Assessing Solar Investment Opportunities

Over the past years, investors around the globe have been paying an increasing amount of attention towards the renewable energy industry, which has translated into a considerable industry expansion and commercialisation.

New investments in solar in 2016 totalled 113.7 billion USD (Frankfurt School-UNEP Centre/BNEF. 2017.) down 34% compared to the previous year, which was an all-time-high. With the construction of the Ramanathapuram solar complex, the largest ever PV project was completed, with 648MW.

The cost of solar has declined rapidly in recent years. With average dollar capital expenditure down more than 10% the competitiveness of the technology is rapidly improving.

This blog from e-nable.eu addresses the main elements and considerations regarding solar investments and how they can be built into a quick investment case analysis. The aim of these posts is to support investors in assessing project viability and project uncertainty supporting decision makers with a better understanding of solar power plant economics.

When analysing a solar investment case we turn to 7 key information chapters that need to be evaluated in order to understand the investment base case and conduct further analyses, these include:

  • General Information
  • Project Owner Information
  • Energy Production
  • Economics
  • Technical Information
  • and Legal Information

GENERAL- AND PROJECT OWNER INFORMATION

This Includes a wide set of information including the project type, a description, location as well as personal information on the project owner such as contact information.
Further included are details in relation to Project Status, Commercial Operation Date and Ready to Build Date.

ENERGY PRODUCTION

Including the topics: Installed Capacity, Annual Energy Production, Specific Yield,..

Project costs vary with project complexity. Hence, an increased installed capacity will lead to increased project cost.

Energy production reports used for investment consideration include an estimated project lifetime and annual production table with data at three confidence levels (P50, P75, and P90).  The three confidence levels provide a range of expected average production outputs for the project.

Evaluating solar energy production can vary in complexity and are based on a range of variables used to predict performance under operating conditions. Several important factors to consider include the use of solar resource characterization and site characterization, computer simulation models, system specifications, power plant losses, and the uncertainties associated with each of these factors. Computer simulation models should be evaluated and developed carefully to ensure the most accurate simulation of energy production.

There are considerations for the type of plant and meteorological data needs between a CSP or Solar Thermal and PV plants.  The system equipment, component arrangement, and module simulation model must be known to predict system performance at non‐ideal conditions. For example, PV modules are rated at standard test conditions which include solar irradiance of 1000 W/m2 and cell temperature of 25o C; however, the PV system rarely operates at these conditions. Radiation levels change constantly throughout the day and the PV cell temperature can much higher than 25°C for areas in southwestern U.S. PV systems operate in these non‐ideal conditions much of the time, so the model used to simulate PV performance must be able to adjust the system’s performance accordingly

ECONOMICS

Including the topics: Transaction Type, Sale Type, Percentage of Sale, Offtake Type, Offtaker, Power Revenues, PPA/FIT Type, PPA/FiT Duration, Revenues p.a., Revenues per MWh, Total CAPEX, Basis of CAPEX Definition, OPEX p.a., Basis of OPEX Definition, Targeted Selling Price, and the Economical Lifetime of Project

In general, OPEX may vary significantly between projects depending heavily on price of the service contract and land lease. Some operating costs (i.e. land lease, insurance, management costs and maintenance costs (O&M)) can be fixed at a yearly amount, but other OPEX elements may be pegged to revenue or production to form a hedge on profit margins.

Main elements of OPEX include costs for O&M as well as asset management. O&M will often be covered by a service contract, but it is important to consider costs not covered by the contract and potential changes in operating costs after service contracts may expire. Over the operational life modules will be worn down and additional costs can apply due to more frequent maintenance and/or breakdowns.

In addition to the OPEX elements described above, tax considerations are also an important part of an investment case analysis. The characteristics of tax modelling will vary across countries and projects. Furthermore, it is important to consider the differences between payable– and accounting taxes, as they differ in their effect on a project’s liquidity.

LEGAL INFORMATION

This Includes a wide set of information varying heavily, depending on the project at hand. Information which we assess includes: Landplot Ownership, Status of Landplot Ownership, Remarks for Landplot Ownership, Power Production Licence, Term of Power Production Licence, Issue Date of Power Production Licence, Building Permit, Zoning, Civil Construction Study, Grid Connection Agreement, and Environmental Impact Assessment.

TECHNICAL INFORMATION

This set of data has to be considered especially, when assessing a project’s energy production. Depending on the solar PV project at hand, the information which we assess includes: Grid Connection Type, Distance to Grid, EPC Contractor or Errecting Contractor(s), O&M Contractor, Turbine Type, Turbine Capacity, Hub Height, Number of Turbines, Turbine Provider(s)

 

Through our online platform portal.e-nable.eu we facilitate energy project development on a global scale by connecting project owners and interested investors. Our information structure is based on our industry experience, expertise and user feedback. All (currently 350+ ) projects showcased through our platform are framed through the same set of comprehensive information described, with the aim of enabling an easy and quick assessment of solar pv investment opportunities available through our portal here.

Judith Gruendler, 26. October 2017, 11:52

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