Why a Free Solar Evaluation Isn't Free

by Sage Renewables

With no upfront cost, it may be tempting - but is it worth the risk?

As the old saying goes, nothing good in life comes free. The same applies to professional services, like energy studies. If your organization is planning a solar or storage energy project, it’s in your financial interest to hire an independent energy consultant to fully understand your options and reduce the risks inherent in complex, long-term investments.

An accurate Feasibility Study is essential

For most renewable energy projects, the first step is a thorough, investment-grade feasibility study of solar, storage, and efficiency options. An energy advisor will examine energy usage, determine which sites and project options are most viable and desirable, and then model the financial performance of a potential project.

The last part is key – the likely financial performance of a project can differ significantly from the best and worst case scenarios. A robust, conservative financial model will take into account a number of carefully tuned risks and assumptions, including utility tariff reform, energy cost escalation, soft costs, component degradation, changes in energy consumption and decommissioning costs.

Figure 1 - Probable variance in the value of your project for typical ranges of assumptions for key variables. Click to enlarge.  

Figure 1 - Probable variance in the value of your project for typical ranges of assumptions for key variables. Click to enlarge.

 

All of these factors can significantly affect value – and the savings to your organization. Accounting for them in a careful, conservative manner, based on expert market knowledge and research, can make the difference between an accurate – and useful – feasibility study, and one that only presents the best case scenario.

If it’s free, how are the incentives aligned?

Incentives matter a lot. If you have been offered a free feasibility study, you need to understand the incentives for the firm offering “free” advice. If the firm is not charging you for feasibility study work, how are they going to recover their costs, and how much effort are they willing to invest?

The answers to those questions are obvious:

  • You are unlikely to get a fully developed, investment grade feasibility study;
  • They recover their costs only if you decide to move forward with an energy project based on their advice and hire them to help you implement it.

If your energy advisor doesn’t get paid unless they tell you that a project is worth doing, you cannot depend on them to do a thorough job and present objective advice.

The costs of a poor “free” feasibility study can far outweigh the savings. For example, if you are building a 1MW solar carport project, the total cost might be in the range of $3.5 million, with an expected return on investment of 6% over the 30-year life of the project. However, if the actual return is off by even 0.5%, that represents a loss of over $300,000 in real dollars. That can be the difference between a positive or negative return on a project.

An independent, investment grade feasibility study costs only a fraction of that lost value, and your expectations for the financial returns of the project will be better aligned with the likely outcome. More importantly, your decision to proceed or not to proceed will be based on conservative, unbiased numbers.

The Sage Way

Sage offers two initial evaluations – a Feasibility Review that  gives a high-level, preliminary analysis of the project feasibility for a low entry fee. If your sites and usage make an energy project potentially viable, we’ll then offer to produce an investment-grade, detailed Feasibility Study using conservative financial assumptions and in-depth project design and market analysis to give you the most accurate possible picture of the risks and benefits of an energy project—before you sign a contract with a developer.

The Feasibility Study can then become the basis for a transparent and even-handed competitive procurement process to solicit and evaluate the best possible proposals from renewable energy vendors. This careful, step-by-step process is how Sage protects its clients from energy projects that don’t deliver value, and why its clients who do move forward do so with clarity and confidence.

Considering an energy project? Have questions or concerns?

Contact Sage415-663-9914.