Knowing how to make your solar assets more appealing to acquisition partners can not only make or break a deal, but also determine your company’s success.
After a record-setting 2020 for the solar industry, PV project developers can truly make their mark in the coming years with a sound strategy for ensuring their projects are acquisition-ready.
1. Understand your timeline. It’s important to anticipate a race against the clock with any solar project that gets deployed, but a developer can remove a lot of stress and uncertainty by understanding what the development process and requirements look like.
The idea is simple in concept and complex in application. As soon as the project is far enough along in the development process, you want to be ready to sell. That means that a developer has met all necessary asset-related criteria and every detail has been accounted for, like incentives (federal, state and community solar), property tax, or payment in lieu of taxes (PILOTs), and the development path to Notice to Proceed is clear.
To be ready, a developer should already be in negotiations with a larger solar company with strong financial backing and a track record of successful acquisitions.
Once initial terms for a sale have been agreed upon, the project buyer and seller will sign a letter of intent with an exclusivity period of 30 to 45 days, during which the buyer will conduct preliminary diligence. They’ll estimate engineering, procurement and construction (EPC) costs and complete preliminary design and production analyses to determine the value and if there are any red flags. This period might be extended to address issues, but ideally, the deal will be signed and closed within two to three months.
So while it’s important to engage potential buyers early on, a developer must have enough development work underway. If you don’t have a path to interconnection, site control, permitting, or incentives, you will be fighting an uphill battle to get to a viable solar project.
2. The proof is in the paper. There are dozens of permits and contracts that allow potential buyers and financing parties to determine the value of a solar project and commit to the transaction. Accuracy is important, but many documents need to be recent as well, so it’s critical to be aware of how long documents are considered up to date and when it will be necessary to refresh them.
Documents dealing with site control, including any leases, easements and interconnection permissions and agreements, are required to provide a deep understanding of how the project will interconnect with the grid and how access will be provided. Environmental documents, like the Phase 1 Environmental Site Assessment (ESA), require sound expertise to ensure compliance.
3: Teaming up with the right partners makes all the difference. Selling a solar project should be classified as a team sport. Whether you’re an energy company or a developer, you need many types of expertise, so ensuring you have good partners is critical. Find those consultants and employees who are willing to roll up their sleeves and get down in the weeds.
For example, developers who are hoping to sell a project, but don’t have an environmental consultant in-house, should find a good partner whom they can trust to produce reliable reports and are amenable to working with financing counterparties.
In your partner line up, you’ll also want to ask yourself if each partner has what it takes to put you in the best possible position when it comes to execution. Unreasonable delays and insufficient subject matter expertise can significantly push out transactions and put project schedules at risk. It’s important to have the kind of partners who can provide the right documents at the right time to the right entities, so the buyer and financing parties are comfortable with the project terms.
4: Think in volume and aim to create your own ecosystem. The larger potential buyers in the space who deal in well-capitalized solar will have megawatt targets and other metrics to achieve every year. They also want to conduct efficient transactions, so the more high-quality projects you can bundle together to create a portfolio, the more value you can deliver. Legal diligence and transaction costs are very high, so if you are selling portfolios of five to 10 or more projects, you can spread the transaction costs across all the projects in the portfolio.
Similarly, as you close deals, smart developers will look for ways to keep feeding projects to the same buyers. Repeat business is always faster and smoother, and the transaction costs are lower. With each acquisition, a developer can get a feel for what the buyers are looking for and this can inform what the developer focuses on. If you find a buyer whom you work well with, keep bringing them good projects to secure a pipeline for your development business.
With a clear time horizon, a developer can look out over several years and begin to establish an ecosystem that feeds itself on past success, trusted partners and processes, and sound completed projects that deliver value.
Getting a project acquisition-ready involves a commitment to being a good partner, efficiency and success. Many large solar players are not interested in taking on development risk. The developers that can deliver the best expertise, timeliness, accuracy, and value when their project is ready to sell will see their business grow. And the teams will enjoy the process a whole lot more.
Lauren Craft is the director of asset acquisitions at Distributed Solar Development Renewables.
