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Solar PV Investments-Redefining the Project Bankability Notion

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United Nations in its latest report released by UNEP says that the world is backing solar power installations like never before. The report says that global investment in solar rose 18% to $160.8 billion, most of which coming from developing countries like China and India. Last year the world added more solar capacity then then coal, gas and nuclear combined.

Globally Solar power made up 57% of last year’s total for all renewables (discounting large hydro) of $279.8 billion. New Development Bank (BRICS Bank), recently came into existence have also declared 60% of its investment to go into renewables and most of it in solar PV sector. Many global hedge funds are also planning huge investments in this sector.

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Source:UNEP Report 2018

In India, utility solar capacity grew by a massive 72% in 2017-18 over the previous year, with country’s cumulative solar capacity reaching the 24.4 GWs. In last few years solar PV has been progressive from niche to a significant source of future electricity generation. The continuously falling tariffs is considered as a ray of hope for moving towards energy transition from brown to green sources.

With all attractive investment figures, the question is to what extent these investments are defined as bankable. India has become the huge potential market for renewable energy specifically solar PV investments. As the capacity of solar PV installation is keep on increasing, so is the requirement of understanding and redefining the bankability notion of these new power project additions to our federal electricity infrastructures. There is an urgent need to mitigate the risks associated with these projects and reframe the investment equations while taking into account the technical, executional, operational and financial sides.

The LCOE sensitivity analysis, tariffs, ROI, and cash flow planning must be carefully looked in the contexts of technical risks as well. Investors and most importantly the big financial institutes must also invests in the technical resources and due diligence for better understanding of risk management and risk mitigation strategies.

Mostly the expected parameters are referred by simulation software and tools which takes predefined or manual input. The business models should not just reflect the figure which fits budgetary restrictions but it must reflect the technically assured durability for proposed project life. The assumed realization in balance sheet referring wrong assumptions in simulations can prove to be a certain catastrophe on technical grounds in terms of actual Vs. expected performance and yield.

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Though there are many factors but lets take an example of soiling loss effecting the annual revenue *Unit tariff considered as Rs.5/kWh ; Source: Pvsys V6.72 ;Weather data: Meteonorm*

There are great chances of wrong assumptions in considering the radiation levels in simulations and on ground actual measurements. These days the delta in actual radiation data to assumed one is widening pertaining to the global climate change phenomenon. Timely cleaning and calibration of the radiation sensors can help analyzing actual radiation Vs. actual yield curves.

The point here is we need to redefine the bankability notion of solar PV projects. Technical Risks Due to Poor Assumptions in Financial Modeling may lead to PV System failure and ultimate financial loss in long course of time. You may not get the performance which you expected and referred for calculation of investment returns.

The stakeholders including developers/investors, the financing parties and the insurer, and the regulatory bodies wholly needs to work extensively on the aspects like technical feasibility, legal obligations and the economic analysis. In project execution a clear idea of proper land selection, geographically suitable PV system design dynamics and the installation workmanship plays a major role in ensuring bankability.

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The most important part of the PV project is selection of components like PV modules, inverters and balance of systems, and the selection of integration partners. A clear RFP must be articulated for the same. There is a clear threat of inducing the tradition of putting cheap and low quality solar panels along with the over optimized mounting structures designs so as to win the bids and ensure favorable LCOEs.

Solar Panels are heart of a solar project and constitute of the total investment. Recently in a survey conducted by Scientists from the Indian Institute of Technology Bombay (IIT-B) and the National Institute of Solar Energy (NISE), New Delhi, they identified the tailbacks that could prevent a country like India from reaching its ambitious solar energy target. Survey is indicating significant module degradation curves then expected with increased number of defects. It says “Overall, young modules show a higher degradation rate than old modules (>5 years old). The results also suggest that newer installations have poorer quality of modules and/or installation practices, and also possibly over-rating of modules supplied in recent years.” Report also states “It is felt that some of the quality issues seen especially in the young modules are the result of aggressive pricing and timelines and improper handling/installation. “

Even Global firms like DNV-GL has also quoted in their PV Modules score card 2017 Report : Most modules tested maintain performance after reliability testing. However, the bottom quartile of most tests exhibit degradation levels that could put systems at financial risk. Specific Bill of Materials (BOMs), factories, and manufacturer do matter: the same module type with different BOMs or manufacturing location often perform quite differently.

The design qualification tests specified for PV panels under the International Electro technical Commission standard numbered IEC 61215 (for crystalline modules), can only check the premature failures and are primarily meant for infant mortality part of reliability curve. Bankability of modules can be assured a little by thorough factory audits (raw material, manufacturing, rejection rate, transportation SOPs etc), batch testing and accelerated testing.

Alongside of PV modules, Inverters and BOS and an excellent weather station are also very critical while assuring a high quality solar project.

When it comes to understand the bankability of a solar project, digital monitoring system plays a major role to address the long-term performance. This software not only helps in proper O&M but it also enables higher production and improved ROI.  Ignoring the investment in good monitoring solution is like putting the project at huge risk. The software must be equipped with artificial intelligence and IoT based self-diagnostic tools. It must meet the requirements of recently revised IEC61724-1 for performance monitoring. Defining a robust architecture for Centralized Monitoring facility will add great value in safeguarding project bankability.

Time to time performance evaluation and audits of the operating plant with advanced technologies like thermal image/EL camera equipped drones surveys, IV Curves based performance analysis etc. is highly essential to certify the track of return on investment is coming as per the balance sheet projections. Judiciously addressing the faults observed during audits can boost the energy yield.

Proper understanding of associated risks, classifying them on time, analyzing them thoroughly with experts, managing them by either transferring or bearing the same and then controlling the residual risks; Only helps you make the project bankable. Risks can be defined in two sub categories: Technical and Financial. There is a close inter-dependency of financial risks on technical parameters.

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Proper documentation is important in ensuring the obligatory prepositions during project phase and operations. Project RFPs, DPRs, EPC and O&M Legal Contracts, Construction and Project management SOPs, O&M SOPs, Method statements, Quality Checks and Quality Control Audit SOPs, Statuary approvals, plant performance documents and defined set of methods. Project design, installation commissioning and O&M documentation must follow the relevant global compliances like IEC TS 62738 & IEC62446.

Solar PV projects with growing financial risks and limited technical understanding of component selection, system integration, project execution and performance modelling will be catastrophic in longer terms. The need of redefining bankability notions of solar project is therefore highly essential for government and investors to ensure the bankable returns in this sector.

While it is encouraging to see the accelerated growth in solar PV sector, it is also imperative to ensure the momentum continues with assured investment returns. Investors can not overlook the technical feasibility of projects in today’s scenario. While the cost of developing solar farms along with tariff is falling drastically, it should be complimented with proper technical and financial bankability notions.

Data References: UNEP and European Union report

Author: Mr. Rakesh Bohra- Manager Solar PV Expert | Analytical Approach | Bankability Renewables & Sustainability | Green Infrastructures

Follow him on linkedin for more content.

Disclaimer: All views are of the author’s and it does not relate to any professional organization that author works with.

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