Archive for the ‘Solar Bankability’ Category
The U.S. PV industry was breathing again after a likely last minute extension of the highly successful Solar ITC as grant legislation (contained in the original ARRA bill) via inclusion in the tax extenders bill currently being debated on Capitol Hill. Known as the Solar Treasury Grant Program (STGP), it was due to expire at the end of December 2010. While the tax extenders bill still needs to be passed by Congress, the outcome looks positive.
Some history: the solar investment tax credit allowed entities with tax burdens to finance solar installations and receive a 30% tax deduction. This program was successful with banks and other entities with tax appetites until the recession and banking crisis set in during late 2008. With no tax burdens, all financing of solar projects came to a grinding halt. The ARRA bill’s STGP allowed solar project developers and their finance partners to receive the 30% as a cash grant – an enormous benefit – especially for loosening up hard to find construction financing from local bank providers.
The benefits to solar industry and the nation are substantial as noted by Rhone Resch, Executive Director of SEIA:
“The 1603 tax credit has created flexibility for funding renewable energy projects and is fundamental for keeping the solar industry growing in America. To date, the program has facilitated the construction of more than 1,100 solar projects in 42 states. At a minimal cost to the tax payer, the 1603 program has supported $18 billion in investment in new renewable energy projects throughout the country and has created tens of thousands of jobs. Plain and simple, this program provides the greatest return on taxpayer dollars. The program has allowed the solar industry to grow by over 100 percent in 2010, create enough new solar capacity to power 200,000 homes and double domestic solar employment to more than 93,000 Americans. This program has created new opportunity for electricians, plumbers, and construction workers during the worst economic climate since the great depression.”
Of course, anytime we have talk of government subsidies for renewable energy, the free-market fundamentalists weigh in with their standard “clean energy should be able to compete on its economic merits without subsidies”. When governments end exorbitant fossil fuel subsidies, I am all for ending clean energy subsidies.Share this:
Solar energy subsidy incentive schemes are being reduced globally, and PV module prices continue to drop at astonishing rates. This intersection of policy and market economics is creating extensive focus on lowering the LCOE metric via improvement in the balance of systems (BOS) costs. With lower subsidies, project developers are under greater pressure to deliver strong return on money to project financing entities, the ultimate masters of the solar energy industry.
While the PV industry is closing in on the elusive equalization with grid retail and wholesale energy cost,
creating projects with return on capital that financing companies will commit to financing en masse is requiring reexamination and upgrading of every component in the BOS category. This includes upgrading project development processes, system design tools and process, installation methods, shipping and logistics, array conduits and components, solar panel racking, inverters and monitoring systems, and operations and maintenance. New technologies that harvest more energy from a PV system like distributed DC-DC optimizers, are key.
A number of new tools are evolving which are creating a new LCOE-lowering ‘toolkit’ for project developers. Good examples include new system modeling software, robotic installation, simplified racking, easier-to-install combiner boxes and the aforementioned DC-DC optimizers.
Looking to the future, this developing LCOE toolkit will have a substantial impact on the solar bankability of all sizes of PV projects. It’s likely that a new level of performance, monitoring and cost will create projects which will confer more confidence and visibility in their financial performance, and be placed in a higher bankability bracket than other projects which are done using outdated BOS methods and products.Share this:
As I wrote in a previous post, electricity generated from PV is moving closer and closer to grid parity. We may see grid parity (the cost of solar energy being the same price as brown fuel generated power) in the next few years over wide swaths of the U.S.
Now comes a study by Duke University, “Solar and Nuclear Costs – The Historic Crossover”, which demonstrates that solar energy is now equal to or less than the expected cost of $0.16/kWh of power generated from new, latest technology nuclear plants.
From the report, “Solar photovoltaics have joined the ranks of lower-cost alternatives to new nuclear power plants.”
