What is bankability and why is it vital for solar projects?

What is bankability?

In the context of solar energy, bankability refers to a project's attractiveness to lenders and investors. When a project is bankable, it means that the solar market has confidence that the company is reliable and that financiers are willing to invest.

The reason bankability is such an important concept for solar projects stems from trust and confidence. When a project is bankable, investors have a clear picture of the risks and returns of a project, backed up by data.

What are the key elements of a bankability feasibility study?

To evaluate a project’s bankability, a feasibility study must be conducted. This type of study involves several different components, including:

• technical assessment (e.g. location suitability, equipment and technology performance and reliability, engineering).

• market analysis and demand assessment (e.g. energy demand assessment, competitive analysis).

• financial projections and risk assessment (e.g. financial viability assessment, investment costs, O&M costs).

• legal and regulatory considerations (e.g permits, compliance and regulation).

• environmental and social impact (e.g. sustainability assessment, community and environmental impact assessment).

All of these components are equally important.

Solar Bankability best practices

Several solar bankability best practices can help your project attract investors, demonstrate feasibility to execute, and be sustainable over the long term.

The first and most important best practice is risk identification. You need to consider all of your project’s moving parts and identify what could potentially go wrong. This includes technical problems like equipment failure, system inefficiencies, and site complications during the installation. Human error and other unforeseen costs during the project’s operation and management must also be considered.

After identifying potential risks, you need to assess their downstream impacts and how they could affect the economics of your project. Factors like changes in estimated energy yield, fluctuations in solar availability due to weather conditions, variations in temperatures that affect efficiency, and changes to the cost of solar generation must all be assessed.

If you know the risks and how they could impact your project, the next best practice is to have a plan to manage them. It is good practice to prioritize management of the risks that could lead to the biggest potential negative outcomes.

Conducting technical due diligence is also essential. This involves assessing your project’s design implementation and equipment usage, as well as running regular maintenance checks to ensure that everything is running as it should be.

It is also crucial to have a process that adheres to industry guidelines and standards. Projects need to align with solar industry standards and local regulations and laws. Part of this should involve monitoring updates and changes to the rules and leveraging policy incentives wherever it makes sense to do so.

Bankability checklist

Before you consider funding a solar project, here is a checklist of things to assess the project’s bankability:

• Ownership Model: Define the project's ownership structure and stakeholders' roles.

• Project Concept: Develop clear objectives, including location and alignment with national/local markets.

• Policy alignment: Comply with relevant local and national governmental bodies.

• Climate Impact: Assess the environmental impact of the project.

• Maturity Stage: Confirm completed feasibility studies, financial models, and potential fund sources.

• Economic Viability: Determine the project cost and returns of the project.

• Technical Viability: Examine demand, risk management, and regulatory clarity.

• Financial Soundness: Scrutinize track records, creditworthiness, and anticipated cash flows.

• Innovation and Scalability: Assess the project's ability to innovate and scale.

• Social Benefits: Identify impacts on job creation and other benefits to society.

How RatedPower can support the financing of new PV projects

RatedPower is a cloud-based, end-to-end software solution that can help with the study, analysis, design, and engineering of PV plants through automation and optimization. It can deliver accurate energy estimates, which is crucial for effectively predicting a project’s future energy output.

RatedPower generates energy yield reports that account for numerous variables, including gains, losses, weather conditions, and nighttime consumption. The platform includes a built-in CAPEX template tool, which facilitates the generation of precise CAPEX projections tailored to the project’s specifications. Users can choose from various templates or create their own.

RatedPower enables the generation of comprehensive financial reports encompassing CAPEX, repayments, tax obligations, and other financial data. It also produces agreement reports such as interconnection facility, overhead line, and substation reports.

Armed with this detailed information, project sponsors can confidently approach investors and banks, making a compelling case for financing. RatedPower’s robust financial modeling tool ensures that stakeholders have all the necessary information for informed decision-making, thereby increasing the likelihood of project success.