With few exceptions, most commercial projects we see come from developers going out to the market with each individual project, which will then go to the highest bidder. That sounds straight-forward. Why wouldn’t a developer want to go after the highest price? Two words: transaction costs.

Though auctioning a project to the highest bidder and getting a couple extra cents may sound attractive, it is important to account for higher legal and other transactional costs associated with negotiating these one-off deals. The longer you work together with someone, the easier, quicker, and [subsequently] generally more efficient — and less costly — the transactions become for all parties. Relationships matter.

Moreover, working with a trusted investor partner from day one can provide developers with the necessary guidance to craft the most profitable project possible and get legal documents and deal structure right the first time. Developing a project with the end buyer, the investor, in mind willl increase deal value once the project or portfolio is ready to be financed.

For the middle market (what we define as 200 kW to 5 MW) to be successful, strong financing partnerships — whether formal or informal — must be in place. Given the high transaction costs associated with relatively smaller deal sizes, investors are more likely to consider a one-off sub-1MW solar project when repeat business is a sure bet.

When evaluating potential partners, Sol Systems looks first at whether a developer is relationship or transaction driven. If they are relationship driven, we are more likely to work through “hairier,” smaller deals (i.e. deals with less-than-ideal host credit, property tax issues, long development timelines, etc.). In an industry where pipeline is king, the prospect of future business makes the time (and thus, the money) spent on these projects worth the effort.

For Sol Systems, ideal developer partners are those who can develop at least 5 MW in a given year. That said, when looking at an ideal partner, size isn’t everything. More than anything, we value trust, transparency, and integrity. Together, these characteristics make for a long-lasting, fruitful relationship for all parties.

The following is an excerpt from our Solar Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail pr@solsystemscompany.com.