Solar Project Finance Guidelines

Cash? PPA? PACE? Loan? Lease? With so many solar project

finance options available its hard to know the best way to pay
for solar. Helio Micro Utilityhas structured solar financing for
hundreds of energy consumers, solar developers, EPCs and
investors. This solar project finance guide will help narrow and
speed your decision process.

Solar Project Finance Map

Solar Project Finance Drivers

When it comes to solar project finance, cash is queen: most energy consumers, or
offtakers, finance their solar installations. There are three factors driving the prevalence of
solar project finance:
Savvy buyers employ a matching strategy to reduce solar project finance exposure and
risk by tying the duration of the assets financing to its lifespan. A well installed solar facility
should produce energy for 30+ years, so longer term financing makes sense.
Todays debt is cheap. In our persistent low-interest rate economy, US investors are
increasingly turning to solar investments to deliver a reliable, compelling returns. Faced
with 20-year T-bill yields under 3%, many investors prefer the stability and return of a solar
project finance investment.
Most importantly, the newly reinstated Investment Tax Credit and Bonus Depreciation can
recoup almost half of a solar projects cost via tax savings in the year following project
completion. Thus tax appetite the potential to fully benefit from tax savings is a
key driver of the solar project finance choice.

Heres a simple rule of thumb: If the offtakers tax bill exceeds half the solar project cost,
they may benefit by owning the system and paying via cash, a loan or a capital lease. But if
the offtaker is a non-profit, a government entity or a commercial enterprise that pays no or
few taxes, a third-party owned system financed by an operating lease or PPA may be a
better fit.
Lets look at your options

Solar Project Finance Guidelines

Solar energy offtakers who pay half of their prospective solar facilitys costs in taxes can
own the system and use solar project finance to eliminate taxes and capital expenditures.
Most energy consumers use one of these five solar project finance approaches to pay for
solar facilities:
Cash Purchase If the offtaker has plenty of cash, wont be relocating soon and likes to
keep it simple, then an all-cash purchase can be a good option. A well designed solar
facility in sunny climes will generate enough savings to break even in a few years, and if
well operated and maintained it will generate green energy and savings for a generation.
If a cash purchase is not your best option, read on but be advised that financing comes
with limitations. Most lenders will require solid a credit rating, three years of profitable
financials or a credit-worthy guarantor. Changing accounting rules have wiped out off-

balance sheet accounting options for anything other than a PPA. And more sophisticated
instruments like PPAs and CREBS wont pencil well for smaller projects.
Bank Loan Todays bank loans offer a simple, inexpensive financing option for up to
80% of the solar asset. Loans are often a fit for good-credit offtakers that pay substantial
taxes but lack cash, retain capital for reinvestment or want to spread project payments. In
some situations, a low cost longer-term loan may be a superior option for nonprofits or
others who strand the tax benefits of solar. In any case, the offtakers existing bank should
be its first stop as other lenders will need to subordinate liens to existing creditors. But
many regional banks dont know how to underwrite solar: if your bank is not solar-friendly,
Helio Micro Utility can help you find a more capable lender.
PACE Loan Property Assessed Clean Energy Financing (PACE) may be a good fit for
offtakers with weak credit, for those facing a potential relocation, and for those who prefer a
financing term more in line with the solar assets life. PACE programs place the solar
payments on your tax bill over 15 to 20 years. Since payments are tied to property taxes,
offtaker credit is not an issue, and in the event of business relocation the solar project and
its financing stay with the property along with the energy savings benefit. But PACE is
not available in all jurisdictions, and PACE financing is often more expensive than
alternatives. PACE loans are typically capped at the lower of 20% of assessed property
value or 100% of aggregate Lien-To-Value often thats not enough to finance a nonresidential solar project. And some PACE loans require your existing lienholders to
subordinate their lien and to attorn that subordination a request theyll likely resist.
CREBS Certain government entities are eligible for Clean Renewable Energy
Bonds(CREBs) taxable bonds with interest rate subsidies in the form of Federal tax
credits paid to the issuer. CREBS offer the potential for a 0% to 1.5% interest rate over 15
20 years depending on offtaker credit. Eligible offtakers include cities, counties, school
districts state and other local governmental entities as well as select cooperative electric
companies. Economies of scale apply it can be hard to CREB-fund projects under 1MW.
CREB funding is limited and allocated nationally on a first come, first serve basis.
Capital Lease A capital lease can provide 100% financing over the assets life, so can
also be a good solar project finance matching strategy. The lessee bears the risks and
enjoys the rewards of ownership, including the 30% Investment Tax Credit
(ITC), Bonus/MACRS depreciation expense, and an interest expense deduction for the
interest portion of the financing. Special conditions apply and FASB rules are changing so
do consult with your tax accountant.
In each of the above solar project finance scenarios the energy consumer is also the
system owner, and will bear all of the risks and responsibilities of ownership: the solar
facility and any related financing will sit on the offtaker-owners balance sheet and that
offtaker-owner must insure, operate, maintain and manage the solar facility. Prudent solar
project finance clients will protect themselves by working with established solar installer that
offer ongoing O&M and Asset Management services.

Operating Lease Also known as a Tax Lease or True Lease, these are flexible solar
project finance vehicles that allow for the use of the solar asset, but do not convey its
ownership rights. Operating leases typically have shorter terms (5-7 years) and can thus
provide a fast path to system ownership while substantially reducing capital requirements.
For Solar investments the lessors typically monetize the ITC and Depreciation to pay down
interest rates. Either the lessee or the lessor may retain rights to solar incentives and
environmental attributes. FASBs lease rules are changing so consult with your tax
accountant.
PPA (Power Purchase Agreement) PPAs are the preferred solar project finance
approach for larger government and nonprofit energy projects, but many private enterprises
and homeowners use them as well. Most people dont realize that they are already PPA
participants: they have agreed to purchase power from the local electric utility. A solar PPA
is no different private investor(s) own the solar facility, and sell energy to the offtaker who
then buys less energy from the existing electric utility. Third party solar investors use the
benefits of ownership tax breaks, incentives, environmental attributes and PPA revenue
to fund the construction and operation of the solar facility which might conveniently be
located on the energy offtakers property.
PPAs have relatively complicated financing structures and heavier operating costs, so are
better suited to larger projects and higher energy rates. It is prudent to engage Helio Micro
Utility or another experienced PPA provider to perform a structured financing analysis early
in PPA process to ensure the project economics can adequately reward all stakeholders
including the offtaker, installer, developer and different classes of investors.

Solar Project Finance Summary & Conclusions

Tax incentives, inexpensive debt and prudent matching strategies drive a robust and
diverse solar project finance marketplace. The principles outlined in this solar project
finance guide can help prospective solar customers narrow their options and determine
whether a PPA, lease, loan or cash purchase merits further investigation.

Fonte: http://heliopower.com/solar-project-finance/