This is another example of relentless downward cost line of installed solar. It’s also a good example of the profound amount of subsidies (Solinequity) that nuclear, goal and gas industries receive compared solar. Contained in the report, “From 1943 to 1999 the U.S. government paid nearly $151 billion, in 1999 dollars, in subsidies for wind, solar and nuclear power, Marshall Goldberg of the Renewable Energy Policy Project, a research organization in Washington, wrote in a July 2000 report. Of this total, 96.3 percent went to nuclear power.” the report said.Share this:
This is another great developing story for the solar industry. One Block Off the Grid (1BOG), helps interested residential solar energy customers achieve lower costs and cut through the complexity of government programs, various PV products and solar
panel installation by offering a unique combination of group purchasing, installation and objective advice.
Their website features some of the most clear and concise marketing I have seen in the residential solar market and is easy to understand for the average customer.
From an article by Warren Schirtzinger on Renewable Energy access, “1BOG’s service organizes homeowners in a given area and allows them to purchase and install solar as a group. In addition to negotiating a volume discount of about 15%, 1BOG acts as an independent provider of quality assurance and objective information. To qualify as a 1BOG vendor, local solar companies must go through a rigorous evaluation of their products, installation practices, and long term stability as a company. Customers are also provided with assistance and support in the areas of rebates/incentives, financing and permits.
“While most people would point to the 15% reduction in cost or the assistance provided with bureaucracy and paperwork as the primary benefits of 1BOG’s program, I believe the true power of their approach is in helping reduce the perceived risk of solar.”
While this early 1BOG business model may have some easily solved issues (loss of control by end customer, warranty integrity etc.), overall this is a great new product offering to build on for the industry. Congrats to Mr. Dave Llorens, CEO for his rapid market development progress.Share this:
There are over 3,000 utilities operating in the U.S.; they are investor-owned, public-owned, cooperatives (owned by the customers served) or municipal-owned, each with their own set of unique operating regulations. All electric utilities are playing by rules set up over the last hundred years and have made large, billion dollar investments in generation, transmission, distribution and operational assets in response to these regulations.
Senior management of many electric utilities find themselves with their heads in a vise these last few years.
Demonized for contributing to global warming, vilified for fighting renewable energy market support mechanisms, and generally disparaged for not being green enough, the utilities have made previous large infrastructure investments with long payback timelines, and are waiting for guidance from the federal government on a multitude of issues including putting a price on carbon dioxide. Before investing any further capital into new generation assets, brown fuel, nuclear, renewables or otherwise, they are rightly waiting on legislators to act. (Capitol Hill continues to dither on a comprehensive climate and energy bill, which includes a price on C02)
This is not to say that utilities don’t bring most of the bad PR on themselves. Their constant campaigns of misinformation regarding the cost of transitioning to clean generation, and application of their large lobbying forces against clean energy legislation of any flavor, positions them as the bad guys. But, in most cases, they do this because they have a business to protect and financial obligations that are long-term.
There are a few progressive utilities that are embracing renewables and especially solar photovoltaics. A sampling from last year’s top 10 utilities in solar includes Excel Energy, PS&G, PSE&G, Salt River Project, Sempra Energy, and Southern California Edison.
While many in the solar energy industry present utilities as the enemy (everyone needs a villain to make a marketing story interesting!), this approach serves no one and only makes for larger, higher walls to be built between the utilities and clean energy providers. Clearly there need to be other ways to bring all parties together so that mature, currently available solar energy and other clean energy products can be rapidly deployed.
There are luminaries–unlikely players who are leading the way. A good example is a recent article, “Greening Our Energy Future” by Mr. Ralph Izzo, Chairman, President & CEO of electric utility PSE&G in New Jersey. Mr. Izzo proposes that utilities have an indispensable role to “bring the benefits of the green economy to farmers, homeowners, renters, business people, the residents of our cities, suburbs and towns – everyone.” He puts forward that the electric utilities need to re-think their role in fostering the green energy revolution, as they are uniquely placed in the market structure to facilitate and drive energy efficiency and clean energy to all constituents that rely on the grid. And he has placed his company at the forefront with strong and growing energy efficiency and solar energy programs.
