Financing Solar Panels: Securing Capital for a Solar Farm

Topic: solar projects Read Time: 10 mins
Landowner type:
Independent landowners | Institutional landowners
Energy: Solar
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If you’re a landowner-developer, you might be trying to determine the best financing for solar panels. From bank financing to external investments, we’ll run through exactly which avenue you should consider based on your situation.

If you’ve found your way here, you’ve probably decided to place a solar project on your land. Not only can you make additional income from leasing your land (or running your own project), but you’ll also be contributing to net-zero efforts.  But if you’re stuck on finding the right solar panel financing, we’re here to help.

We’ll start by saying that you can finance a project yourself if you have the right capital.  But as this can be extremely expensive, there may be better options for every landowner-developer. Therefore, you might want to finance your solar panels with external help for peace of mind.

So, to find the right approach for YOU, let’s run through your options and help you make that all-important financial decision.

The return on investment for a typical solar farm is around 10-20%, with most farms becoming profitable within five to ten years. After this point, developers should make a significant amount from a project. As long as they properly maintain the project, of course.

Self-financing might be too risky if you’re a landowner-developer fronting the cost of your entire project. While you may have a decent amount of cash set aside for a project, the initial cost of a solar farm can be enormous. From the cost of panels to securing planning permission, grid connection, and construction crews – it’s certainly not a cheap endeavour.

But if you CAN finance a project as a landowner-developer (AKA: going it alone), you’ll save a significant amount of interest. It can be particularly lucrative as you don’t need to front the costs of leasing land either.

It’s worth mentioning that self-financing developers (whether they’re landowners or not) will need to bear all cost responsibilities for the site. This includes sorting construction, managing and maintaining the site during its lifetime, and decommissioning the project. So, if you don’t have enough capital to pay for the entire project upfront, it’s worth looking into supported financing.

If you can’t finance the entire cost of a project upfront, bank financing can be a popular option for developers. It’s reliable, relatively easy to get for new renewable energy projects, and usually covers up to 100% of a project’s cost. Although it’s far lower risk than self-financing, developers and landowner-developers WILL need to consider interest. However, removing a huge, upfront capital burden can be enough to sway developers to accept a lower immediate reward. Once the project cost is paid off, the profit is all yours.

Solar success stories from bank financing

If you need convincing to finance your project with a bank, let us tell you a few success stories. Plus, this should show you where to start if you’re looking for banks that provide viable renewable energy project financing.

Triodos Bank
Logo of Triodos bank

Triodos Bank is particularly well-known for financing solar projects in the renewable energy sector. They even provided £3 million of new senior debt to bring a solar farm in Shropshire into full community ownership.

They also offer:

  • Project and structured finance of up to £20 million.
  • Long-term senior debt facilities with terms of up to 18 years.
  • Sterling fixed and variable interest-rate facilities.

logo of Santander bank
Santander

Oh, and don’t forget about Santander’s recent $31 million of funding for a 49.9MW solar project in Dorset.

UKIB
Logo of UK Infrastructure Bank

UKIB has also recently helped to finance a $660 million solar farm plan.

Their plan seeks to double the amount of subsidy-free solar power in Britain and represents the bank’s commitment to renewables.


Logos of Natwest, AIB, and Lloyds banks
Natwest, AIB, and Lloyds

If that wasn’t enough, Low Carbon is developing three new solar farms in the UK with financing from Natwest, AIB, and Lloyds Bank.

Although this rundown of funding examples isn’t exhaustive, you should check out our comprehensive list of banks providing funding for renewables in the UK.

Do you want to go with something other than bank financing? No problem. You can try your luck with external investment groups, Angel investors or high-net-worth individuals.

Companies like ESFC Investment Group offer financial models with a minimum contribution of 10%. These companies can get large-scale solar power plants started and offer funding from €50 million. They only offer investments of up to 90% of the project’s cost, but the loan term gives you 10 to 20 years to repay. This way, you’d have the chance to get the project up and running (and profitable) before needing to start your repayments.

Better yet, their team of European experts (yep, that’s why they quote their costs in Euros) provide the following services:

  • Financial advisory services
  • Calculations of project parameters
  • Models for financial performance
  • Tailor-made solutions

It’s also worth mentioning that renewables investment manager NextEnergy Capital has announced £327 million of new funding for up to 60 solar farms across the UK.

What about Angel investors and high-net-worth individuals?

With net-zero limits looming, high-net-worth individuals may also want a piece of the pie. By investing in new solar projects, these investors will get a portion of the profits while supporting low-carbon technology. In short, it’s a win-win. You should start by looking at individuals with a net worth of at least £1 million and go from there.

If you’re interested in larger investments, Angel investment may be a good route to go down. Angel investors are usually high-net-worth individuals who invest in projects for a minority stake in the final venture. This is typically between 10 and 25%. They provide the initial seed money that gets a project off the ground, and they’ll usually take their stake once the project is profitable. 

The final option for financing solar projects is a Power Purchase Agreement (PPA). PPAs are essentially an agreement between a seller and a buyer. The seller generates electricity (in this case, the developer/site) and sells it to the buyer at a predetermined rate. These agreements finance large-scale projects and offer long-term cash flow benefits to developers and investors. Parties usually sign the agreements for 10-20 years, and the contract is legally binding.

Although they will provide less profit than other financing options, they’re an excellent way to bypass external investment or bank loans. For most solar projects, a developer will get a PPA set up and will then use it to go to a bank and prove that they’ve secured buyers. This essentially provides security that helps with raising funds for the project (as it proves that it WILL be sold on).

Check out our dedicated PPA blog to learn more about Power Purchase Agreements and why they’re essential.

There’s always going to be a certain level of risk associated with financing a renewable energy project. This is because the site won’t be profitable until it recoups its initial investment. Part of the uncertainty comes with securing planning permission and getting approval from the local community.

