How to get financing for your community solar project

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Interest in community solar projects has exploded over the last decade, reaching 1,600 projects. currently in operation Nationwide. 22 states and Washington DC policy, now support Seventeen of these states have enacted provisions to encourage projects in low-income areas. This kind of infrastructure will act as an equalizer in the switch to clean power, providing affordable renewable power to businesses and homes across the economic spectrum.

A community solar power plant in Massachusetts managed by Perch Energy.

However, despite the value to the community, small and medium-sized community solar projects often struggle to get financing. While not large enough for large funders, it is often too large for local financial institutions unfamiliar with local solar technology and economics.

However, developers in this niche can overcome this hurdle with careful planning and mission-aligned funding. Finding the right funding for your local solar project often requires you to show your commitment every step of the way. By following these suggestions, you can launch your community solar project to attract the right kind of capital.

Prove that you can make your project a reality

By identifying and describing each component of your project, you prove to your investors that you are knowledgeable, organized, and trustworthy. Funders want to know that your project is set for success in three basic ways. Partnerships are strong and well-defined. Project plans accurately account for as many costs as possible.

Show that you are locking down your location by providing either proof of property purchase or rental agreement. Next, make sure all local and state permits are in place so you’re ready to begin construction or operation. Find out who your takers, or power buyers, will be. Funders will want to know if the Power Purchase or Market Participation Agreement is fully signed and ready. Keep in mind that the strength of the acquirer may be a factor in funding. It is easier to accept a deal when the acquirer is a large established company than when the acquirer is a start-up or smaller organization. Also, if you have multiple offtakers, funders will want to know that they are hiring experienced administrators who can handle the additional complexity.

Community Solar Power Project by OYA Renewables

Secure all necessary permits and approvals to operate before seeking investors. This includes working with local power companies to sign contracts to connect to the grid and to determine other elements and components required for operation at the location. Make sure the construction partner is also fully signed and the contract is defined and executed.

Consider construction costs as much as possible by determining the type of equipment you need and certifying that it’s all purchased or contracted or committed to a price. Once all of this is in place, use modeling software to complete a cash flow analysis to determine the debt financing and equity the project can support. As a final step before seeking funding, have a design or project engineer review the financial feasibility of the plan to ensure nothing has been overlooked.

Plan your finances before knocking on the door

Funders also want to know that you have considered, understood, and pursued the type of funding that is right for your project, and are working in the right order to make the most of the funds at your disposal. I would think. Financing a typical community solar project may involve a combination of tax burden and institutional debt, or public grants, tax burden and debt.

Debt financing is advantageous because it usually takes longer than other types of private financing. But to secure it, all other funding must be prepared in advance to prove viable.

Start by seeking public subsidies. Local, state, and federal agencies offer subsidies to promote clean energy production. Private funders will be more impressed if they have already won grant funding than if they have just applied for the grant.

Pursue tax fairness. A typical structure pays tax equity profits to his provider over his first five to six years from inception, based on a pre-divided amount of the project’s cash flow. Once the tax amount is repaid, the project’s cash flow distribution typically changes in favor of the project developer over the life of the project.

find the right funder

Credit: Community Solar Power Coalition

Once you understand the optimal financing structure, find the right partner to finance your community solar project. This is often the greatest benefit for developers, as there is no surefire source or way to find investors to work with. Expect this step to take some time.

One of the best ways to get started is to talk to other solar developers. Community solar investors often fund multiple projects. Also consider a few institutional lenders. merged bank For one, it can provide both tax equity and liability, significantly streamlining funding.

Non-bank financiers look like RSF Social Finance It can also be a fundraising solution. They offer more professional attention and consultative advice, and are often more willing to undertake smaller transactions than large commercial banks, making them ideal for small and medium-sized projects.

Impact investors can generally be a flexible source of funding, and many are particularly interested in solar projects serving low- and middle-income communities and communities of color.

call for policy change

One of the best ways to ensure a bright future for the community solar sector is to work with other developers to advance public programs and policies that create opportunities.

For example, the Public Infrastructure and Economic Development Bank of California has climate catalyst program Support clean energy lenders.situation Solar Power in Affordable Housing Programs for Multifamily Homes Helping landlords in low- and middle-income areas install solar panels in multi-family developments. Colorado, Massachusetts, and New Jersey also have programs to encourage solar development through public financing. Any of these initiatives could serve as models for other states.

Another way to promote progress in community solar is to join industry associations such as: Solar Energy Industry Association and american clean power It is pushing for policy changes to encourage solar power development.

Even in a profitable and forward-looking industry, seeking funding is never easy. Developers with a deep understanding of project needs and the solar finance space are well positioned to find the right funding. People who work on site development expand opportunities for everyone.

Michael Jones is Vice President of Lending Business Development. RSF Social Finance, He recently facilitated a $5 million loan for aid. sunwells It supports a portfolio of 26 community-based solar projects across 5 states.

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