This is the kind of progressiveness and forethought we need in both camps. But, as Mr. Izzo points out, we also need ACTION by the federal government to change existing regulations so that utilities can monetize their investments in green energy programs. And the solar energy industry needs ACTION by the federal government on placing a price on a unit of C02, among other market driven inducements, so that the kWh cost of the energy playing field is level.
In my opinion the electric utilities are not the enemy of the solar energy industry. The utilities have the ability to be strong partners in rolling out green energy programs with the energy efficiency and renewable energy industries. The real enemy at the moment is the lack of leadership by our elected officials to produce new regulations that would allow for this kind of clean energy partnership.Share this:
In the past 18 months, photovoltaic module prices have dropped by over 50%. This solar energy market condition has been driven by a number of factors, including manufactured product oversupply, manufacturing capacity exceeding demand by 100% or more, and technology advances. The main activity creating these multiple price reduction drivers is the scale-up to near- or beyond-gigawatts scale manufacturing capacity which is required to achieve photovoltaic manufacturing economies of scale (with the resulting lowest ex-works cost).
This situation has brought pain for entities in the PV module manufacturing supply chain, but sheer joy to large project developers and small system installers. Average system level costs (modeled on a 1MW ground mount installed system) are now hovering around $4.25/Wdc with a kWh cost of energy at $0.17. Forecasted PV module price reductions, based on publicly traded module companies’ guidance, indicate a system level cost of $3.25/Wdc by mid-2011. These numbers make many more projects viable, increase solar energy penetration, and reduce the need for large government subsidies.
While this is a good scenario for the PV industry generally, the module cost reductions are creating some interesting ripple effects. Modules used to account for as much as 70% of the cost of a completed solar installation but now are less than 45%. With recent intense focus on the levelized cost of energy (LCOE) of a solar energy installation, the reduction of all non-module costs is under the microscope. These include system design, balance of systems (inverters, controlling electronics), project developers’ overheads, financing costs, installation methodology, labor cost, and operations and maintenance.
PV project developers’ overhead costs are increasing at a time when their supplier costs are decreasing. As mentioned in my post of May 4th, PV project developers face, on average, over a year of work just to bring a small utility scale project to shovel-ready. While they face many challenges relating to real estate, financing, power purchase agreements, grid interconnection, and permitting, a recent installer survey shows the costs and challenges relating to only permitting can be as high as 20% of total development costs. These costs can be direct fees paid (as much as 5% of total install cost in some jurisdictions) to the permitting authority and overhead costs relating to long and laborious permitting cycles of local and regional governing bodies.
The long permitting process can be attributed to some degree to unfamiliarity with PV generation plants, but also general indifference to PV. A recent large commercial rooftop installation was subjected to numerous county permitting office signoff delays spanning 2 months after project completion for issues such as having the wrong color placards, insufficient detail on permit document signoffs, and non-conformance to code which was not required in the original permit. When the inspector finally arrived for the final review, the building owner was told, “solar is a passing fad and useless energy.”
With numerous, differing permitting standards and attitudes such as the above inspector, the challenge of permitting solar energy and renewable energy in general needs attention by legislative bodies at all levels of government to reduce this unnecessary developer line item cost.Share this:
The panel of speakers for the opening plenary session at the recently held American Solar Energy Conference featured an all-star cast. The moderator was NPR’s Ray Suarez and the panelist included Amory Lovins, Chief Scientist of the Rocky Mountain Institute, Denis Hayes, Executive Director of the Bullitt Foundation, Catherine Zol, US DOE Assistant Secretary, and Brad Albert of the Arizona Public Service utility. The challenges and the opportunity for a rapid change to clean energy and solar energy were on full display.
