Guide to Solar Project Acquisition Financing
Acquiring a solar project can secure stable cash flow and enhance your sustainable portfolio. Gaining financing for these projects calls for strategic planning and robust structures. This guide covers essential steps from initial evaluation through financial close.
1. Initial Evaluation
Begin with a thorough assessment of the project. Focus on:
- Site quality and solar irradiance data
- Permitting status including land and environmental approvals
- Offtake arrangements and tariff structures
- Experience and track record of the developer
2. Structuring the Financing
Typical project finance follows non recourse terms. Key elements to define are:
- Equity contribution between 20% and 30% of total capital cost
- Senior debt covering 60% to 70% of cost via commercial banks or institutional lenders
- Mezzanine debt or subordinated facilities filling the gap
- Debt service coverage ratio requirements and reserve account provisions
3. Due Diligence
Thorough due diligence reduces execution risk. Essential areas include:
- Technical review of photovoltaic modules, inverters, and grid interconnection
- Legal analysis of power purchase agreements, land leases, and permits
- Financial model audit focusing on cash flow sensitivity and stress scenarios
- Environmental and social impact assessments where applicable
4. Sample Term Sheet
| Term |
Details |
| Facility Size |
$10,000,000 to $200,000,000 |
| Tenor |
15 to 20 years aligned with PPA term |
| DSCR |
Minimum 1.25x during operational phase |
| Construction Period |
Up to 24 months with interest capitalisation |
| Interest Rate |
Fixed or floating based on market benchmarks |
| Security Package |
Assignment of PPA, equipment mortgage, accounts pledge |
- Term sheet negotiation and credit committee approval
- Detailed due diligence and legal documentation
- Financial close and initial drawdown of construction facility
- Construction monitoring and interest capitalisation
- Commercial operation date and transition to long term financing
5. Risk Management
- Performance guarantees from EPC contractors to ensure energy output
- Hedging strategies for currency or interest rate exposure
- Insurance coverage for construction and operational phases
- Reserve accounts for maintenance, debt service, and major repairs
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Disclaimer:
Financing structures and availability depend on credit evaluation, project parameters, and local regulations. This guide is provided for informational purposes and does not constitute financial advice.