Utilizing technology for internal auditing and third-party reports
With over $3.6 billion available to the renewable energy industry via the passing of the Inflation Reduction Act (IRA) in 2022, the demand for new solar projects has never been higher. The solar industry has seen tremendous growth in the past decade and as a result, it has attracted investors and capital groups to participate in solar projects throughout the United States.
One important component of the solar energy market is the solar independent engineering (IE) report. Banks, investors, and internal stakeholders rely on accurate engineering reports to anticipate the potential cash flows from a solar project. In this article, we will discuss ways to generate and utilize solar independent engineering reports as part of your analysis of a project's technical and economic feasibility.
What is a Solar Independent Engineering Report?
A solar independent engineering (IE) report is a document prepared by a third-party engineering or accounting firm that evaluates the technical and economic feasibility of a solar project. The report provides an independent, expert opinion on the solar project's technical design, construction quality, and financial projections. Solar independent engineering reports are typically required by investors, lenders, and other stakeholders in the solar industry to assess the risk and viability of a project. The unbiased third party reviews the solar developers work and notifies potential investors of any potential problems with the developers project, or verifies the developers plans. As such, banks and third-party engineering firms are relying on LandGate’s data and Solar PowerVal platform to perform this third-party analysis.
Solar developers can use the same engine that powers these independent engineering reports to perform a variety of critical functions. For example SolarPowerVal from LandGate can be utilized as a site viability tool by running an initial cash flow analysis with default parameters such as buildable acreage (exclusion analysis), distance to substation, capacity factors, pricing models (LMP or PPA), local incentives, and other economic factors. Within minutes, a developer can determine the most critical factors that make a site economically viable.
Once the project advances, a more thorough analysis may be required and the developer can adjust parameters based on new information, such as; solar panel models, tracker type, annual rent rates, construction costs, network expansion costs, PPA, and COD (commercial operation date). While these inputs were included in the initial report, the values were assumed in order to provide an initial output. Now that the developer has additional information, they can update the parameters and better understand the economic impact of these inputs.
How to Generate a Solar Engineering Report
The process for generating a solar engineering report typically involves several stages including data collection, production analysis, pricing forecasts, cost analysis, revenue generation, and cash flow projections.
Data Collection: The first stage in the process involves gathering relevant data on the solar project. This includes information on the project's location, design, construction, and performance.
The figures above shows Solar PowerVal’s economic input parameters. These fields include all of the critical data points required for analyzing a solar project.
Production Analysis: The second stage entails analyzing the solar project's production potential. This includes assessing the project's expected energy output and capacity factor. Solar irradiance and panel designs are some of the most important factors in forecasting production output.
Solar PowerVal, for example, includes solar irradiance and a proprietary dataset called 3D solar irradiation, which takes topography and the incidence angle of the sun into account. Next, the solar panel model and efficiency rating determines how much of the irradiation can be collected and converted into energy.
Pricing Analysis: The third stage is an analysis of the expected price of energy produced by the solar project. This is an assessment of the energy market in the project's location and the pricing mechanisms used to sell energy. The developer may be selling energy into the grid and utilizing the local marginal price (LMP) or alternatively securing a PPA (Power Purchasing Agreement) that would guarantee a certain price level over time.
Cost Analysis: The fourth stage is analyzing the costs associated with the solar project. This includes an assessment of the project's capital expenditures such as construction costs, as well as operational expenses such as maintenance costs.
Revenue Analysis: The fifth stage involves analyzing the revenue potential of the solar project. This includes an assessment of the revenue streams from energy sales, tax incentives, and other sources.
Cash Flow Analysis: The final stage involves analyzing the project's cash flow. This includes an assessment of the project's expected net profits over its lifetime. Cash flows are the bottom line economic value of the project over time. These cash flows can then be risked utilizing a present value discount rate (PV 8, PV10, PV 12, etc), depending on project viability risk factors.
Production of Third-Party Reports
While developers can perform detailed economic reports using Solar PowerVal, they sometimes require a third-party verification and a signed appraisal. LandGate also provides third-party independent engineering reports through a partnership with KPMG, an industry leader in advisory and third-party auditing services. On a typical project, LandGate supplies the data and software, while KPMG provides the appraisal and validation needed to produce a third-party auditing stamp. This partnership provides independent engineering reports that are credible and reliable.
The platform allows users to access a wide range of geospatial data like environmental characteristics, property data, and detailed electric infrastructure and interconnection data. This data is then used to assess the feasibility of a solar project and to identify any potential risks or challenges.
Once the data is collected, KPMG performs an independent appraisal and validation of the solar project's technical design, construction quality, and financial projections. KPMG's analysis provides an independent, expert opinion on the solar project's technical and economic feasibility.
To learn more about Solar PowerVal or to request a third-party independent engineering report through KPMG, schedule time with our dedicated Energy Markets team.
