Reprinted with permission from the October 2013 issue

a complete story about the project; it A Guide To Preparing is an important part of the process in achieving successful project .

A Successful Solar Energy Be a resource for your finance team As the finance team evaluates your Project Finance Package transaction, they will probably have a few questions - no matter how much information you include in your pro- The finance team your renewable energy dream fessional project finance package. Re- project is more than just a source of cash; they are your partners. spond quickly, and provide the finance team with as much information as possible. This is a great opportunity bb Chris Diaz let you know if your project is a good for you to develop a relationship with fit for their finance program. them. They will know you are highly hy do some renewable ener- A professional project finance motivated to get your project financed, Wgy projects get financed while package should include the following and they will move the process along as others that appear to be similar never items: quickly as possible. make it past the initial ■ Detailed source and use/pro- For a financial services provider, it evaluation process? forma: Breakdown of the project is important to know the borrower by Looking back at the costs, sources of capital and annual meeting him or her face-to-face. This numerous renewable expenses; gives a better understanding of the energy transactions I ■ Detailed transaction summary: borrower’s needs by forming a more have evaluated over the Chris Diaz Outline of the project structure and personal relationship. years, the projects that participants; Be open-minded to suggestions were successful in obtaining financing ■ Executive summary: Written from your finance team. If they are had certain similar qualities. The proj- summary of the project and its key asking you to adjust your project in ects were not always similar in size or components; some way, it is not to make your life economics, but the developers’ ap- ■ Ownership structure flowchart: more difficult. It is more than like- proach to finding financing met some Includes all entity names; ly that an experienced finance per- key requirements that I will outline ■ Experience/background of par- son is giving you suggestions to help step-by-step. ticipants: Includes development team strengthen your project. Most - if not and engineering, procurement and all - financial institutions must pres- A professional package construction team; ent your transaction to a committee A project finance package is the ■ Guarantor financials: Developer for approval. Their requests or sugges- first detailed information on your net worth and liquidity; and tions will adjust your project so it has proposed solar project that your lend- ■ List of technology utilized: Pan- the components necessary to obtain er/equity provider or finance team els, inverters and balance-of-system committee approval. will see, so make a good impression. A components. Most construction lenders will lend professional project finance package is If your project finance package in- between 80%-90% of the total costs. organized, detailed and well-thought- cludes the seven items listed above, This developer equity will be the first out; it should be a reflection of your you will be surprised at how quickly sum of money into the transaction. project. the finance team processes your re- Identify this number as soon as pos- This package will provide the fi- quest. A package that is incomplete sible so you are prepared to have this nanciers with all the information or unorganized will probably be over- capital available at construction they need to do an initial evaluation looked or, at the very least, will take closing. of your project. It will allow them to the lender twice as long to evaluate the A good time to engage your finance quickly respond to your request and information. Your package should tell team is when your contracts are ne-

