To fund solar and energy storage projects, developers must first clear a lender’s bankability hurdle. Bankability is closely tied to investor confidence and the perceived risk of project returns. A critical phase in this process is due diligence conducted by an independent engineer (IE), which can make or break a project. If designs are not fully developed before being presented to a financier and the IE, they may face scrutiny that leads to rejection and loss of funding.
Engaging an owner's engineer (OE) early in the development process can help avoid costly delays, rework, and potential project failure. Think of it like preparing for a legal case—just as a lawyer wouldn’t go into court without a mock trial, a developer shouldn’t present unvetted designs to a lender. An OE can act as a "mock trial," identifying issues before they become deal-breakers.
In this article, I’ll outline common reasons why project designs fail during bankability assessments and explain how early OE involvement can add significant value.
**Technology Selection and Qualification**
Solar assets have long lifespans, often spanning decades, so product quality and reliability are crucial to investors. Developers must back their claims with solid data. It’s easy to be tempted by low upfront costs, but cutting corners on technology can lead to long-term losses. For example, while cost per watt might look good, it’s only a one-time expense. Energy production losses, however, can last 30+ years and significantly impact project value.
Investors also need assurance that the technologies used are proven and reliable. Be cautious of manufacturers offering outdated products at discounted prices—this could signal deeper issues. Having an experienced OE review vendor choices and technology specifications helps assess risk and ensures long-term viability.
**Prove It or Lose It**
When introducing new technologies, lenders require hard data to support performance claims. During an IE review, vague or unsupported claims won’t hold up. Even if a reviewer agrees with your assessment in principle, without verifiable data, the lender will likely withhold funding. Always back your claims with solid evidence to increase the chances of securing financing.
**Performance Model Review and Validation**
One of the most common issues during IE reviews is the performance model. These models often fail to capture all real-world variables, leading to over-optimistic projections. For instance, a PV system using dual-axis trackers on a south-facing slope might show high gains, but modeling both factors simultaneously can be challenging. Some real-world benefits may not be quantifiable in standard models, which can create financial uncertainty.
Setting realistic expectations is key. Stakeholders often use design and performance models interchangeably, but these tools aren’t always aligned with bankability requirements. Lenders consider factors like soiling losses, weather variability, and uptime when evaluating a project. These can reduce projected output by several percentage points, potentially pushing a project below its financial threshold.
**Engaging an OE Mitigates Risk and Ensures Margins**
Lenders typically bring in an IE near the end of the design process, often at the 30% stage. By then, engineering costs may already be high, and any last-minute changes could lead to major setbacks. The goal is to avoid situations where a project is rejected after significant investment.
The best strategy is to involve an OE early to pre-screen designs and performance models. This proactive approach helps identify red flags before they derail the project. At Pure Power, we work closely with developers to ensure that models exceed lender requirements, building in enough margin to withstand real-world challenges like unexpected site constraints. This careful, conservative approach helps protect cash flows and increases the likelihood of successful financing.
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