TechPulse 360

Entrepreneurs and increasingly the venture capitalists who fund them are looking more closely at solar farm development than the next start-up.

They say the lure is the big money that might be made installing solar cells or thermal solar systems and collecting 25 years of energy payments from local utilities.

Some venture capitalists are looking at setting up special solar project management funds

And they figure the inefficiencies in financing and construction offer opportunities for a hard charging business leader able to organize complex ventures.

The prospect of entrepreneurs and VCs building solar farms represents big a switch for the Silicon Valley venture community. Typically, VCs dole out small sums of money for a new software program, a new Web businesses or a start-up developing a new medial device. Solar projects require large amounts of money and striking complicated financial deals with one or more banks.

They also require boots-on-the-ground construction experience that many entrepreneurs and venture capitalists don’t have.

Nevertheless, interest appears to be growing. Some VCs are even exploring the idea of raising special project-development funds.

“We are seeing a lot of entrepreneurs trying to get into the business,” confirms Alexander von Welczeck, an advisor to solar financier Ethos Green Energy Asset Finance. Many hope to start small – perhaps with a commercial rooftop project – and move onto larger facilities. Others are thinking bigger from the start.

“I have seen some venture capitalists at least thinking seriously about project finance” and project management funds, says Fred Greguras, a clean-tech attorney at K&L Gates in Palo Alto, at a Tuesday evening event sponsored by the German American Business Association.

Interest aside, the pitfalls are many. Utilities can be difficult to work with and banks remain cautious about taking on partners who don’t have a contracting background.

VCs can provide funding, but do they have the necessary construction experience, asks Wells Fargo's Puon Penn

VCs may have deep pockets, but project experience and balance sheet issues are important, says Puon Penn, senior vice president and head of the clean-tech group at Wells Fargo. “They can provide part of the financing, but do they have the track record?”

Wells Fargo, with $1.3 billion of wind farms financed and $400 million of solar projects, is one of the nation’s top clean-tech banks.

The details of project finance indeed are not easy to resolve, agrees von Welczeck. “It’s almost like tying to solve a Rubik Cube.”

Banks, he says, are so cautious that the typical projects getting money are government-backed schools, universities and municipalities, where taxpayers ultimately are on the line to repay development costs.

But stars might be aligning for an increase in activity. The federal government already offers a 30 percent cash grant and beginning in the third quarter of 2010, loan guarantees will be available.

Perhaps by then, the nation’s financial institutions will regain an appetite for more normal lending risk and entrepreneurs will have the experience of a few smaller rooftop deals under their belts.