March 5, 2020
Community solar contracts have become a very simple instrument over the years. In 2020, the trend is toward shorter, more flexible contract terms. In New York, the DER Oversight Order has set a low maximum cancellation fee that makes even a 20 year contract useless.
From the structured finance standpoint, lenders and investors are seeking stable project returns. The variability associated with short-term subscription contracts creates complexity that must be solved in order for developers to build community solar projects.
How are financiers and community solar developers managing risk?
Subscribing a maximum of 80% of the subscriber's load: This provides a 20% buffer, which community solar operators can then leverage in a scenario where other subscribers back out. For example, let's say that subscriber A cancels his subscription contract. The solar operator can then increase capacity for subscriber B, subscriber C, and subscriber D. This reduces the cost associated with re-marketing subscription power contracts.
Loss reserve funds: Setting up reserve funds for re-marketing subscribers and paying project obligations is a traditional mechanism to enhance the credibility of the project.
Setting up anchor tenants: An anchor tenant is an investment-grade off-taker who is agreeing to purchase 40% of the energy generated from the facility, providing a degree of certainty around project cash flows.
Backup anchor tenants: Setting up contracts for backup anchor tenants allows community solar operators to call upon other anchor tenants—usually one creditworthy entity with dozens of electric accounts. This allows operators to comply with state-level regulations which prevent one off-taker from absorbing more than 40% of the energy generated.
Want to see a sample community solar subscription contract?
Click here to send us an email and receive a sample copy of a financeable subscription agreement—as used by YSG Solar.
YSG Solar is a project development vehicle responsible for commoditizing energy infrastructure projects. We work with long-term owners and operators to provide clean energy assets with stable, predictable cash flows. YSG's market focus is distributed generation and utility-scale projects located within North America.
If you’re interested in community solar, contact YSG today. YSG Solar has over a decade of experience in the solar industry, and an exciting new community solar project available for subscription. Contact YSG Solar today to find out how much you could save. Send us an email, or call the office at 212.389.9215 to learn more.