Chapter 4: Community Solar Development Process and Contracts

Project Readiness Questions

  1. What are the steps in the development process?
  2. How do you build a project development timeline, including key milestones? 
  3. Which are the key contracts required in the solar development process?
  4. Who are the members of your development team?

Background

This chapter steps you through the tasks necessary to develop an LMI community solar project, teaches you how to develop a timeline and milestones for project completion, outlines the legal contracts required, and clarifies who should be part of your development team. The Solar Development process is not linear—it is very iterative. We recommend that you start the process by using the Community Solar Development Task List template provided to create an initial vision of the tasks that will be necessary to accomplish an LMI Community Solar project. As you delve into each task, you will learn more about what is required and how the tasks affect one another, which will encourage you to go back and revise your approach to some tasks. This process is completely OK. Each iteration of the task list will refine your development process and bring your project closer to completion.

Development Roles: Six (6) Key Development Roles 
When considering solar development, it is essential to evaluate your organization's strengths and expertise to identify the roles that you are well-suited to play in the development process. For example, you may have experience in site selection, project management, or community engagement, which can help you take a lead role in certain aspects of solar development. However, it is also important to recognize areas where your organization may lack expertise or resources and consider seeking a partner to fill those gaps. Working with a partner can provide valuable support and expertise, particularly in areas such as financing, legal and regulatory compliance, and engineering and construction. Ultimately, by identifying your organization's strengths and partnering with other organizations that complement those strengths, you can maximize your chances of success and ensure that the solar development process is efficient, effective, and sustainable.

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A developer must be a jack of all trades, yet does not need to be a master of any. Developers hire many expert consultants and vendors to guide the process, but developers must lead the following roles:

  1. Financing and Capital Raising – Developers’ primary role is to lead the financing of a project, which includes accurately predicting expenses and revenues, building financial models, securing financing, and ensuring benchmarks are being met to release financing. Community solar developers may work with financing entities to raise the necessary capital to fund projects. This could include seeking investment from private equity firms, banks, and other investors who are interested in supporting renewable energy projects.
  2. Vendor Evaluation – After financing, developers’ second most important role is vetting, hiring, and managing a team to get the job done, which includes Requests for Proposals (RFPs) for services, vetting bids, creating task lists, and contract negotiations.
  3. Project Management – After vendor evaluation, developers’ third most important role is managing and coordinating all of the vendors to ensure that the project gets done on time and as expected, which includes scheduling and facilitating regular team meetings, taking notes and ensuring follow-up, problem solving, and mediation between vendors. 
  4. Site Identification and Acquisition – A developer must be an expert in identifying and acquiring suitable sites for community solar projects. By saying “acquiring,” we mean securing site control. Acquiring sites is one of the most important roles of a developer.
  5. Creative Financing Strategies – Community solar developers who specialize in bringing creative financing sources into projects are the best at providing deep benefits to LMI Communities. 
  6. Partnerships – Developers are experts at pulling together a coalition of consultants, funders, and community members to get a project approved, financed, built, and into operation. They are the leaders of the team. They find answers to any questions that can not be answered by anyone on the team, and they politely push the powers that be until “No’s” and “Maybe’s” turn into “Yes’s.”

The following roles can be hired out by developers to a vendor but developers must at least participate and oversee this work to ensure quality control:

  1. Community Engagement – This role can be hired out but having the developer play the community engagement role helps build trust with the community and ensures success of the project. Community engagement is delicate and is tied to permit approvals. Therefore, it is highly advisable to at least participate at some level in this role.
  2. Subscription Management – Subscriber management requires sophisticated software tools to track customer interactions and dedicated staff. Some developers chose to handle this effort in house, but because of the expertise and capacity required, many hire out.
  3. Project Design and Engineering – Even though many people have the skills to design solar projects, in order to submit for permits, project designs must be stamped by a professional engineer. Some larger developers maintain a professional engineer in house, but most developers do not. Most developers hire vendors for engineering services. Regardless if you hire out, you should remain deeply involved in the design because it is one of the biggest drivers of cost.
  4. Permitting and Regulatory Compliance – Developers are responsible for securing the necessary permits and approvals for community solar projects. Professional engineers, electrical contractors, and legal counsel should be hired to ensure that projects comply with government regulations and utility requirements.
  5. Marketing and Sales – Subscription management will include marketing and selling community solar subscriptions to customers. This work could be led by a Subscription Management vendor, but developers should participate in efforts to build relationships with community organizations and local businesses to promote participation.
  6. Construction Management – Once a community solar project has received permitting and funding approvals, developers are responsible for overseeing the installation. This oversight includes coordinating with contractors, overseeing the installation of solar panels and other equipment, and ensuring that the project is completed on time and within budget. Some developers hire outside construction management but most do not. At minimum, we recommend that you hire a 3rd-party engineer to ensure quality control.
  7. Asset Management – Asset Management involves overseeing the daily operations of the project, which includes managing the maintenance team, paying bills, and accounting.
  8. Operations and Maintenance – After a community solar project is completed, the project owner will be responsible for its ongoing operation and maintenance. This can include monitoring system performance, conducting routine maintenance and repairs, and ensuring that the project is running efficiently

Development Process Phases
The typical LMI Community Solar Development Process mirrors that of other similar construction-type projects, which includes the following phases:

  1. Predevelopment – In this initial stage you gather the information needed to perform a preliminary financial analysis and determine whether a project is viable. The goal in this stage is to spend as little money as possible to determine project viability. This phase culminates in a presentation of everything required to earn approval from your organization leadership to move forward into the development phase.
  2. Development – Once it is determined that your project is viable, then the project development phase begins. Here is where you finalize the design, government and utility approvals, financing, and legal structure for your project. The phase concludes with a “Financial Closing” on the sources of capital that you will utilize to construct the project.
  3. Construction – This is the phase where the project is built and connected to the grid. It requires coordination between the solar installers, property owners, financiers, and inspectors to complete the project. This phase concludes with Commissioning and “Permission to Operate” by the local utility.
  4. Operations – This phase includes the setup of operations, including performance monitoring, accounting systems, and subscriber billing. Once the system is operational, if you are the long-term owner of the asset, you will need to handle ongoing contractual and financial obligations and you will need to ensure peak operational performance of the solar array. Financial obligations will include not just paying capital providers but will also include subscription costs and bill credits.  A third-party asset owner can be hired to handle parts or all of this activity.  You should maintain parallel monitoring of the system.

