Structuring solar RFPs for the best project outcome

The RFP (request for proposal) process is a key mechanism for municipalities to adopt solar energy and meet their sustainability goals. It establishes project parameters and creates competition among solar developers to offer the best system design and pricing that checks all the boxes defined in the RFP.

Since 2015, I have reviewed and responded to hundreds of RFPs, and have learned a few things about how they should be structured to ensure projects are developed to meet the customer’s goals. Here is what municipalities need to consider about the solar RFP process and the developers who will be responding.

Before you start
Starting with a clear, well-defined goal is the most important thing organizations can do to ensure their RFP is properly structured and well-received. More than any other factor, a well-established goal will influence the outcome of the procurement process.

Are you trying to meet sustainability targets? Or is this project primarily about generating economic value? Understanding the project’s goals will help developers determine the optimal design for the project. Often a choice must be made between a design that offers maximum savings or one that offers maximum sustainability benefit.

Understanding the site
Beyond the underlying goal, solar developers need to understand the site and any constraints. The RFP should clearly define where the site is, what specific areas should host the solar array, and the desired system size, if known. It’s surprising how many RFPs fail to adequately define the subject site.

Keep in mind that most solar developers will not be familiar with your site before receiving the RFP. All RFPs should start with the site address or parcel number, along with satellite images that outline the areas you’d like to host the installation. Also, note whether you’re looking for a rooftop, parking canopy, or ground mount installation.

If you seek a system that offsets your facility’s load, you should at least provide the annual electricity usage for the site, while utility bills or interval data are also ideal to include. If an energy storage system is desired, you need to provide your utility bills and usage in 15-minute intervals over one year.

With a clear definition of the site and the annual usage, solar developers can understand within minutes whether the site fits their business model and begin to invest time in evaluating the details of the project. If an RFP fails to define the project, bidders may move on to other projects that fit more clearly within their business model.

Beyond basic details, you should include any additional relevant information, such as utility bills, interval data, electrical plans for the site, the locations of meters, and roof information. For rooftop installations, you should consider whether the roof is in good enough condition to accommodate solar for a term of 15-25 years. The developer will ultimately verify this during the development process, but if the roof is 20 years old with no plans to be replaced, it will kill the project, so it is best to understand this as early as possible.

Understanding the economics and structure
To allow developers to demonstrate capabilities and get the best outcome for your project, RFPs must levelize assumptions that are unknown or outside the control of the bidders.

Most municipal solar RFPs seek projects financed in the form of power purchase agreements (PPAs), with a fixed price per kilowatt-hour (kWh) generated, or in the form of a lease with the developer paying the municipality a fixed annual payment to host the system. In either structure, multiple variables influence the ultimate price presented to the customer, but most variables, such as system size, production and installation costs, are within the developer’s control.

Municipalities should levelize assumptions that aren’t in the developer’s control, such as who will receive the renewable energy certificates (RECs) generated by the project, any assumed incentive rates, the cost of interconnection upgrades, and whether union labor or prevailing wages are required. When it comes to RECs, the municipality can opt to receive the credits and pay a higher PPA price, or the developer can retain the RECs and charge a lower price. If the project will receive state or local incentives, the municipality should specify an assumed incentive rate to prevent bidders from assuming an unrealistically optimistic outcome.

It’s also critical that the municipality specify any functional or aesthetic requirements for the project. For example, water, snow, and ice management are a necessity for parking canopies in colder climates to avoid hazardous icicles or ice sheets forming in parking lots. Multiple solutions to manage this risk exist, but they come at a premium and can add more costs down the road if not explicitly stated in the RFP

With these assumptions levelized, the municipality can evaluate bidders’ pricing on an apples-to-apples basis and weigh their capabilities to meet the specific requirements.

Understanding solar developers
The key purpose of an RFP is to solicit bids from as many qualified bidders as possible, so it’s important to consider the developers that will be responding. Not every developer has the bandwidth to pursue every good opportunity. Often the first RFPs bypassed are those with a high degree of complexity.

Every proposal writer understands that municipalities have rigorous procurement requirements, usually including various certifications or bid forms. Some RFPs can go on for hundreds of pages and require that multiple hard copies be mailed to the customer. This length and format leads to a more time-intensive and costly process. Municipalities should audit requirements and determine which questions are repetitive or unnecessary. Trying to tighten the RFP’s length and the amount of time required to complete an attractive submission can result in a larger selection of quality proposals.

Plenty at stake for municipalities
With the solar market expanding rapidly the RFP space will continue to be a key forum for municipalities to seek out solar projects that best meet their needs. By crafting an RFP that creates a clear mutual understanding of the project, municipalities can maximize the chances of picking the right partner and achieving the best outcome for their community.

Dan Smith has more than seven years of experience in solar development for commercial, industrial and municipal customers. In his role as DSD’s RFP origination leader, Smith leads the RFP team and all RFP origination efforts. He evaluates available RFP opportunities and selects those where DSD can offer a compelling solution. Prior to joining DSD in 2018, Smith created successful RFP responses that resulted in the award of more than 200MW of solar projects, including projects for Wal‑Mart, Amazon and FedEx, as well as many projects for municipalities, school districts and utilities. Smith has experience developing projects across 11 states and the District of Columbia. He has an in-depth knowledge of all active solar markets encompassing all major project structures and incentives, including PPAs, direct purchases, leases, feed-in tariffs, community solar, contracts for differences and other innovative financial models.