Lesson 8 – Considerations for Financing Renewable Energy

If I am asking someone to finance my renewable energy project, I need to be able to show them that I know how much it will cost and how much revenue it will earn in the future. I should have the following pieces of information to present to them:

  • System design including specified equipment and pricing
  • Quotes from several contractors for constructing the project
  • Project management timeline for the project showing the permitting process, procurement, construction, and commissioning
  • A Power Purchase Agreement with a utility or other off-taker that specifies the price at which my energy will be purchased and what the requirements are that must be met
  • A resource assessment that establishes how much potential energy production is anticipated throughout the life of the asset
  • Evidence of site control (land purchase or land leases fully executed)
  • A maintenance plan for keeping the asset online and available in order to produce energy
  • A financial analysis that shows the various sources of funding, the total up-front costs, expected maintenance costs, and expected revenues from energy production. This should contemplate insurance, taxes and interest payments, as well as incentives, rebates, and accelerated depreciation strategies. This will yield the Return on Equity for the project.

The project financials should tell the entire story for how much it will cost including all intangibles like taxes, permit fees, and insurance as well as how much revenue it can potentially earn. The resource assessment provides a guide for evaluating the potential energy production. By presenting a full accounting of costs as well as revenue, the investor can effectively calculate their Return on Investment and Return on Equity. A developer should also include credentials for all the parties involved in the project such as the contractor to assure investors that the estimates provided are reliable and that the project will be completed on time and produce energy as expected.

4 thoughts on “Lesson 8 – Considerations for Financing Renewable Energy

  1. Hello Abby, I enjoyed reading your post. I agree that painting a good picture of the full cost and scope of a project is important to make sure the investor fully understand what they are getting into. This will require several different financial metrics to be reported as each paints a different part of the picture. Investor confidence is extremely important and painting a full picture is truly necessary for full buy in.
    You can read my blog at:
    http://engr312.dutton.psu.edu/2014/10/21/understanding-cost-of-capital-michael-pittman/

    Michael

  2. Thanks for your comments, all! My first “big girl” job when I was 20 was working for a construction risk management company that provided project evaluation services to lenders for renewable energy projects. Contractor reviews are fairly simple to put together – you can request Dunn & Bradstreet reports that show their credit-worthiness, provide licenses, a list of completed projects, company financials, and bios on the primary officers of the company. Contractors can also post what’s called a Surety Bond, which is an insurance policy on a construction project that guarantees completion even if the contractor goes out of business.

  3. Hi Abby! I love the bullet points of ideas that you came up with to convince an investor to investor in your business. Those points show that you have a great plan for your business but also that you know what goes into having a successful business. You also made a great point about the credentials of those involved in the business. By showing that successful contractors are involved in your business, it is a strong showing that other reputable people believe in your business. Great job!

  4. Hello Abby,
    Your list of what you would explain to a potential investor was very thorough and impressive. That much information right off the bat would show how serious you are about the industry and really illustrate that you know your stuff. I didn’t consider how proving the contractors and subcontractors credentials could impact a deal with an investor. Do you think it would be difficult to gather all that information and present it in an easy to read format?
    Laura
    Here’s the link to my post!
    http://engr312.dutton.psu.edu/2014/10/20/investing-in-renewable-energy-hammonds/

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