The Development process concludes once all standard operating procedures are being implemented as anticipated and the system is performing as designed.

 

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The typical LMI Community Solar development project includes the following milestones:

  1. Initial Leadership Approval – If you are part of a larger organization, once initial due diligence is complete, you will need to make a formal presentation to organizational leadership to earn approval of your project to move from Predevelopment to the Development phase. 
  2. Local Government Permit Application Submission – design is complete and submitted to the local government building department for approval.
  3. Utility Interconnection Application Submission – design is complete and utility interconnection application submitted.
  4. Financial Closing – All utility and local government approvals are achieved, funding sources are lined up, and legal documents are executed to begin drawing funds for construction.
  5. Notice to Proceed with Construction – Developer formally notifies installer to begin.
  6. Substantial Completion – Completion of the system installation and local government building inspection approval. 
  7. Permission to Operate – Local utility provides final approval to turn the system on permanently.
  8. Commissioning – 3rd-party commissioning agent inspects the project, punch list generated, work completed, and signed off. Approval to operate by the local utility.
  9. Operations – Transition from construction to operation. The obligations for the construction financing sources are complete, permanent financing is put into place, and systems are set up for ongoing operation and maintenance.

ACTION ITEMS 

  1. To start, review this slide deck describing an overview of the development process
  2. Ensure LMI community solar is feasible in your local market. This video provides tools for understanding your solar market.
  3. Choose your site. Review content gathered in Chapter 3 to identify a suitable site, identify site characteristics, determine land regulation and permitting needs, and connect with the local utility to determine grid access connection and substation load.
  4. Review the Community Solar Development Task List Template and define your organization’s role in the development process. 
  5. Identify the tasks that your organization would be best suited to perform as well as why you made that decision.
  6. Identify which tasks you would rely on partners to conduct and what would be needed from these partners. 
  7. Create a memo for leadership summarizing project details and risks in order to receive approval to move forward into the development phase. 
  8. Determine required consents to develop your project (i.e., permits, utilities, property ownership entities). You can utilize the community solar consent tracker.
  9. Learn your state’s regulatory policy and utility policy. You can utilize the content provided in Chapter 2. 
  10. Perform an initial project scope. You can utilize the tools provided in Chapter 3.
  11. Prepare initial financial model and financing strategy. Gather all initial assumptions required to build a reasonable financial model.
  12. Prepare a Development Project Budget, including all the costs required to get to a financial closing. A template Development Project Budget can be found in the LMI Community Solar Proforma Template.
  13. Prepare an initial subscription management strategy. Utilize the content provided in Chapter 7. Include who will subscribe to your project, how subscriptions and bill credits will be managed, and how much might it cost.
  14. Prepare an initial community engagement strategy. Utilize content provided in Chapter 4. 
  15. Research and propose an initial development team. Utilize content from Chapter 4. Use the Community Solar Development Team Template to identify other roles and track team member roles. See the 6 key roles that team members play here.
  16. Present memo to leadership for approval to move to the development phase. Template here
  1. Build a Development Schedule. You can use the Development Schedule Template
  2. Hire development Team. Issue RFPs and negotiate contracts
  3. Finalize a system design
  4. Draft and implement subscription management strategy
  5. Draft and implement a community engagement plan
  6. Earn all necessary consents
  7. Draft and negotiate legal contracts. See key contracts list
  8. Negotiate development sources of capital and close financing
  9. Issue Notice to Proceed for Solar Installer to start construction

  1. Prepare the site, including grading and site access
  2. Install solar racking and panels
  3. Install inverters and wire solar equipment to the inverter pad
  4. Connect the system to the electrical grid
  5. Complete final inspection
  6. Commission system
  7. Apply for and earn utility interconnection approval
  1. Satisfy the obligations of construction financing and convert to any permanent sources
  2. Settle all construction contracts
  3. Set up performance monitoring
  4. Set up banking and accounting system
  5. Set up subscriber management and billing
  6. Set up a system to track the benefits going to LMI households over time

EYES ON EQUITY

Below are the high-level areas where you can ensure that equity is part of the development process:

Predevelopment Phase

  • Ensure that you are utilizing all the available state incentives to be able to provide additional benefits to LMI customers households, such as providing deep bill savings.
  • In your leadership memo, highlight and quantify the benefits going to LMI customers' households. 

Development Phase

  • Choose development team members experienced in delivering benefits to LMI customers households.
  • The best opportunities to ensure equity is part of your project come in the development and execution of your community engagement and subscription management strategies. Ensure that you include specific tasks within these plans to engage with LMI households and that you develop an engagement plan that is authentic, transparent, and responsive to the community. Ensure your financial model clearly defines the benefits being provided to LMI customers' households.

Construction Phase

  • Consider incorporating job training for local residents into the project.

Operation Phase

  • Ensure that LMI residents are being included in ongoing subscription management
  • Track the benefits going to LMI customers' households over time.

 

 

Additional Resources