A Step-By-Step Guide to PPA Pricing with Conductor Solar

In our last post we noted some key variables in PPA pricing and highlighted why it’s important to price PPAs on a deal-by-deal basis. But how do you do this efficiently, without perfect project information? What is the right starting place for a new project?

Here we’ll outline a step-by-step process, made fast and easy by Conductor’s autopricing. We’ll use a PPA example, but the same sequence applies to leases and ESAs.

1. Make sure you’re in the range
The truth is that project economics don’t always support PPA financing. It’s important early on in the sales process simply to know whether or not pursuing a PPA will be worth your time. With Conductor, you can quickly check to see if a project will pencil with these steps:

• Set up the project in Conductor to solve for the budget by selecting EPC + Dev Fee as the investor pricing request

• Enter the highest sellable value for the PPA:

• Set the PPA term length to 25 years and the PPA rate escalator to 2% per year

• Set the initial PPA rate at a 10% discount to the customer's avoided cost of power. (for example, if the customer is currently paying $0.10 / kWh, set the initial PPA rate at $0.09 / kWh).

• Input all other project details, as available

• Generate your automated pricing estimate

If this estimate returns a budget that covers your costs and meets your business objectives, then the project’s economics likely support PPA financing. 

How to use this in the sales process
This is a great screening tool to determine whether or not it makes sense to bring up a PPA in a conversation with the customer. If these economics work, and the customer seems interested in a PPA, then proceed to step two below. If the economics don’t work, a PPA is probably not a viable option. 

How Conductor helps
Conductor answers this question quickly with an automatic price estimate. While it typically takes investors a week or two to respond with firm pricing, speed is key at this stage. With results validated by winning quotes from the marketplace, Conductor’s autopricing is also typically a better reflection of market pricing than a bid from an individual investor, as our model is based on hundreds of deals across the country

2. Optimize pricing for the project
Once you’ve determined that a PPA is an option for a customer, the next step is to start dialing in the pricing for the deal. Conductor makes this easy by allowing you to change inputs and re-run autopricing for a project as many times as you want. But unlike #1 above, there is no one right answer for the best way to do this. 

When the project economics work for a PPA, some amount of extra value is usually available to be allocated to one party or another. One approach to this is to give all of the value to the customer and maximize your chances of winning the business. Instead of entering the maximum sellable PPA, as in #2 above, this involves entering the minimum. 

Some customers prefer a low or zero annual escalator in their PPA rate, and reducing the escalator is one way to give additional value to the customer and increase the customer’s savings. Another is to lower the initial PPA rate beyond a 10% discount. How far can you lower the escalator and/or the PPA rate? It depends on the project economics. Once you reduce the EPC + Dev Fee to the lowest viable value for your project budget, you’ve basically allocated as much value to the customer as possible. 

Another approach is to split the additional value with the customer, or try to claim all of it. This can work, and significantly increase your margin. But it could risk losing the deal to another company with better PPA pricing. So, it’s probably only viable in situations with less competition.

How to use this in the sales process
We recommend running scenarios like this to optimize deal pricing prior to mentioning a PPA rate with a customer. Customers can latch on to a number, and there are risks to setting their expectations either too high or too low. If anything, it helps to be a little conservative and start the PPA pricing conversation a little higher than you expect it to ultimately land. That way you can give the customer additional benefit and incentive for contracting as they get closer to signing.

How Conductor helps
Conductor allows for unlimited iterations with autopricing, so you can run as many scenarios as you want. Each scenario is informed by real quotes from investors in the marketplace. So while the results are still estimates, they still provide a very fast and reasonably accurate way to optimize pricing for any PPA deal. The kind of trade offs we’re focused on here (initial PPA rate vs. escalator, budget amount vs. customer discount) affect project economics in predictable ways. And this allows Conductor to anticipate the impact of these variables on investor pricing in the marketplace.

3. Firm up pricing in the marketplace
When it comes to firming up pricing, nothing beats a great bid from a high quality investor. We have a high degree of confidence in the ranges provided by our autopricing tool, but they’re still only estimates. When you need a firm price, it’s time to talk with an investor.

Receiving bids in the Conductor marketplace takes between a few days and a few weeks, depending on the complexity of the project. Once the bids are in, you can select a financing partner to work with and introduce them to the customer.

Before talking with investors, it’s very helpful to glean some information about the customer’s credit profile. If the customer is not a public entity or a rated company, additional information will be required to assess their creditworthiness. This can include the customer’s operating history and track record, but it ideally involves three years of audited financial statements. Investors may be willing to price a project without all of these details - contingent on a detailed credit assessment prior to contracting. 

From there, the financing process generally follows this outline, and developers and investors work together to bring the project to fruition. 

How to use this in the sales process
Generally, the need for firm pricing is driven by the customer’s timeline and level of interest. Sometimes they will sign a letter of intent (LOI) based on an estimate, and sometimes they will need more confidence to move forward. If a PPA quote is required in a customer’s RFP, we recommend connecting with investors right away.

But in most sales cycles, there are several conversations with a customer and some iterative system design work before the customer is ready to move forward. Autopricing is designed to support the earlier conversations, and the marketplace is designed to support conversations closer to contracting. 

How Conductor helps
Conductor’s financing marketplace uses the same set of project data as autopricing. This means that everything you do to estimate and optimize customer pricing is saved in the app for use in the marketplace. All you have to do is submit the project. And with this same set of data, your project receives up to five bids from high quality investors who actually transact on that type of project. This saves a ton of time that would otherwise be spent searching for and comparing investor bids. 

Easy as 1-2-3
Conductor’s autopricing and financing marketplace give you everything that you need to price and sell PPAs to C&I customers. Whenever a customer seems interested in a PPA (or a Lease or Energy Services Agreement) use these steps to help them understand their options, find a great investor, and close the deal.