Here is a quick example of a recent transaction where a developer brought a project to a PPA financier, a LOI was issued at an agreed EPC price, and all that remained was a Notice to Proceed (NTP) and the executed EPC agreement, or so it seemed…
Solar developer waiting for a final funding committment:
Today was the day my funder committed to providing my final EPC price, executed EPC contract, and NTP. After 2 long years of work, I’ve finally completed all work requested: executed PPA at the price provided by the PPA provider, school board approval, approved design, required permits and interconnect agreement. I can’t wait to get working and finally getting paid!
It’s now been four weeks since I was to get my commitment. What gives? I was at least expecting something back from them stating “sorry it is taking longer than expected.” They were so good during the initial diligence and negotiation process, but as soon as we got to closing the deal they went silent.
I received some feedback that I will have to be a sub contractor to a larger more bankable GC and that I will have to commit to their standard document with little to no changes to make this deal work. They’re pushing for liquidated damages that could crater my company if something happens and I get delayed for some reason or the system does not produce as I have committed.
After giving them feedback, they’ve stopped returning my calls or emails again. If this deal dies, how will I maintain my credibility with the school board if I can’t deliver, how will this reflect on my company? I told them I was confident this funder would come through. I ‘ve also made commitments to suppliers to maintain my pricing, have modules arriving in 2 weeks and only have 3 months left of cash to run my company.
This has taken too long and should be easier.
PPA financier working small project into its portfolio:
I’m not sure what I am going to tell the developer. Their school project is right on the edge of our hurdle rate and I’ve yet to tell them they’re an unbankable EPC. I should have said up front the EPC agreement could not be negotiated. My board is now on my back to drop the project. We’ve got so much sunk cost into it, I’ve got to figure out a way to get it done.
I’ve got to get back to my developer to get them to be a sub to a general contractor that is bondable and that my investors will stand behind. Our legal team is totally focused on getting closed a $16M transaction that will sure help our cash flow. Tough to find the time for that $1.5M project.
My legal team has had it with this developer on that school project wanting to change standard EPC contract language that will not be accepted by my investor. Don’t they understand this 500kW project is being grouped into a much larger portfolio and changes make the project unfundable and not worth it?
I’m at an impasse internally at my company. The GC the company wants to use is too expensive and the GC the developer wants is taking too much time to get comfortable – time I don’t have. I wish I brought this bankability issue up with them much earlier. My credibility internally is now being affected because I’ve spent more time and resources on this than we will likely make, while we are trying to close several much bigger deals.
This has taken too long and should be easier.
The above happens all too often where developers wait on the sidelines for the eminent funding commitment. However in the market environment we are in today, for good projects armed with a translator key, sellers could significantly have the upper hand. The silver lining is that this project did actually end up getting completed, but not without the developer ultimately making a $.08/W fee when they initially were hoping for $0.35/W. In addition, the funder will likely break even on the deal when you account for the time value of money and all costs they incurred in legal and travel.
For developers, work with funders that are willing to provide reverse timelines for all that is required. This should be presented as early in the process as possible, preferably before execution of the letter of intent.
For funders, create easy to follow processes from LOI through to funding. Also create a library of best practices that include learnings from past projects, especially around bankability requirements, for developers to reference.
ECS offers clean energy solutions for project developers and financiers looking for sound investment opportunities in clean energy projects. We offer a variety of services including but not limited to feasibility studies, project planning, risk assessment, technical design and engineering, project permitting, project management, and more. Contact us today to discuss your project.