Keys to Financing Solar Projects

Financing is the foundational concern in any solar project. In the Renewable Energy World Conference & Expo session “Financing Utility-Scale Projects” on March 10, renewable energy leaders discussed policies and procedures for successful financing.

Dr. Paul MacGregor, senior vice president of clean energy markets for Nexant, provided a thorough explanation of how state solar Renewable Portfolio Standard carve-outs work. To date, only Ohio, Pennsylvania, Washington D.C., Maryland, Delaware, New Jersey and Massachusetts have active solar renewable energy credits (SREC) carve-outs. Several other states, including Nevada, Arizona and Colorado, have solar incentive programs. McGregor spoke specifically to Massachusetts and the financing opportunities available in the state as a result of the solar carve-outs.

While SREC carve-outs currently provide a 6 percent payback on solar projects, that number is expected to be 15 percent by 2020. This incentive is expected to bring over 300,000 kW of solar generation to Massachusetts by 2014. In addition, solar jobs in the state of Massachusetts have already tripled from 2007 to 2010.

With no federal renewable standard in place in the U.S., solar financing is usually extended over a longer period of time than in countries like Spain and Germany with renewable programs. MacGregor provided a timeline of how long it takes to pay back an average utility-scale solar project. Without any incentives, a developer faces about a 30-year payback. With federal incentives in place, the payback could take about 20 years. If a project is developed in a state with a SREC carve-out and receives federal incentives, the payback could occur in three years, MacGregor said.

“The states that implement these carve-outs really help drive the solar in these states.”

Alan King, vice president of Canadian Solar USA Inc., said that national incentive programs are critical to renewable energy growth both locally and globally. Countries using feed-in tariffs have experienced considerable solar growth, King said. For example, Germany has over 14,000 MW of solar installed, Italy has over 3 GW, and the United Kingdom, which implemented a feed-in tariff in April 2010, has already seen 33 MW of solar installations.

“To say that a percentage of your portfolio has to be renewable by 20-whatever doesn’t do you any good without having anything there to support it,” King said.

While the U.S. may not join the feed-in tariff bandwagon anytime soon, the solar investment tax credit (ITC) has helped facilitate the construction of 1,100 solar projects.  And though a federal clean energy standard would spur even more developments, King said that “subsides, for the time being, are a necessary evil.”

Aside from state and national solar incentives, solar developers have a couple of other options available to aid in project financing. Several companies provide solar forecasting as well as consulting. Before a developer decides to undergo a project in a certain area, solar on-site data collection should be done for one year, said Marie Schnitzer, director of solar services for AWS Truepower. Forecasting technology requires regular (weekly) maintenance, but the results provide 90 percent data accuracy.

Andrew Kimbrose, director at Navigant Consulting, noted additional ways to successfully finance a solar project. These include researching land rights and related issues, and conducting geotechnical and environmental reviews. Grid connection certainty is another important consideration, taking into account interconnection costs, agreements with the utility regarding substation and transmission upgrades, and cost sharing.