DG Energy Partners’ new project valuation model, which lets developers conduct their own first-run economic analysis, is the latest in a suite of products designed to bridge the gap between solar projects and the financing they need to move forward.
The model, currently in beta, is a web-based interface that gives project developers a means of determining whether investors will consider their projects financeable. “We are providing the marketplace with a simple, accessible version of a complicated investor model,” said Michael DellaGala, managing partner of DG Energy. “You log onto the website, put in the basic inputs of your solar project, and then we are able to rate its bankability.”
“Our rating system ranges from 1a to 3b; 1a represents a financeable project while 3b represents a project not likely to obtain a financing source in its current state. In the latter scenario, DG Energy Partners will provide color as to how the project can become more financially viable,” DellaGala said.
Basic inputs for a solar project are the same as for any other project: expected revenues and costs. And as with any large energy project, costs for solar installation include, but are not limited to, capital, labor, construction, components, insurance, operations and management and accounting. “Every project revolves around revenues and expenses,” DellaGala said.
But what can complicate financial models for the solar industry is the variety of incentives that exist to encourage their development in the U.S. “The revenues are your PPA [power purchase agreement] price in pennies per kilowatt hour, and your incentives -- an SREC [solar renewables energy certificate], a feed-in tariff, etc.,” DellaGala said.
“The model can support almost any incentive in the country,” DellaGala added, noting specific exceptions, namely North Carolina’s state tax credit, the only one of its kind in the U.S.
“This is a first-flight economic analysis. This is the first way that any investor is going to look at your project,” DellaGala said.
The developer has the option to customize each of the inputs, offering the opportunity to compare project economics assuming various PPA rates, construction cost estimates, or any other variables that could materially affect its viability. “This is an easy way for us to allow project developers to vet their projects themselves,” DellaGala said.
A frequent complaint in the solar industry is a disconnect between developers’ and financiers’ understanding of what makes a project attractive. “Project developers and engineers wouldn’t otherwise know how to value their projects,” DellaGala said. “The market needs this tool so they’ll bring better, cleaner, financeable projects to the marketplace.”