operation through system monitoring and inspection of the PV system. Overall, clear communications with both the EPC and O&M vendor will be an important contributing factor to the success of the solar project.
Accurate Financial and Expense Modeling
A key component for a successful solar project is the financial modeling used to forecast the financial returns as well as indirect economic benefits such as credits towards LEED certification for the C&I owner. Reliable and tested financial models will provide confidence to the C&I owner in determining realistic pricing for the solar systems. It will also prove invaluable in evaluating pricing from EPC bids during the RFP process which will be critical in meeting cost and project timeline requirements. As with all models, C&I owners must be able to assess and determine accurate inputs on hardware costs as well as “soft costs” such as permitting, legal, and accounting costs in order to create the most accurate and useful financial and expense forecasts.
Strategy in Working with Utilities and Muni/State Regulatory Agencies
The C&I owner will need to have a comprehensive understanding of the process by which solar projects are executed with the local utility and municipal agencies. The local utility will define the interconnection process to their distribution grid while the municipal agencies will have specific permitting requirements and processes. In addition, the process may require working with the utilities and/or the municipal or state agencies that may be responsible for providing or administering solar incentive programs specific to that state or region. These incentives are often times the incremental economic benefit that is needed to drive a project’s financial returns to meet the minimum rate of return required by the C&I owner.
Complete Financing Plan
When the C&I owner has decided upon the ownership structure of the solar system the actual financial structuring plan can be properly organized. If the C&I owner will own the solar system through a cash purchase, the internal commitment of the C&I owner will be the primary focus. If a third-party ownership structure such as a power purchase agreement (PPA) is sought, then the owner will need to find a reliable and credible PPA vendor to deliver the appropriate PPA contract that meets the project requirements. The PPA vendor will source the capital stack commitment from trusted and reliable sources of sponsor equity, permanent debt, and tax equity.
Ultimately, managing a successful solar project will be based upon risk management. Among all of the parties and people involved, it will require performance of tasks and obligations as promised, clear communications, and an expectation that all of the parties involved will be around to honor all applicable contracts and warranties. C&I owners can devote internal resources to develop the solar project management skills or engage with companies that have the deep experience and capabilities to manage successful solar projects.