Financing a Solar Deal
Written by: Ani E. Ajemian
No doubt about it, financing is a critical component of a solar project and is often the force that drives the deal.
Government (both state and federal) incentives provide a bridge that makes the deal financially possible. With a variety of financial incentives in the current market, financing a solar project requires the lawyer to juggle Solar Renewable Energy Credit (SREC) carve outs, state or federal grant incentives and tax benefits, in addition to a more customary commercial loan. While a commercial lender will have its own wish list before issuing a solar loan, governmental incentives present detailed applications, state-specific requirements, and unmovable deadlines. When embarking on a solar project, proponents are wise to identify their requirements and critical dates in advance to allow each financial component to flow together.
On the commercial lending side, lenders are more willing to invest in solar, and growing more sophisticated in their approach. That said, borrowers should expect the usual approach to a loan transaction, but with added quirks. For example, security is often provided in the form of a fixture filing against the solar equipment. Where the project will be installed on property subject to an underlying lease, borrowers may be requested to grant a leasehold mortgage to the bank. Personal guarantees from the principals will likely be required.
Enter the governmental incentive. Naturally tied to budgets, governmental incentives will have fixed deadlines for applications and strict requirements that must be built into the overall deal. Most often the pay out will come only after the project is substantially underway, adding an element of risk that can leave a project proponent – and a commercial lender – uneasy.
When embarking on a solar project, proponents must balance the needs of two masters, without sidetracking the deal. Due diligence and a healthy understanding of government incentives are key to stay on track. Although solar deals can present an unexpected angle to the typical deal, they are still just that – another kind of deal, and entirely feasible.