Solar Dialects
At Conductor we’re a part of numerous conversations between solar developers and investors, and we’re often surprised with how different the lingo can be from company to company. But it’s also really important that developers and investors share an understanding when considering comprehensive agreements for development, financing, and construction. It’s good to have a sense of humor about these things, and also some patience when working through the terminology.
We wrote this post to highlight common areas of confusion, and some key questions to ask for clarification.
It’s the system, man! Getting specific about system pricing, size, and production
“We’ve got a 1MW project and we want to sell it for at least $3M”
This could be said by one party, heard perfectly by another, and understood very differently. Some people talk about system size in watts DC and others in watts AC. Without specifying one or the other, there is ample room for misunderstanding. In this example, a DC system size implies a price of $3.00/W while an AC system size implies a price closer to $2.00/W. People can get pretty far into a conversation before recognizing misalignment on this basic point, and it often stems from groups moving down from utility scale work into the smaller end of the market.
But what if this speaker had said “three” as a shorthand for “three million”? This could also be interpreted as $3/Wdc, which puts the price of the 1MWac project at $4.5M. Unless we specify Wdc vs. Wac and $ vs $/W, there is potential for confusion on both the price and the size.
“The production’s at 1.4, but we might hit 1.6 with trackers.”
Does this refer to 1,400,000 - 1,600,000 kWh per year, or a production ratio of between 1,400 and 1,600 kWh/kWdc? People quote production both ways, and can be surprised when they see something that differs from what they heard. We support both in Conductor, and production data entered the wrong way can throw a financial model off by a few orders of magnitude.
But don’t confuse a production ratio with a “performance ratio” that describes the actual vs. theoretical energy outputs of a system, in the form of a percentage. In addition to showing poor economics, production ratios less than 1 raise some basic questions about system design (zero degree azimuth / north-facing panels?).
Conductor’s view: Most confusion around system specifications and pricing comes from people talking in different units. Because the vernacular differs, it helps to be explicit about the denominator. This kind of misunderstanding quickly gets clarified in further discussions. But these are exactly the kind of high level conversations that people have to determine whether or not they’re interested in a project at all. And basic misunderstandings can mean the difference between having those further discussions or passing on a deal entirely.
Where are we at? Clarifying project status and development milestones
“We’ve got site control.”
This might be completely true and at the same time not enough. Site control can be obtained through a license, an easement, or a lease and some investors are okay with any of these while others have specific requirements. As with most things in solar financing, the difference really manifests itself when things go wrong in the project. A license is much less secure and buttoned up from a real estate law perspective compared with site easements and leases.
“Your production looks about right.”
This is usually said to mean that the current production estimate is likely to be within a few percentage points of the production forecast from an independent engineer (IE). But it’s important to note the approximation here. A swing of a few percentage points will materially affect the final purchase price of a project. Experienced developers understand this uncertainty and budget accordingly, but developers newer to PPA projects can be surprised when the production estimate that they thought was “vetted and done” comes back from the IE with a haircut that clips their development fee. This risk can also be reduced with proper production modeling similar to how a polished IE would look at it, factoring in nuances like monthly soiling losses and using a top tier data set for the base GHI.
“This one is NTP ready!”
NTP, or Notice to Proceed, is a green light from an investor to begin construction. It follows an investor’s diligence process, and is a key milestone for keeping a project on schedule. But what makes a project ready for NTP? Some use this phrase simply to mean that the customer has signed a PPA. Others use this to mean that not only is the PPA signed, but interconnection has been approved by the utility and all the required permits have been received from local authorities. These two interpretations can be a year plus apart! In addition to specifying a target date for NTP, it’s important to clarify its associated requirements.
Conductor’s view: We haven’t seen a project yet that didn’t change at least a little bit through the course of its development. Every number and every date is an estimate until it’s finalized. What we’ve found most helpful here is some extra attention to these items, and an interest in clarifying what is needed to finalize them. It's important for developers to understand investor requirements alongside investor bids. And these conversations can surface key development items and a shared sense of how “baked” the project is.
Who are we talking about? Describing the key parties in a solar deal
“We all do development, but we aren’t all developers.”
Because middle market deals have been so challenging to get done, most of the parties involved have gotten their hands into development work at one time or another. Especially when branching out into a new type of project, it takes a certain amount of flexibility and creative collaboration to make things happen. But that doesn’t make everyone a developer. We’ll parse this from other roles as we go along here.
“Can they EPC that?”
First off, “EPC” is not a verb, but is often used that way and we’re guilty of it, too. EPC stands for Engineering, Procurement, and Construction and is often followed by “contract” or “contractor.” It’s the construction piece that is consistently part of an EPC agreement. And when used as a verb, EPC means “to build”. Some developers are also EPCs, but sometimes only for a particular type of project. Companies working on smaller projects, closer to residential scale, are often called installers or integrators.
“I have a 500kW project with a top-tier customer”
Who is the “customer” in this sentence? An investor may interpret the customer to be the developer, whereas the developer meant the offtaker who will be buying the power. With behind-the-meter projects the customer is both the offtaker (buying the power from the system) and the site host (owning the roof or the land where the system is installed). But with community solar projects, these roles are split. The site host could be a landowner or a building owner. But offtakers are distributed and referred to as subscribers.
Some of this terminology aligns with projects by type and size. A small commercial project could have four key parties:
And a large community solar project could have six (not to mention a subscription management company that sits between the project and the offtakers):
Conductor’s view: It’s challenging to use a consistent lexicon for roles across all types of projects, but we do our best. Here are some of our working definitions:
Developer: The company who owns the relationship with the offtaker on behind the meter projects or the relationship with the site on community solar projects. Also the company that coordinates items to get to NTP, such as PPAs, easements, roof structural reviews, ground studies, and interconnection.
Originator: A developer focused on early stage projects. Originators typically hand projects off early on, or work with a co-developer to complete interconnection and permitting.
EPC: The contractor that builds the system. This company may or may not procure all of the equipment (investors often bring modules, for example). And there can be multiple engineering firms involved.
Offtaker: An organization or group of subscribers that buys the power from the system.
Site host: The company that owns the land or the building where the system is built.
O&M Provider: The company providing ongoing system operation and maintenance.
Investor: the company funding the project, and typically the long-term owner of the system for PPAs and leases.
Project LLC: Not a role, but the special purpose entity created to enable project finance and this configuration of contracts between parties.
You say tomato? We can translate.
Solar’s middle market is full of variety, and with this variety comes differences in terminology. At Conductor, we help developers find high quality financing partners for all types of projects. But we also help companies grow into new areas. Examples include residential installers doing their first commercial PPA, EPCs getting into development work, and investors getting into community solar or battery storage. Our network and national reach bring transaction partners along with our technology to help companies grow. So we see our fair share of learning curves and opportunities for misunderstandings. But this growth keeps our industry vibrant. And we’ll continue to serve companies working in new areas, as well as those focused on their niches, and support everyone’s efforts to understand one another - if not always speaking the same language.
