REI: RENEW Energy Initiative

Alternative Energy Financing

Friday, March 07, 2014, 12:04

By Mike Sokoll, Founding Member, REI

MichaelS@AllstateCapital.com

When I first got started financing alternative energy projects in 2006 I found that commercial projects were getting funded through investor/equity sources of capital. The last two to three years I’ve seen a shift to debtor financing. This article will help you prepare to approach lenders and provide steps to protect yourself.

Let me give you one major warning.

When approaching a debt funder you can expect the following questions; 1. why are you doing the project, 2. what or how does the project enhance your present business and 3. can you afford the payment on the full amount of the project. Understand the impact of the tax benefits and incentives. Regardless of the size of the project: My warning; beware of products sold with tax benefits as the main part of the payback. Would you accept tax benefits for payment in your present business?

How will a project get funded?

Before approaching the debt funder answer the three questions above. Alternative energy products are seen as equipment or systems by lenders. To the funding source it all sounds the same; the system makes electricity, hot water, chilled water, bio-fuel or some other energy that you can logically use in your business. Lenders will normally want to see a full financial package for the project unless it is under $150k, generally. They want to see if you can meet the 4 word phrase, “present ability to pay,” it’s generally not more than that. To protect yourself and the lender from the energy system underperforming you can buy insurance, but that is not going to override the 4 word phrase. These insurance products can protect you and the lender, because you won’t want to pay if the system is under performing. Lenders don’t care if it’s not working because that will not be part of the terms of the loan or lease.

Equity/Debt Deals

Projects that involve both debt and equity are generally large utility size deals, multi-megawatts, municipal or county deals. The new developer needs at least 10% of their own equity in the deal so as not to lose control, meaning the equity people will want 60% to 90% of a deal if you only have the property, vendors and money along with your very professional Business Plan. If you have 10% or more of real cash or land ownership then you may get equity funders to listen. Do not offer “sweat equity” and no cash. No one will listen or they will try to steal your project.

If you are doing a project at your existing business.

Hire an energy consultant with a track record and references. A consultant will serve as your advocate and be central to integrating a new energy system into your existing operation. The energy consultant will help you determine the best type of systems for you to consider and then screen the companies who will present to you. He or she should know which metrics to use when evaluating a system that’s best suited for your needs.

Treat this like you’re getting a new business, because you are, the energy business.

When considering an investment in an alternative energy system do your research. Talk to vendors, other users of the technology, professional advisors and government energy officials. If you end up installing the technology you’ll have a system that generates revenues and has operating costs. Kind of like a business.


Mike Sokoll is a representative of AllState Capital. Allstate provides traditional debt financing and a variety of leasing products for the alternative energy and other fields. He is also a founding member and current Director of RENEW Energy Initiative (www.reiteam.org,) an education driven energy association serving southeastern New England. This article was first published on www.renewablenow.biz.

Comments

1. Denns McCarthy, Saturday, June 14, 2014, 12:23:

Energy projects, particularly those by municipalities should have a consultant to advise the decision makers.




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