Supporting one of my favorite rants, part of the conversation touched on the large amount of direct and indirect government subsidies that the brown fuel energy generation companies receive which significantly distort market signals. Brown fuel industries receive 10X the subsidies that clean energy receives, and the 100+ years of subsidy history has resulted in large embedded advantages. New clean energy products and services are expected to “compete” in this highly skewed market. Brown fuel energy generation entities are also not required to pay for externalities such as using the local environment and atmosphere as a garbage dump. Taxpayers foot those bills in the form of health care and environmental degradation costs. But externalities are a subject for another blog post.
At one point, Catherine Zol talked about the long-term effort being made by the DOE and industry to bring the price of solar enrgy down to $1/W installed (completed array in the ground, currently ~ $4.5/W for larger distributed generation installations). While this effort is highly important, it would also make sense to immediately begin dismantling the large subsidies given to the coal, natural gas, and oil industries which would level the playing field in terms of cost when comparing solar to traditional brown fuel sources. Earthtrack and EESI are good sources for learning about these subsidies.
Reducing the brown fuel industries subsidies would have an immediate affect on the solar energy industry. The cost of brown fuel generated energy would increase, making solar energy more competitive. Solar PV project finance pro formas would show an immediate increase in the internal rate of return, a key metric. Financing entities, who only invest in solar when there is adequate annual payback on their invested capital, would immediately increase their involvement in the industry. At this time, attracting large numbers of project financing entities is the number one problem for the PV industry in the near term because of the recession’s impact on the availability of credit in financial markets, and in the longer term due to minimal returns on investment.
While reducing the cost of solar energy further is important, the DOE and the President can make far quicker clean energy deployment progress by leading congress and the country on a systematic and organized dismantling of the legacy brown fuel subsidies which reduces the hurdle for clean energy and solar project financing entities. Of course, the current inability of our leaders in D.C. to pass climate change legislation where C02 would have a cost assigned to it, is a good illustration of how difficult it is for Capitol Hill to move away from the status quo.Share this:
“Bankability” is a financial industry term that the Collins dictionary defines as “acceptable to or at a bank” and “dependable and reliable.” However, bankability in the solar energy industry is another word for “risk.” As solar energy project financing is essentially unsecured lending by banks and other entities, project financiers seek the lowest risk on the many variables present. These risk variables include solar array product quality, completion likelihood, off-taker (power purchaser) credit worthiness, project model quality, and environmental factors.
While recent focus has turned to the credit worthiness of an off-taker, who is contractually obligated to buy the power coming from the solar array in a traditional PPA agreement of 15 – 20 years, traditional risk scrutiny has focused on the products used in the array. The completed PV array has to perform at a levelized cost of energy (LCOE) modeling (predicted performance) that meets the internal rate of return (IRR) commitments made to the financing entities. Consequently, modules, inverters, and other balance of system components must perform to the specifications on their labels.
In the photovoltaic module market, bankability is under the microscope when discussing various technologies and product types. When the recession began in earnest after Lehman Brothers collapsed, the solar industry went from having approximately 40 equity investment entities to 3, almost overnight. The cost of project capital went up significantly just as risk tolerance went down for module product.
Solar panels are the highest cost and most important components of an array, accounting for up to 50% of the system cost. For most financing models, they must have strong power output for 20 years or longer. While output warranties vary from manufacturer to manufacturer, most module manufacturers have a 20+ year performance warranty where the module is performing at 80% of original output, or close to it. A 5-year manufacturer’s defect warrant is also standard, although some providers have recently raised this to as much as 10 years to gain competitive advantage.
Since the recession set in, crystalline module product with its 40-year history has been deemed the lowest risk and the only acceptable product from Tier 1 vendors like Sunpower, Sharp, and Trina, among others. Thin-film, with the exception of First Solar’s product, has become un-financeable as it is viewed as immature product with a high risk of failure. Some thin-film manufacturers such as Signet offer 3rd party insurance indemnification to assuage this risk.
It’s interesting to understand the technological and business contradictions that are part of the module bankability story. A few include:
- Tier 1 crystalline module suppliers from China with less than a 7-year business history, and who have weak balance sheets, are considered highly bankable.
