SOUTHERN SOLAR SUMMIT
COMMON CHALLENGES WITH FUNDING
SOLAR PROJECTS
SEPTEMBER 19, 2013
Stephen Elkind
Senior Director, Development
OCI Solar Power, LLC
Five Concourse Parkway, Suite 2500
Atlanta, Georgia 30328
Direct: 770-375-2424
Cell: 310-738-8677
Fax: 770-375-2336
selkind@ocisolarpower.com
www.ocisolarpower.com
William P. Ewing
Partner
Barnes & Thornburg LLP
3343 Peachtree Road, N.E., Suite 1150
Atlanta, Georgia 30326-1428
Direct: 404-264-4050
Cell: 404-502-4402
Fax: 404-264-4033
william.ewing@btlaw.com
www.btlaw.com
Atlanta
Chicago
Delaware
Indiana
Los Angeles
Michigan
Minneapolis
Ohio
Washington, D.C.
© 2013 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may not be reproduced, disseminated or disclosed without the express written consent of the
author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.
INTRODUCTION
 Alignment of all construction, financing, tax planning and contracts
takes time and coordination – with many pitfalls
 Solar project finance depends heavily upon federal and state tax
incentives (generally > 60% of lifetime project cost)
 Federal investment tax credit
 Accelerated depreciation deductions
 State tax credits and other incentives (e.g., Georgia Clean Energy State
Tax Credit)
 Common funding vehicles
 Partnership Flip
 Sale/Leaseback
© 2010 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may
not be reproduced, disseminated or disclosed without the express written consent of the author or presenter. The information on this page is
intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.
SOLAR ECOSYSTEM
Federal
Permitting
State
Permitting
Land
Owner
Property Tax
Assessment
Tax Equity
EPC
Financing
Debt
Developer` Financing
Public
Finance
Mineral
Rights Owner
Legislative
Policy
Utility / Grid
Operators
County
Permitting
© 2010 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may
not be reproduced, disseminated or disclosed without the express written consent of the author or presenter. The information on this page is
intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.
Insurance
Carriers
Equipment
Suppliers
Objective:
Developer wants
long term
ownership
© 2010 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may
not be reproduced, disseminated or disclosed without the express written consent of the author or presenter. The information on this page is
intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.
Objective:
Developer wants
to maximize
upfront cash
© 2010 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may
not be reproduced, disseminated or disclosed without the express written consent of the author or presenter. The information on this page is
intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.
Common Pitfalls/Challenges
Topic
Description
Bank Support
• Project bankability (panels, inverters, etc.)
• Solar resource (reliability of weather tools)
• Amount of electricity that can be expected (P50, P75, P90)
• Equipment warranties, guarantees
Reliability of Cash
Flows
• Off-taker creditworthiness
• PPA terms (assignment, default terms)
• Debt service coverage ratios range (1.2x-1.4x)
Tax Requirements
• 30% ITC for qualifying solar property through 2016
• 1603 safe harbor requirements
• Placed-in-service deadlines (50% bonus depreciation)
Site Issues
• Land/roof rights and lease terms
• Easements, surveys
• Environmental review (USACOE, USFWS, etc)
• Permitting timeline
• Interconnection variability
© 2010 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may
not be reproduced, disseminated or disclosed without the express written consent of the author or presenter. The information on this page is
intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.
Common Pitfalls/Challenges
Topic
Description
Other Commercial
Contractual Issues
• EPC contract terms (exclusions, change orders)
• O&M operator (scope of services)
• Equipment guarantees (the who’s and when’s)
Transaction Costs
• Financing > risk mitigation > complexity > cost
• Transaction costs can kill a project’s profitability
Timing of Financing
• Financing comes only after risks mitigated
• Duration to obtain lender/tax equity investor commitment
• Corporate/personal guarantees can expedite
Finding Right Financing
Party That Can Use Tax
Benefits
• Banks and insurance companies – low risk, low return
• Small projects have relatively high transaction costs
• Private Equity – higher risk, higher return
• Typical hurdle = 7 to 9% unlevered
• Passive loss limitations for individual investors
• Minimum investment hurdles for larger financing parties
© 2010 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may
not be reproduced, disseminated or disclosed without the express written consent of the author or presenter. The information on this page is
intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.
Conclusion
Awareness of all parties involved, all requirements for moving forward
and all timing constraints will help avoid project pitfalls
© 2010 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may
not be reproduced, disseminated or disclosed without the express written consent of the author or presenter. The information on this page is
intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.