Imagine that Dan’s Solar Shack (a make-believe company) is a small developer in upstate New York. After stepping in as a subcontractor on a few small projects in 2011, Dan’s moved on to develop its own opportunities in 2013. With local relationships from Syracuse to Rochester, the company installed 200 kilowatts of projects under the NYSERDA solar program, and even built a 1.3-megawatt project with a school.

With more experience under their belts, the owners grew hungry for more. But where to go in 2014?

Rumors of lucrative incentives in Massachusetts and D.C., plentiful space in North Carolina, and a great combination of sun, high rates and good incentives in California came up against those markets’ drawbacks: complicated development hurdles, a dearth of state tax equity, and overcrowding. Dan knew it was time to expand geographically, but wasn’t sure where to set up shop.

The four questions below can serve as a framework for determining which markets are ideal for solar developers' expansion strategies as they navigate the same issues that Dan is facing. The framework assumes the regulatory prerequisites that allow for a functioning solar market -- for example, the market should allow for third-party finance in the form of PPAs if a company hopes to get substantial volume in the door.

In addition, some policy for net metering that ensures valuation for excess energy production is essential. After removing the non-PPA states, the serious work for selecting the next frontier begins by considering these complex questions.

1. Financial realities: Can projects realistically pencil out in this market?

With falling input costs and even reduced return requirements across the industry, a surprising variety of projects can make it across the finish line, as long as they are soundly developed. With this in mind, an optimistic pro-forma with some basic assumptions for a given market showing low-single-digit returns could be an early warning that the market is going to be too lean. Use a simple tool like the Solar Advisor Model or In My Backyard to make a calculation, rather than relying on assumptions based on a first impression.

If a market has dirt-cheap electricity (or seemingly high prices that decompose into cheap energy and pricey capacity) with minimal incentives and typical insolation levels, development opportunities may be pretty limited. Researching incentives, typical production and electricity rates should yield insight into whether a market can realistically support a project. Not every market will carry the same returns.

A decent spot check would entail comparing the new market’s value proposition against the current one. Any potential market should have similarly compelling economics.

2. The opportunity-competition nexus: Is the market the right amount of crowded?

There is a positive correlation between how strong a given market is and how competitive it is. Picking the right balance is a lot like choosing a restaurant -- you want to go somewhere that has a good crowd, but you still want to be able to get a table.

Lucrative markets such as Washington, D.C. and California continue to draw attention from expanding developers; however, saturation can squeeze margins and limit project opportunities. Conversely, the abundance of empty tables (i.e., rooftops) in Wyoming exists for a reason.

Ideally, expanding developers should look to claim territory in markets that appear to be underserved relative to their potential value, whether due to new incentive programs, clarified legislation on net metering, rising electricity rates or other changes that boost solar’s appeal.

3. Market readiness: Can you tolerate development hurdles that warp project timelines?

Some markets are fairly plug-and-play in terms of readiness. If you find a 600-kilowatt behind-the-meter PPA deal in Southern California that has decent returns, there doesn’t need to be a lot of waiting between origination and construction, as long as the financing component falls into place.

However, plenty of markets are mired in hurry-up-and-wait situations. In New York, developers have had to wait for months to find out what incentives will look like, apply for those incentives, and then sit through the decision-making process to see which projects win incentives. While incentive rounds can create bumpy development cycles, some states have regulatory hurdles that feature similar delays -- specifically, the conditional-use permit in California can create an empty waiting period.

With this in mind, expansion into these markets may require the patience and resources to be able to stay afloat and busy during waiting periods. Otherwise, it’s best to avoid markets that require heavy work only to reach a waiting period where little else can be accomplished for the project.

4. Competitive edge: Which market will respond best to my areas of strength?

The hardest question to answer is likely the most important one -- that is, after the more binary issues have been cleared away. Competitive advantage can be derived from a number of domains -- developers may find that they have a particular proficiency within a specific project-size range or host entity type, or in monetizing an incentive program. Matching those specialties with characteristics of new markets will be central to selecting the right locations for expanded operations.

For example, fast-track permitting processes for small projects can facilitate quick, robust rollout for small commercial developers, while markets with competitive bidding processes for feed-in tariffs may only work for low-cost models. Other programs may make room for brownfield projects, which separates different types of project developers. The list goes on. But for every developer with a given edge, there’s likely a solar market that rewards it.

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Thomas Larson works closely with Sol Systems’ development network to originate project opportunities.