If you’re a developer, you’ll also need to set up an option agreement and have full approval from the relevant landowner before moving forward. Just be aware that you won’t need to deal with optioning if you’re a landowner-developer, as you’ll be using your own land.

But like all other developers, you’ll need to deal with the following things before you’re fully up and running:

  • Construction hiccups
  • Supply-side issues
  • Connecting to the Grid

Connecting to the Grid can be tricky, and you’ll need to check whether there is a point connection near the property ASAP. This is because connecting to the Grid can take up to 10 years with the current backlog. So, starting the process quickly is crucial for a positive outcome.

close-up photo of solar panels

We briefly touched on this in the previous section, but construction challenges are part of the game when you’re financing solar panels. Setbacks can come from access road issues, supply deliveries, and even disagreements with construction teams. Although they won’t be dealbreakers, these setbacks can mean that you’ll need a safety net off cash to fund more hours on the job.

To be on the safe side, set aside a nest egg of cash to push you through any unexpected hiccups with the project. It’s unlikely that you’ll need to use it all, but it’s always best to be prepared. Before moving on, we’ll also mention that severe weather can impact panels during construction. For example, Storm Arwen caused significant damage to a farm near Wolviston back in 2021. This is an extreme example, but it proves that you should prepare for unexpected setbacks during the construction phase.

Off-takers are optional, but they’re incredibly common as only some sites use all the energy that they produce onsite. While most projects secure decent off-taker deals, there’s always a risk that you will sell only some of your energy.

If you can’t secure a deal to sell the energy the site produces, you’ll be dealing with losses. This can be a tough pill to swallow when your site is in its initial stages (and still recouping its investment).

If you happen to have a nearby business that can connect to the project’s energy supply, you could bypass this step altogether. For example, Dewlay Cheesemakers use the energy produced by the GWDL Wind Farm to fund their dairy business. As dairy farming and cheese production takes a lot of energy, having a project right on-site is a huge benefit.

It’s not common for thieves to attack solar farms, but there are instances where it has happened. For example, more than £100,000 worth of solar panels were stolen in January 2023 near Evesham.  Thieves also took solar panels from sites near St. George, Abergele, and Llanelian in Wales in 2019. This amounted to a total of 160 panels stolen and was a considerable loss to the solar farm. If that wasn’t worrying enough, thieves stole around £450,000 worth of solar panels in Kent from a shipment back in 2021. So, while it doesn’t happen to most solar projects, the risk of stolen panels is always there.

It goes without saying, but you’ll want to use any financing for solar panels wisely. So, you’ll want to keep funds in reserve for any unexpected hiccups in the planning and construction phases. Not only will you need to pay construction teams to build and install panels, but you’ll also need to invest in monitoring equipment.

You shouldn’t invest every penny into the construction phase – otherwise, you won’t be able to monitor your project correctly. Equally, you’ll need enough funds to pay a site operator (if you’re using one) throughout the project’s life. And if you’re not a landowner-developer, you’ll need to set aside enough funding to pay rental rates to your landowner.

Before you start crunching the numbers, weighing up any loan repayments and interest you’ll incur is essential. In short, don’t try and rush the process and make sure you have enough capital for each phase.

A woman reviewing solar farm option agreements

Whether you’re a regular developer or a landowner-developer, it’s important to understand your financial responsibilities. Now, most of the financial onus for a project lies with the developer. This includes planning applications, option agreements, Grid connection costs, construction funding, and post-construction costs.

Landowners who aren’t involved in project development will have a largely passive role. But regardless of how your site is developed, you MUST outline ALL responsibilities in a watertight lease agreement. In writing, of course. This way, you’ll be aware of each party’s role in the project and could save thousands if a dispute arises mid-project.

Investors can be an incredible way to get an immediate cash injection into your business. But it can be difficult to navigate if someone pulls out last-minute. Being let down is even more problematic if you rely on that funding to make the project happen. 

Sometimes, a single investor falling through is enough to cause an entire project to fail. And that’s why we always advise vetting your investments carefully. To do this, ensure your investors are fully aware of what they’re getting into and carefully check interest rates with banks. With complete transparency, you’re likely to avoid most major issues.

In our book, financing for solar panels is usually a must for developers as the initial cash injection for the average project is enormous. This is only the case for some sites, but it’s a decent way to spread the cost of a project and give you time to recoup your investment.

We’ve already established that new projects can be costly. But as they can have an impressive return on investment, they’re usually worth considering. Choosing the right financing option will keep you safe, secure, and confident during the project’s lifetime. And what could be better than that?

We often get asked about the best options for financing solar panels that are quite UK-centric. So, let’s clarify a few frequently asked questions that might help you out.

If you don’t mind paying interest, bank financing is probably the safest and most reliable way to finance solar panels on a commercial scale. But if you’d prefer a cash injection and a profit-share setup, external investment will likely be more appealing. Do you have the cash to front the entire project? Well, that’ll save you a significant amount of money down the line.

However, choosing to go with an experienced developer (which takes the onus off the landowner) is also a viable option. After all, not every landowner will want to be so heavily involved with a project at every phase of its life. In short, the best option depends entirely on your situation.

Two grants are available for solar panels, but they’re typically offered for domestic properties or businesses. These are the Energy Company Obligation Scheme (ECO4) and the Home Upgrade Grant. The ECO4 usually provides up to £14,000 towards energy-saving initiatives, but the grant is unlikely to benefit anyone building a commercial-scale solar farm.

If you’re interested in setting up a solar farm as a landowner-developer, contact the Lumify Team. We’ll guide you through the process’s stressful parts and ensure you know exactly where to start. Whether it’s understanding your options or getting information on the actual value of your site, we’re here to help.

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