Diligence Roadmap: Small Utility Scale Solar Projects

Diligence Roadmap: Small Utility Scale Solar Projects

New solar investors often ask us for guidance on how to approach due diligence for a solar project. We decided to create the plain English solar project diligence roadmap below. It’s more of a how-to-guide than a checklist. It outlines the issues that need to be confirmed, what document to ask for, and what to look for in each one. The typical situation we see: An investor was presented with a solar deal they liked. After negotiating a term sheet, they are ready to vet the project. They know they need to confirm that the underlying project documents match up with the project described in the term sheet/model. Looking at the PPA price and EPC cost is obvious. But what else should they worry about? What documents should they ask for? What should they look for in those documents? Our answer is the table below. Understanding the Diligence Table In the first column, we touch on the concept you (as the investor) should be trying to confirm.  The second column lists which document to look at to find the answer. The third column lists a few issues to specifically look for in that document. CONCEPT DOCUMENT WHAT TO LOOK FOR ENTITY OWNERSHIP Make sure that the entity you buy an interest in, or loan money to, is the actual entity that owns the project. Also make sure that the entity is correctly formed and allowed to enter into this transaction. Make sure that the company/entity has been officially created. Articles of Organization Needs to be stamped by Secretary of State.   Make sure the name matches. Make sure that the company will be run...
Solar Sale Leasebacks: 6 Hidden Transaction Costs

Solar Sale Leasebacks: 6 Hidden Transaction Costs

Rather than raising Tax Equity, some solar Developers are turning to Sale Leasebacks. It’s an easier transaction, but don’t let that fool you. There are still a few significant transaction costs. These costs are paid out of the Developer Fee. Worse, Developers can feel a little blindsided when the bill comes because these costs aren’t often disclosed during negotiation. To help our clients evaluate a Sale Leaseback, this article discusses six common transaction costs and includes ballpark numbers to add to your model. The Six Transaction Costs The six transaction costs we’ll cover are the (1) Legal/Diligence Review,                 (2) Appraisal, (3) Independent Engineering Report, (4) Cost Certification (5) Lockbox Agreement, and (6) Sales-Tax. Each is explained below. A Little Context It’s important to understand the context for these costs. The capital provider in the Sale Leaseback, usually a Bank, requires each of these items as part of its diligence process. Typically, the Bank hires an outside party to perform the analysis (such as a law firm or appraiser). The objective is to independently confirm the relevant metrics underlying the solar project pro-forma upon which the Bank is placing capital. Each party then provides the Bank a report, which the Bank uses to re-evaluate the amount of funding the Developer receives. At the end, the Bank asks the Developer to pay for each of these reports. 1. Legal/Diligence Review The Legal/Diligence Review costs $20k. It is performed by a law firm hired by the Bank. The lawyers look through all the project documents to assess a number of items (To better understand...