Subscription information is available online at www.solarindustrymag.com. Copyright © 2013 Zackin Publications Inc. All Rights Reserved. gotiated and the project’s sources and easement rights allowing uninterrupt- Members of your finance team uses are relatively complete. Engage ed access to the site; and want to ensure that they are in the them too early in the process, and you ■ All manufacturers’ warranties as- proper lien position prior to funding. are wasting everyone’s time, as well signable to the lender. The construction lender will require as increasing the transaction costs by Financeable PPA should include a first-lien position until the loan is having to revisit open items. Engage the following: repaid. The permanent lender will re- them too late, and the project may not ■ Appropriate pricing for the given quire a clear first-lien position prior close in the desired time if deadlines area and to funding the loan. Coordinating approach. ■ A strong, credit-worthy off-taker. the timing of payments and payoffs Working together with your fi- Long-term lenders place a great is important to securing these lien nance team benefits everyone in that deal of emphasis on the PPA off-taker. positions. The Investment Tax Credit it helps grow the relationship and pre- They want the of knowing syndication/grant payment, any state vents any surprises. that if the renewable energy system grant/loan program payments and the produces as expected, the PPA off- permanent loan funding should occur Financeable contracts taker will have the capital to make at the same time. Those funds will pay When I attend renewable energy the monthly payments for the power. off the construction lender and allow conferences across the country, I usu- Remember that the contracted cash the permanent lender to secure a first- ally hear the phrase “financeable con- flows generated by the system are how lien position. tracts” or “financeable PPA,” which the developer repays the loan. Properly structured contracts will is followed by a question: What does Not all PPAs are signed with BBB- help streamline the evaluation of your this mean? What makes a contract or or better-rated credit off-takers. It is project, keeping the underwriting a power purchase agreement (PPA) important that the off-taker has good process on track. financeable? Simply put, it is any con- credit and can easily be underwrit- tract that a lender/equity provider is ten by the lender. A well-established Bankable equipment and tech willing to provide financing for (i.e., business with a good credit history or Your finance team will want to see one that has all the necessary compo- a public utility may not have BBB or proven equipment and technology nents and rights that are needed). better credit but can be considered a with an established track record. They As you structure your PPA, site good credit risk by the finance team. need to have a high level of comfort lease, equipment purchase contract, The partnership structure and poli- that the equipment and technology interconnection agreement, and op- cies of each source of capital can im- will perform as promised and that, erations and maintenance contract, it pact the loan, so be proactive. Have if there is an issue, the manufacturer is very important to incorporate the an experienced attorney and an ex- will honor its warranty. If the chosen various rights and assignments your perienced certified public accountant equipment and technology do not have finance team will need for the con- involved in the process as early as an extensive track record, one way to tracts to be financeable. Negotiating possible. mitigate this is to reinsure the manu- these terms up front will save time and Having a first-lien position on all facturer’s warranty with a reputable re- money; adding these requirements to equipment associated with the re- company. This will give your the contract after everything has been newable energy development and finance team some additional comfort. agreed upon can be difficult and cost- improvements to the site, as well as How can you get your finance team ly. Your finance team’s requirements a leasehold mortgage/deed of trust, comfortable with the equipment/tech- will apply to any type of renewable secures the construction lender’s in- nology? Do the following: energy development, large or small. terest in the project. The construction ■ Provide the financiers with data Financeable contracts should allow lender will need specific rights to pro- to support your case; for the following: tect its loan in the unlikely event that ■ Prepare a list of installed ■ Assignability allowing for a first an issue arises during construction. and active projects that feature the ; These rights are as follows: equipment/technology; ■ Proper entitlements; ■ Complete the project if the de- ■ Submit the data sheet provided ■ A ground lease estoppel; veloper cannot; by the manufacturer(s); and ■ A subordination/non-disturbance ■ Have access to anticipated repay- ■ Submit warranty information agreement from the underlying lender ment sources; provided by the manufacturer(s). and landlord; ■ Operate the project and derive ■ A coterminous PPA and site income from operations; Understand what is needed lease; ■ Cure defaults; and “How fast can you get my deal ■ A site lease with provisions for ■ Sell the project if necessary. closed?” The answer: as fast as you

Subscription information is available online at www.solarindustrymag.com. Copyright © 2013 Zackin Publications Inc. All Rights Reserved. want, provided that all necessary due and could take a few weeks to satisfy. as possible, and work with your fi- diligence is available. Some of those are as follows: nance team to determine which ven- Just because you might view some ■ Independent engineers report: dors are acceptable for the third-party due diligence as unnecessary, that may Permanent lender requirement to reports. Once the third-party reports not be the case for your finance team. confirm system output; are received, the underwriter will need Some lenders and equity providers ■ Project report: Con- a little time to evaluate them. may require a certain document while struction lender and permanent lend- If a project has all the necessary others do not. Why? Most of the time, er requirement to close loan; due diligence available in an orga- your finance team has investors and/ ■ Permits: Construction lender re- nized format, underwriting should be or regulators they must answer to, and quirement to close loan; a three- to four-week process. the due diligence that is collected may ■ American Land Title Association The goal of every renewable energy be to satisfy a requirement. surveys: Needed for title insurance; developer is to take a project from the The key is to understand what due ■ Title insurance: Construction concept stage to completion. Follow- diligence is required and work dili- lender requirement to close loan; ing the key areas pointed out in this gently to get your finance team what ■ Commitment letter from per- guide will help make your dream a they need. By engaging your finance manent lender: Construction lender reality. S team early in the process and continu- and tax equity requirement to close ing to work with the same team, you loan; and Chris Diaz is a principal of Seminole Finan- will dramatically reduce the time it ■ Tax equity documents: Con- cial Services in Belleair Bluffs, Fla. He can be takes to close your transactions. struction lender requirement to close reached by email at cdiaz@seminolefinan- There are a few due diligence items loan. cialservices.com. that your finance team typically needs Get started on these items as soon

Subscription information is available online at www.solarindustrymag.com. Copyright © 2013 Zackin Publications Inc. All Rights Reserved.