September 15, 2023
56 Common Solar Energy Investing Terms Defined
There are a lot of unfamiliar terms in the solar energy industry. Many savvy investors want to invest in utility-grade solar but aren’t familiar with solar investing terms unique to the niche. Our goal is to make investing in solar energy approachable for you! This blog post will make solar investing more attainable by covering …
There are a lot of unfamiliar terms in the solar energy industry. Many savvy investors want to invest in utility-grade solar but aren’t familiar with solar investing terms unique to the niche.
Our goal is to make investing in solar energy approachable for you! This blog post will make solar investing more attainable by covering solar investing terms and definitions common to the industry.
general solar investing terms
Investing in companies that produce energy or are related to solar energy technology and products.
Any solar project connecting to the utility transmission infrastructure to sell power into the wholesale energy market. These projects are commonly above 1 megawatt or more.
A large area where solar panels are installed to create electricity for general use on the grid.
A solar project that is owned by the energy users directly or through Community Solar Subscription Agreements benefiting those different groups of users locally.
An electricity network that is attached to a large network but functions independently for a locale.
Commercial & Industrial (C&I) solar
Solar that powers commercial and industrial facilities.
Solar panels that power one house.
An energy source that is not depleted by usage.
Natural fuels formed from the remains of plants and animals.
Solar development terms
An engineering evaluation of a substation and the associated transmission system, modeling the capacity (or lack of capacity) to connect new energy at that location.
An interconnection and system impact study undertaken by a utility on a group of solar projects.
Solar Land Development
Preparing and installing solar on a piece of land.
The legal right, by way of a lease or purchase (usually by an option contract), to develop and manage a solar farm on a property or group of properties.
Fatal Flaw Analysis
The process of a third party examining a solar project’s feasibility to ensure there are no “fatal flaws” preventing it from being permitted, constructed, or shut down once operating.
Interconnection Queue Position
A Solar project’s position in the line-up of requests for interconnection.
The property where a solar farm is developed.
Site analysis, selection, and acquisition
The process of choosing and purchasing or leasing property for a solar farm.
Environmental Impact Report (EIR)
Studies taken to inform the public of the impact of a solar project on the environment.
Habitat and Archaeological Surveys
Examining the different types of life that exist, and the history of human habitation the area of a potential solar project.
Conditional Use Permit
A permit issued to a landowner or developer by a city or county for a particular use of land that may not be generally allowed within regular zoning laws.
Notice To Proceed (NTP)
The final approval from all project-level authorities, including Federal, State County and Municipal, or other entities so that construction of a solar farm may proceed.
System Impact Study
An engineering study of a solar project’s modeled theoretical impact on the grid and the transmission infrastructure as a result of interconnecting.
When the cost of alternative energy is less than or equal to the cost of fossil-fueled energy.
A system allowing solar power to be used by private parties on site to decrease the cost of electricity they would normally buy from the utility. As solar energy is produced by a private source, it is used on-site. If excess power is produced, the meter can run “backwards” effectively selling power back to the utility at a wholesale rate. When the power is not being produced—say at night— the private entity buys power from the utility at a retail rate as usual. These transactions net over time and the difference is calculated monthly.
Money paid to a utility company to secure an interconnection queue position for a solar project that will be refunded if the project were to fail.
Solar Land Options
Options for property to be used to develop a solar farm.
Commercial Operation Date (COD)
The date that a solar project comes online
Permission To Operate (PTO)
Final approval from a utility company and any other relevant authorities that a solar farm can connect and begin generating electricity.
Solar financing terms
A loan to finance a solar project.
Leasing instead of buying a solar system.
Interconnection Agreement (IA)
A contract to connect and use transmission infrastructure between an IPP (Independent Power Producer) and utility company.
Solar Power Purchase Agreement (PPA)
Agreement between an IPP and a utility to sell energy at a set price for a specific period of time. Commonly 15-25 years.
Investment Tax credit (ITC)
Tax Federal credit for residential, commercial, industrial, or utility-scale solar systems. The credit amount varies depending on the specifics of the solar installation.
Production Tax Credit (PTC)
Tax credit that offers a benefit calculated based on each kilowatt-hour (kWh) of electricity produced by solar systems and other eligible technologies.
Acquiring goods and services only from domestic companies.
Communities that have historically relied on fossil fuels as a substantial part of the local economy. These communities may have a coal mine, oil field, natural gas plant, or refinery nearby and are therefore at risk of job loss during the transition to new, renewable energy.
Increase of price per KW/hr.
Solar fund investment terms
Investor worth over $1 million, or with over $200,000 earned in the past two years and projected future earnings.
Investing based on environmental, social, and governance standards.
Socially responsible investing, AKA Sustainable Responsible Impact investing.
Investments made to create social or environmental change.
Least investment total required.
Investment Hold Period
Time investment is held and is therefore illiquid.
Planning how an organization or solar project’s operations will be funded.
Return on Investment (ROI)
A simple formula to demonstrate a profit made from investment represented as a percentage: ROI = Net income / Cost of investment x 100.
Rate of Return (ROR)
A formula represented as a percentage of the profit earned on an investment: Rate of Return % = [(Current Value – Initial Value) / Initial Value] x 100.
Internal Rate of Return (IRR)
A calculation commonly used in finance that takes into consideration the initial investment cost followed by annual cash flows discounted over a period of time: Internal Rate of Return (IRR) = (Future Value ÷ Present Value)^(1 ÷ Number of Periods) – 1.
An annually accumulating interest rate paid to investors before other profits are distributed.
Examination of a project’s profit over a year expressed as a percentage.
Discount Rate Calculation
A percentage interest rate used to calculate the present value of a solar investment.
Time researching and conducting due diligence for a solar project, once land is controlled, but before the solar project is operational—usually 6 months to 2 years.
Time after land acquisition before a project begins operating—usually 5-7 years.
Time a project operates, usually 30-40 years.
How profit flows to the different invested parties.
The contract between private investors and an investment vehicle in private equity.
Private Placement Memorandum
Document outlining terms and risks of an investment to attract and inform investors.
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