By Haresh Patel, CEO, Mercatus
Building strong relationships with energy investors is crucial for solar developers who want to receive financing for projects. One powerful way to speed up project finance, while also building strong partnerships, is to focus on presenting projects in a way that is appealing to investors.
If investors do not provide specific guidelines on how they want to receive information about a project, developers should focus on building a great data room, a place online where companies share business documents. These are my top three rules for a great data room:
- Transparency
- Transparency
- Transparency
Here are my best practices to effectively achieve transparency:
Include an executive summary
An up-to-date executive summary saves investors’ time. This will be the first document reviewed before logging into your data room. A great executive summary should be three pages at most and communicate the following:
- What is your ask?
- Project size (DC and AC)
- Estimated total project cost
- Annual production (kWhr or MWhr)
- Project location
- Project merits
- Developer’s history and experience
- Third parties involved. Mention if a third party can be substituted. Investors value flexibility and may prefer their own EPC and O&M partners.
- Timeline of target dates for key milestones (site control, key permits, power purchase agreements, interconnection, commencement of construction, commercial operation date, etc.)
- Key document summaries—a brief paragraph summarizing the status of key documents. For example, you may write, “Interconnection Agreement is expected in December 2015. Facilities Study received in July 2015. Estimated interconnection upgrade cost of $350,000, in which $100,000 due at execution of the Interconnection Agreement and the balance, $250,000, due at commercial operation.”
- Financial summary—as an initial litmus test investors typically look at unlevered pre-tax and after-tax IRRs. Developers can prevent unnecessary back and forth with investors by having a simple, but accurate unlevered pro-forma available.
Note: This is also applicable for a portfolio of projects.
Present an up-to-date and relevant data room
Spending hours or days reviewing a data room in detail and then receiving an email with 30 additional documents that should have been there in the first place is extremely frustrating. At the same time, don’t dump every project document you have into the data room. Be comprehensive, but no investor needs to review version 2 of 8 of a Site Lease Agreement.
Create a folder nomenclature
Investors greatly appreciate being able to easily navigate a data room. A simple folder hierarchy for a renewable energy project should include the following categories: Site Control, Environmental, Permits, Production, Interconnection, Off-take, EPC, Project Company, O&M, Financials.
Have a document nomenclature
Similarly, a simple document naming methodology simplifies the experience for an investor. Answer the following questions: 1) What is this document? 2) What version is it? 3) What is the date? 4) Is it executed? An example of an executed Power Purchase Agreement would look like this: PPA_Final_081413_FullyExecuted.
Don’t hide skeletons
Developers are often reluctant to share any potentially detrimental information about a project. Nevertheless, hiding information that will eventually be uncovered during the due diligence process destroys credibility and jeopardizes the entire project. Be upfront with potential project risks and communicate the actions in place to resolve them.
Much of this may seem like common sense, yet we see insufficient organization and transparency every day. At Mercatus, we have appraised over 22 GW of renewable energy assets. Ideally, developers could solicit projects with a score recognized industry-wide, but until that is established transparency is required by developers to unlock capital and get lots of projects across the finish line. SPW