Solar Module Bankability: Is it Time for Manufacturing Standards?

“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.

solar project bankability, solar energy  A key issue for PV project developers, project bankability can be derailed on any number of these variables.

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 photovoltaic module, solar energy, solar cellscost.  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”solar energy, photovoltaic module, solar cells 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.

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