If you’re wondering what factors play into whether or not utility-scale projects become reality, you’re in the right place. Here are two of several predictors you and your team can use as a framework for determining which development projects have the greatest potential for success.
Feasibility Factors: Two Predictors
One of the biggest factors that impacts the plausibility of a utility-scale solar project is the funding of the company or companies involved. Here are some specific finance-related items to keep in mind:
- Does the company have a strong balance sheet? Obviously, the company has to have enough money coming in to fund the project.
- What is the company’s track record with financing? Identify how many projects the company has undertaken, and how many of that total number has been canceled, suspended, or funded. Seeing the ratio of success to failure in past projects will give you a good idea as to the feasibility of the latest one.
- Are there any policy risks that could derail this project? For example, some projects are planned when there are tax credits available. When those options expire or are removed the related policy effectively no longer exists, which could very well make the project too expensive to build.
Power Purchase Agreement (PPA)
A power purchase agreement (PPA) is a contract between two parties, one of whom generates electricity (the seller) and one who purchases electricity (the buyer). Having a PPA in hand makes getting financing for utility-scale solar projects much easier. Banks are more likely to finance a project where a developer can say, “A utility has agreed to buy power from me for the next 25 years.”
Utility-scale solar developers should pay attention to projects that have a PPA in place, as it is a good sign that a project has financial backing and is more likely to have stable funding (and not run out of money midway through the project).
But wait—there’s more!
Financing and a power purchase agreement are just two of six major predictors that affect utility-scale solar projects. We’ve compiled them all in our report, which you can download for Free.