Page 55 - North American Clean Energy September October 2015

Decision gates are typically cause their customer base is quite static, or on the positive side, storage would actually help
located throughout the dili- the project by shifting generation into a higher TOU category. his is a great way to step
gence process. Management, out of the diligence grind and see the overall project. Issues may be identiied which would
or an investment committee, otherwise be missed.

either approve the use of ad-
ditional resources or decide to Looking Ahead
abandon further investment To many, standardization is the holy grail of project diligence. he argument says that by

at each gate. hey make these standardizing contracts, inancing, and operations, both cost and risk can be greatly re-
decisions using information duced. here has been a degree of standardization in the industry, but, outside of residen-
substantiated by those who tial or large commercial account partners, it is still rare to ind two identical projects. he
lead the diligence efort, and key elements within the core documents are quite common across one-of projects; it’s the

by weighing the risks against details that cause the ineiciencies.
the goals of the company. It’s For example, nearly all utilities, and a growing number of commercial PPAs, have some
never driven entirely by ana- form of guarantee, but the details are rarely cloned from one project to the next. It’s pos-
lytics; human intuition, or a sible to speculate as to why this should be—a need to improve upon prior eforts, a migra-

feel for veracity, plays a part tion of standards from more traditional businesses, messages in a lawyer’s dream—yet
in the decision making.
even having an answer would not solve the problem.
One last note on due dili- Years ago, inverter manufacturers and monitoring providers operated in a world of
gence basics: horoughness
proprietary communications protocols. hen a group of industry leaders got together and

Figure 2
is important throughout. created the SunSpec Alliance to agree on standards in commercial solar interoperability,
Anything missed or ignored resulting in a lesser degree of frustration from installers and operators.
has the potential to “move the
Using that same model, NREL put together a group of industry insiders (including the
SunSpec Alliance) to hammer out template contracts for residential and commercial PPAs. needle” negatively. It may not be evident at irst but it will become glaringly obvious down

his is a great step in removing uncertainty for all parties involved, especially the host cus- the road.
tomer. Nevertheless, these PPA/Lease templates are still subject to all sorts of negotiated
points that create unique detail and subsequent diligence ineiciencies.
Fatal Flaws
It would do the industry well to expand the list of universally recognized templates into A fatal law is a problem found in a project that brings it to an end. hey are most common

EPC contracts, land lease agreements, interconnection agreements, O&M, and MSA agree- early in a project’s development cycle when studies are being performed and contracts
ments. Accentuate them with industry-accepted language and detail on key segments, like negotiated, but they can appear right up to closing and beyond. hey tend to concentrate
the aforementioned performance guarantees, which would begin to streamline the due around rules and regulations early on, then evolve into contractual obligations and mod-
diligence process. In the end, there is no elimination of due diligence. he best we can do is eling assumptions in later stages. hose early rules and regulations problems result from

to give diligence its proper due.
insuicient knowledge (hence the need for a diligent developer). he latter issues tend to
arise from softer sources like erroneous information, misconceptions, and difering points
Bryan Banke is the managing director for asset management at Renewable Energy Trust Capital, Inc.
of view.
One man’s fatal law can be another’s acceptable risk, especially when it comes to buyers

Renewable Energy Trust Capital, Inc. | www.renewabletrust.com
of completed assets. At the highest level, it’s about the rate of return a project provides,
and how that compares to the buyer’s requirements and those of their competitors. Does
the competitor have access to cheaper capital, assume leaner operating cost assumptions,
or—and this is the hardest to compete against—is their need for growth greater than

their need for cash low?
Other areas where potential fatal laws are subject to interpretation are forecast genera-
tion and performance guarantees, environmental issues, tax and regulatory uncertainty,

and curtailment. Underneath it all is an appetite for risk. More stomach for risk results in
inding fewer fatal laws during diligence.

Future Risk

Having touched on explaining project risk and broadened the deinition of due diligence,
it’s now necessary to look at scenarios for long-term future risk. Put forth a problem and
a question. For example, new energy storage technologies become cost efective. Now ask:
what are the hypothetical risks and opportunities (even the ridiculous) to a particular

utility-connected asset?

Risks
• Possible regulatory changes require retroactive installation of storage;

• Behind the meter storage ineiciencies result in a reduction in energy delivery and rev-
enue;
• Storage results in an explosion of micro-grids reducing our utility of-taker’s appetite for
further projects or extension of current PPA agreements;

• Storage results in a mass exodus from the centralized generation model placing the of-
taker at inancial risk.

Opportunities

• New markets are created and open to new renewable generation projects;
• Storage becomes a viable service to sell in conjunction with our renewable generation;
• Storage allows load shifting to take advantage of TOU rates on our applicable projects.

After each bullet point think about the likelihood of, and the risk associated with that
idea: From the example above, a concern may arise around the health of the of-taker be-

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