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How to select the most suitable funding for your renewable energy project

August 4th, 2014 | 9:50 am

Funding is a vital part of any renewable energy project and selecting the right blend of finance can make or break a scheme. Whilst the finance market for renewable energy has grown significantly in recent times, so has the range of funding choices available, which can make it difficult to select the right option.

Often we see project developers so keen to secure finance that they don’t take the time to understand if the package is right for them. Entering into a relationship with a funder has long term implications so it’s important to assess whether a funding solution is right for both parties.

In short, we see selecting the right funding as a three step process. Firstly it is important to assess your needs and goals so you can seek out the most appropriate finance to match them. Secondly it is a matter of asking (and being asked) the right questions. Thirdly it is important to assess the potential for a good working relationship.

Step 1: Consider your needs and goals to seek out the most suitable finance

No one finance package will fit all projects and the most suitable type for you will depend on your situation. Ahead of identifying funders to approach, it is often useful to ask yourself the following questions:

What do I want to achieve?

It’s important to search for funders who are able to cater to your goals and meet your ambitions. Ask yourself, are you looking to fund one site, or multiple sites and over what time period? If you are looking to finance the construction of a large portfolio, then you will want to consider a funder who has the ability to meet your volumes. Similarly, consider what your business model is as this will influence which finance providers to approach. So you need to consider your level of ongoing involvement and potential exit.

What do I need the finance for?

It is important to be specific about the purpose of the finance you need to reach your goal. Not only will it help you focus on the funders who are able to provide it, but it will help later on when explaining the funding requirement to an investor. You may already have enough capital to complete certain stages of the project development process and may need funding to complete other specific items. Being able to demonstrate appropriate levels of working capital and contingency is also often an important requirement for funders.

What am I prepared to agree to in order to get to my goal?

Different funding options come with different rates, terms and stipulations. It is important to understand what levels of finance your project can afford before approaching financiers. Finance will be cheaper if forms of security can be provided. So it is important to ask yourself whether you are prepared to give up an equity stake in the company or project or offer another form of collateral. 

Revisiting your goals throughout the investment contracting process will also help to ensure that during the detail of negotiation, the finance will still meet your initial aims

Step 2: Asking (and being asked) the right questions

Once you’re clear on your needs and goals, and have established a pool of funders best able to meet your needs, the next step is to speak with them and ensure the right questions are asked, for example:

How long have you been investing in renewable energy and what’s your experience?

Industry experience is one of the most important factors to consider. If your project is one of the first they are financing, you could see significant delays during due diligence and contract negotiation. Finding a technically savvy funder who is up to speed on regulatory and policy issues can help you receive a decision on finance sooner; especially important if you working to tight timescales. Experienced funders can also spot potential issues, offer solutions and pose improvements to projects.

How much flexibility is there in negotiating rates and terms?

A good financier should recognise that there is no one size fits all approach to investing and so should be open to some level of negotiation and tailoring their products to meet your needs. Equally, if you know there is no room for negotiation, then it can help you make a quicker decision on the suitability of the funding.

What’s your process?

It is important to understand how the financier would progress things at their end and what time scales they are working to. Both developer and financier should be working to the same schedule to minimise the chances of the project stalling. It is useful to provide a conservative project schedule (with contingencies built in) to aid the funding process and to help project planning in general.

During the initial conversation, the funder should also be asking you some fairly in depth questions to assess the suitability of your project for their finance. The best funders will ask more questions and aim to filter out potential issues and unsuitable projects fairly quickly. You may not have all of the answers to their questions to hand, but be prepared to respond with any outstanding information promptly and accurately. The quicker this is done, the better everyone can assess suitability and stick to project timescales.

Step 3: Is there potential for a relationship?

Assessing the potential for a relationship is not too difficult but it can be easily overlooked. It is important to remember that entering into a finance agreement has long term implications and so finding a funder who is the right fit with your organisation should be considered a high priority. This is particularly important when securing an equity partner.

One of the most effective ways to assess the potential for a relationship is by taking note of how effective the communication is. Information exchanged in a timely manner, with information requests explained and queries discussed openly should form the basis of an effective ongoing working relationship. Receiving regular feedback and contact from a funder can also be indicative of how the relationship is progressing.

There are of course other factors for consideration when selecting funding options but keeping these three steps in mind can certainly aid initial discussions and get the process off to the right start.

CO2sense have been offering flexible finance for a range of renewable energy projects since 2008. Staffed by a team of experienced industry professionals, we are well aware of the needs of developers at different stages in the project cycle. To discuss a project or to find out more about our products and fund, contact Kulraj Heer on 0113 247 3848 for an informal discussion or e-mail .


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