- Your company has decided that it’s time to go solar, and it’s imperative that the project delivers maximum returns on time and on budget.
- The best approach would be to get a handful of quotes from commercial solar developers and go with the cheapest option. This would require a solar RFP, right?
A solar Request for Proposal (RFP) might seem like the most logical way to go, but there are several drawbacks that can lead to slower kick-off, lower quality work and financial underperformance. Here are some questions you should ask yourself to avoid these pitfalls.
What should you look for?
On one level, solar projects are relatively simple, but for large, commercial portfolios, there can be a lot of unique and complex factors, and you might be tempted to work with a solar RFP facilitator to sort it all out.
However, unless they build commercial solar projects for a living and have significant experience, chances are that an RFP management service won’t have the working knowledge needed to ensure your project will get maximum returns. Commercial solar projects require system design engineers, electricians, project developers and finance experts – not positions typically employed by RFP managers.
In our experience, we regularly find the need to point out inaccuracies in how RFP services put together their questionnaires – from the details of fire safety and permitting, to wire sizing and utility interconnection guidelines. These factors can make or break a commercial solar project and need to be navigated by experts with substantial, real-world experience. Most companies would be better served working as partners with the solar developers to target the ideal outcome which is also mutually beneficial to both parties.
Where is the money going?
RFP facilitators will exercise a variety of payment scenarios – anything from no cash expense to their clients in lieu of project equity, to staged cash payments that coincide with the development and construction timelines. Fees on top of fees in an already low margin industry can quickly compromise what should be a stable cash flow business model.
Dealing directly with the developer immediately takes this cost off the balance sheet. By working directly with a developer, the value that would otherwise accrue to the RFP selector goes instead to the procuring organization or towards attracting higher-caliber service providers, helping to mitigate counterparty performance risk.
Who can you rely on long-term?
RFPs are relatively short-term engagements, not long-term relationships. Facilitators have no skin in the game for seeing success over the years. Their main goal is to complete the RFP process on a timely basis and receive a commission.
This can lead to a lack of due diligence, unrealistic system performance estimates and a race to the bottom, accepting low-ball bids. They have no stake in guaranteeing that the project generates the projected financial returns over the life of the project.
Further, many of these companies are still relatively young, most are venture capital backed, and exit-driven. Their real value is in their intellectual property (IP), the proprietary software applications used to manage bid responses and project progress in an organized and transparent way to their clients. However, it typically stops there, and most established solar developers provide the same level of transparency with their own proven IP.
Should you negotiate directly?
If you’re looking to deploy a commercial solar program, the first step should be to decide on priorities.
Do you want to own the system, or have someone else own it? Do you want the tax credit, or can you not utilize it? What is your tolerance for risk?
Commercial solar is a highly fragmented industry, and it is difficult to apply turnkey solutions without extensive background in the sophisticated models that are required.
We can’t suggest that you’ll find a solution with a quick Google search, but highly credentialed developers (like Safari Energy) typically take a partnership approach to identify mutually beneficial solutions for the complexities of commercial solar.
Oh no! I’m already entangled in an RFP process!
No worries. Depending on the terms of the bid, you should still be able to give your preferred vendor the option to directly price match – whether they’ve participated in the bid or not. This might be limited for regulated entities or government organizations, but in most cases, a developer will be happy to review the specs and have a chance to show why their approach is better. Having an experienced partner can often make the difference between success and disappointment.
Author: Kirk Edelman is chief commercial officer at Safari Energy.
This article was originally published in pv magazine and is republished with permission. The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine or Green Building Africa.