A. How Do Solar Projects Work?
A.1 Common Types of Solar Projects:
Solar projects encompass a range of types, including large utility-scale projects exceeding 50MW, distributed solar projects (1-10MW), such as community solar projects (1-5MW), rooftop installations, carports, as well as commercial and industrial projects. At LXI Capital, our primary focus centers on distributed solar projects, specifically those with capacities ranging from 1-10MW. To put it in context, these projects typically require approximately 1:5 or 1:6 land size ratios. For instance, a 5MW project would typically necessitate 25-30 acres.
A.2 What’s the Typical Development Timeline?
The timeline for solar project development is influenced by factors like project size and complexity. For solar farm projects under 10MWac (equivalent to 50-60 buildable acres), the average development period extends from 18 to 24 months. The construction phase, typically taking 9-12 months, can be influenced by lead times for critical components such as transformers and inverters. It’s noteworthy that if a project is ready for construction within the 24-month period, developers should revisit the landowner to update the option lease agreement to the actual ground lease agreements. Additionally, zoning code changes may need initiation around this time.
A.3 How Do Solar Projects Generate Revenue?
Solar projects generate revenue primarily through two sources: 1) energy/electricity sales and 2) REC (renewable energy credits). Energy sales contribute significantly to the revenue stream. For distributed solar projects, it’s crucial to secure long-term purchase agreements within the 24-month development cycle before moving to the construction phase.
A.4 What’s the Lifespan of a Solar Project?
In the US, industry standards typically assume a 40-year lifespan for solar projects. Repowering is generally required around year 15. Consequently, most lease agreements are structured as 30-year agreements with two five-year extensions, aligning with the project’s anticipated physical life.
A.5 Who Manages Land Restoration?
Restoring the land to its original condition at the end of a solar project’s life is standard industry practice. The associated costs are typically budgeted for at the conclusion of the project’s operational life.
A.6 What’s the Likelihood of Successful Development?
Development risks encompass permitting, interconnection, and off-take agreements. In cases where any of these aspects fail to meet requirements, the project may struggle to secure funding or proceed. In such scenarios, project termination may be necessary. Throughout the 2-year development cycle, various factors can influence the project’s viability, underscoring the significance of selecting an experienced development team.
A.7 Community Solar
Most states promote distributed solar projects, often referred to as community solar. Rules and requirements vary by state and utility, but generally, there’s a 5MW cap for community solar projects, equivalent to around 30 acres. In Illinois, revenue is guaranteed through incentives, but there is an annual cap on awarded projects. The allocation of projects is conducted through a lottery system, where only a small percentage of applicants receive incentives, resulting in a modest success rate.
B. Solar Developers?
B.1 Who are Solar Developers?
The term “solar developer” encompasses a wide spectrum of players in the industry, from well-established independent power producers with substantial in-house resources to newcomers with limited experience. The influx of new developers can sometimes lead to projects with design issues and difficulties in attracting investors. As investors ourselves, we frequently encounter projects at various development stages across the US. However, we must decline involvement in many cases due to issues related to project quality or pricing.
In contrast, smaller developers often focus on securing option-to-lease agreements but may subsequently exit or flip the project. Flipping projects at different development phases is common due to the active flip market in most states. Developers frequently buy and sell projects among themselves, resulting in a highly liquid market. In extreme cases, a project might change ownership multiple times within a short period after executing option-to-lease agreements.
B.2 How to Evaluate Developers
Conducting Company Research:
Initiate the research process by conducting comprehensive online investigations on the solar development company. Examine their official website to gain insights into their historical background, past project portfolio, and any available client feedback. Pay particular attention to evidence of comparable projects that have been successfully executed.
It is worth noting that within the competitive landscape of the solar industry, some companies may choose not to publicly disclose their complete team on their websites. This discretion arises from the concern of potential talent poaching by other entities. Furthermore, while some companies may maintain a comprehensive project list, others may opt for selectivity. It is essential to discern the depth of the company’s involvement in the projects they list, which can encompass end-to-end development, construction, and operations (often referred to as IPP or Independent Power Producer). This involvement may also extend to the initiation of projects in their early phases, with subsequent withdrawal after the submission of interconnection applications.
Additionally, it is pertinent to acknowledge that remote work practices are prevalent within the U.S. solar industry. Many developers with projects located in states like Illinois may not necessarily reside within the state itself, yet they effectively manage their operations through remote collaboration.
LinkedIn Profile Evaluation:
Given the ever evolving and dynamic nature of the solar industry, it is customary for most solar professionals to maintain active LinkedIn profiles. This platform serves as a direct and efficient means of accessing information related to a solar developer. A thorough examination of these profiles can yield valuable insights into their professional experience, industry connections, and endorsements. Leveraging this resource will enable you to make well-informed decisions when considering potential collaborators.
Seeking Referrals and Recommendations:
In states with well-established and thriving solar industries, such as California, Texas, New York, and Colorado, seeking referrals and recommendations within the industry community proves to be an effective strategy. Utilize your professional network to establish connections with experienced individuals who can provide valuable insights.
In regions where the solar industry is still in its nascent stages, such as several Midwestern states, identifying industry professionals for advice may pose a greater challenge. In such instances, it is imperative to diversify your research methods and employ additional due diligence strategies to ensure that your selection of a solar developer is well-informed.