Prior to joining MP2 Capital as Managing Director, Jeff was a Managing Director at Lehman Brothers in Hong Kong, where he served as Head of Asia Technology Investment Banking and worked with many of the solar industry's leading panel and module suppliers. Mr. Glavan has more than 12 years of investment banking experience in corporate finance covering leading technology companies, and has advised clients on over 100 transactions including private placements, IPOs, follow-on equity offerings, high yield and convertible debt financings, and M&A and other strategic advisory transactions.
Altenergymag Interview - Solar Project Capitalization and Development
Jeff Glavan - MP2 Capital
Filed Under - General Industry Articles - Business Development
How does MP2 Capital determine the best markets for solar power projects?
MP2 Capital develops, finances and operates distributed generation and small-scale utility solar projects throughout North America. Geographically within the US, we target markets in which the state has incentives in place that encourage solar development. We find a number of forward-thinking states that have implemented not only progressive RPS levels but coupled them with economic incentives such as cash grants that are tied to project completion, payments for electricity generation or monetization of SRECs by utilities. Obviously, locations with greater sunlight will also serve to enhance the economics associated with a solar array. The existence of state incentives is key though. In terms of the nature of the hosts, we typically target projects for credit-worthy government-related entities such as schools, airports, and other municipal services as well as commercial entities such as highly-rated corporations.
How does MP2 Capital build relationships with the numerous partners required to ensure a successful project?
Our business model is based upon fostering a partnership culture. We believe that solar development in North America is inherently local. Therefore, we build close partnerships with local developers that have not only the key relationships but also the knowledge-base critical to completing projects in a specific state. Too many good solar projects never get built because the various parties have not figured out how to work together or they treat the relationship between the parties in a zero-sum context. We think it is important for each party to recognize the various complimentary roles and also to share economics such that everyone participates in the success. In addition, we maintain long term relationships with our partners because we find that that speeds the process for developing the subsequent projects.
Typically, who makes up the development team for a solar power project and what are their roles?
The development team for a solar project is comprised of three key players:
MP2 Capital – negotiate the power purchase agreement, site lease and other contracts or agreements with the host and the utility; hire the appropriate EPC and negotiate the contract to build the system; funding various permitting and environmental studies required for development; arrange the financing for the construction phase of the project; arrange the long-term financing for the project ownership either through our own funds or through a financing partner; monitor the system and contract with third-parties to provide operation and maintenance support for the system during its life.
Local Developer – manage the day-to-day relationship with the host; oversee the process of obtaining local permitting and other regulatory approvals; provide overall project management oversight both during development as well as construction.
EPC Contractor – hired by MP2 Capital to design the system, procure the necessary equipment and construct the solar array.
What are the best incentive programs in the US for solar power projects?
Incentive programs vary state by state. Each state has a slightly different objective and so it is hard to define one as better than others. MP2 Capital has successfully completed projects in multiple states that each have different incentive structures. We find that states that provide RPS standards and incentives that are tied to the production of electricity – either through a PBI as in California or the monetization of SRECs as in New Jersey – create a long-term economic incentive for the stable production of clean electricity.
Without incentives would there be a viable solar power industry?
The current incentives in place by various governments throughout the world are necessary to promote solar development and therefore increase the production volume of equipment – primarily solar panels – which should drive down the cost and get closer to a grid-parity scenario. The exact length of time that incentives will be required to balance the economics compared to the large scale production of “dirty” electricity is a complicated forecast. The expectation is that the increasing volume of demand for solar panels globally will bring down the cost and achieve grid-parity sometime in the near future. The real cost comparison though should include the destruction to the environment that is caused by other forms of electricity as compared to a solar alternative which is merely harnessing the power of the sun.
What are the toughest barriers to financing solar power projects?
The financing of solar projects is largely about getting the right economic, credit and commercial terms that match investor target returns. The economics are straightforward as projects that cost too much to build or offer too little in terms of cash flows (e.g., electricity payments from the host, SREC monetization payments) do not generally yield sufficiently attractive returns for investors. The credit of either the host and/or the SREC off-taker will also influence the returns required by an investor. In some instances, it will make a project completely un-financeable. Finally, coming to agreement on the commercial terms (e.g., power purchase agreement, site lease) is often the aspect that delays most projects. Too often, developers fail to realize that satisfying a host by agreeing to provisions that create uncertainty around future cash flows or shift undue risk to the investor means that the project may never get built. This is where the experience of MP2 Capital and our track record of successful projects is critical to a development team.
Are there tough regulatory issues to overcome?
Regulatory issues vary state by state. In general, a stable policy that creates the right incentives is a roadmap for successful solar development in that state. Currently, many states do not have the appropriate incentives in place and so the regulatory issues to “overcome” is merely the need for a structure to be put in place. At the federal level, the extension of the Treasury Grant in lieu of the ITC for solar development would be beneficial to create additional flexibility for project financing.
Roughly what is the timeframe from concept to completion for a solar power project?
A typical project should take between 9-12 months from inception to completion. Typically, the development process of negotiating the appropriate agreements with the host can take 2-3 months, the design of the system and the corresponding permitting and other regulatory approvals can take 3-6 months and the actual construction of the project can typically be completed within 2-3 months.