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I wish to finance a number of commercial solar installations at client premises. I will own them and make revenue from a service agreement with the clients over a 10 year period. What are my best options for financing?
Loan financing would be approx $100k per installation with an annual revenue of $26000 per installation for 10 years. I would be looking at a 5 to 7 year financing arrangement
Responses
What you're after is called a power purchase agreement. It's where you fund the equipment, place it on the client's building then share the savings. It's more profitable for you and removes risk from the client, but it requires you to keep them on your balance sheet and secure funding. For multiple projects, there's often a better way and often we find the retailer is unable to keep borrowing to leverage sale opportunities. With a standard equipment finance solution, you're pis up front and can continue to grow without debt. Regardless, you and your client have many options with rates starting at 4.99% and on and off balance sheet solutions.
Hi John.
Very interesting question.
I would need to research the best options for you. Would you be interested in meeting so that I can get a better understanding of your finance needs?
Rose 04111 81938
I am presently working with a couple of Solar Power providers and we have access to a specific Energy Equipment Finance option over a 5 year term with or without a balloon payment. Cash flow modeling has proved positive in each scenario we have tested. Please call me on 0417 590 553 to discuss further. Kind regards Peter Ritchie.
In order to raise finance / gearing from commercial banks for your anticipated portfolio of PPAs you will own there is a critical mass required, akin to bank lending to commercial businesses. This minimum level would be in the ballpark of at least the 5 million mark.
Other options to consider include:
1. Selling the projects at development phase to a PPA fund and charging either an upfront or ongoing fee to the fund, or
2. Funding each PPA on your balance sheet then sell down to a PPA fund progressively. This option will mean you need to spend money on developing up contracts and processes on credit decisioning, retailer exemption licence etc.
If you would like to discuss these more, please reach out.
Thanks James. As our business proposition is "behind the meter" and doesn't require us to obtain an energy retailers licence or exemption we don't do PPA's. It is a service contract for ongoing management, maintenance and servicing of the asset on the client's behalf for an annual fee. I would expect though your advice regarding the financing would still hold true. Cheers. John.
Hi John - sounds like a very solid opportunity and there are some interesting ways to fund these solutions. Most likely an operating lease (we have 7 year terms available) would suit you - but the scale is always a question as your business needs the balance sheet to support the lending. It's definitely something that has merit if you have a broker who can ensure that the lender sees the fees as a support of the servicing of the lease.