- Manufacturer defect warranties, on average, cover 5 years and yet the product is considered low risk on a 20 year output basis. What happens in the unlikely event that all modules have a defect that shows up in year 8?
- First Solar product is considered low risk mostly because of the herd mentality – Bank X has financed it, so it must be safe. Like all PV companies, long 20 year brand performance history has not been proven.
- New c-Si cell product coming on the market is considered immediately bankable, yet they have new cell structure, coatings, and manufacturing processes.
When looking at history and performance, solar PV products are exceptionally low risk from proven “technology” sources. Most thin-film technology types (CdTe, a-Si, CIGS) have been out in the field in academic and corporate test apparatus for over 15 years, in some cases over 20. The stability and performance falls well within the bankability warranty requirements and, in my mind, are proven. The same goes for crystalline technology types which have a much longer test apparatus history.
The risk focus is rightfully on each product brand and that brand’s ability to manufacture a high quality product from one of the proven technologies that will perform as well as the test technology.
Manufacturing standards adoption by the industry would go a long way toward easing solar module bankability concerns. As the industry approaches the $100B revenue milestone globally in the next 2 years, standards are already being discussed. Standards would provide a benchmark for financing entities to make a brand risk assessment while leaving the technology risk aside.Share this:
There are 6,500 megawatts (MW) of PV project development currently in process across the United States. Clearly the PV industry is poised for strong growth but the hurdles for PV project developers are numerous, and many of these MW
may not be implemented. These hurdles include extensive permitting regulations which vary widely at the local, regional and national levels, interconnection standards that vary across thousands of utility companies, and locating new transmission lines for large projects to name a few. A good example of the challenges and complexity for PV project developers can be found here.
A recent article regarding new transmission lines for a large solar farm in Colorado for the utility company Xcel Energy highlights one of these challenges. With an objection to the new 140 mile transmission line by one landowner, PV project developers are now unable to secure project financing until this issue is cleared up. This could take months or years. This type of project roadblock can happen as a result of any number of matters that must be checked off by developers.
While German PV project developers work under a national set of standards and can implement projects in as little as 6 months, their American counterparts face a cornucopia of various technical and installations standards, permitting requirements, and environmental requirements, which can result in a year or more of wrangling before most large projects can simply break ground.Share this:
The National Renewable Energy Laboratory (NREL) has created an excellent historical visualization of solar installations in the U.S. from year 2001 to present. Clearly illustrates the impact of state subsidies and why California is the 4th largest PV market globally. This picture may change to more of a national market in the near future with less dependence on state subsidies as PV module, balance of systems and installations continue the steep cost decline. A U.S. market dependent on only federal solar subsidies may be just around the corner based on the manufactured cost forecasts contained in Photon Consulting latest report, “The True Cost of Solar, A Race to $1W”Share this:
Historically, the residential and commercial rooftop solar energy market sectors have been dominated by solar modules using crystalline silicon wafers. Recently, the utility Southern California Edison began implementing the first phase of a 500MW project plan which is mainly supplied via 1MW installations on large (larger than 100,000 ft2) roofs. The program, which demonstrates the unique distributed generation nature of PV, is using First Solar thin-film product for some of the installation sites along with crystalline vendors including efficiency leader Sunpower . Once the exclusive domain of crystalline wafer modules only, the cost and efficiency of high performance thin-film product like First Solar’s produces acceptable internal rate of return for system owners on rooftops where many variables line up for this technology type. An article today in USA today features a good overview of the program and a picture of installers placing First Solar modules into service.Share this:
A financial industry client recently asked whether “thin-film” PV product can ever compete with highly established crystalline PV technology based product which currently has 85% market share. His question was prompted by a spate of recent press articles that talk about the 50% drop in module sale prices in the last year, with claims of margin pressure on the thin-film category. A good summary of the situation, here.
Like all things related to solar energy generation, there are many factors to consider. First, thin-film is a broad term; there are many technology types with different performance capabilities, cost points, and structures which factor heavily in a comparison to crystalline products.