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FIRSTGREEN CONSULTING
U28A/3 FF DLF Phase III, GURGAON 122002 INDIA www.firstgreen.co
Table of Contents
I.
Introduction ........................................................................................................... 2
II.
III.
IV.
V.
VI.
Introduction
While conventional power projects are facing the fuel availability challenges and fuel price uncertainty, investors are looking renewable as preferred options to remain in power sector. Especially solar PV projects are much more appealing to the investors due to their scalability and flexibility in nature. While Indian Government has withdrawn the accelerated depreciation from wind projects, solar provides a yet another tax aversion tool to the investors. The cash flow of solar present a much more stable and risk free cash flow as compared to the conventional power projects where you cannot predict the fuel prices. The higher cost of capital can significantly make projects unviable. Hence it is important for the project developers to take care of the factors which affects the bankability of solar projects. There are five major parameters which affects the bankability of solar projects which include
The Banks and Financial institutions are concerned on the risk associated with the solar projects due to high capital cost requirements in these projects. The financing institutions in India do not have enough experience in these technologies and always concerned about the following issues: Is the yield assessment reliable? Are there any power evacuation risks? How about degradation? How about performance in the Indian dusty and high temperature conditions? What about skilled labour for maintenance? How about the reliability of the PPAs signed with the state utilities which are already under financial crunch? Are there any generation guarantee available? How about future policy framework? Is the technology proven? Has the EPC demonstrated the ability to deliver the projection-time and on-budget? What is the anticipated ROI? How quickly can the project start generating a return?
Most of the solar projects face delays due to the reason of the financial closure and hence bankability of a solar project is a major issue. The degree of bankability is dependent on the reliability technology supplier, reliability of EPC contractor, Reliability of the yield assessment, and the financial health of the promoter company.
Design Optimisation
Selecting an appropriate technology for your solar project plays a very important role in the bankability of a solar project. The major aspects in the technology selection are selection of PV module supplier which should be from the reputed manufacturer who provide the warranties for 5-10 year workmanship and performance guarantee for a period of 25 years. The guarantees and warranties of BOS also play an important role as PV module contributes only 50% of the project cost. Typically all the PV module manufacturers offer long term performance warrantee, however the question remains on the effectiveness of the warrantees. If a PV module manufacturer goes bankrupt, then there is no entity left to the developer for honoring the warrantees of the bankrupt of the manufacturer. Many developers take warrantee insurance to mitigate the risk associated with the bankruptcy of PV module supplier which help them in maintaining bankability of their solar projects. Apart from guarantees and warrantees most of the PV module suppliers conduct IEC and UL certification tests to justify their module degradation, performance and reliability. Selecting a PV module supplier with IEC and UL certification not only justifies the bankability of the selected modules, but also reduces risk of technology failure. It is important to optimize your system sizing while selecting PV technology and BOS. The major consideration should be given to levelized cost of energy to evaluate various design configurations.
In state like Rajasthan the ambient temperature reaches as high as 50C and modules surface temperature reach of the order of 75 C and accordingly the string voltage is of the order 560 V. It is equally important that we consider the minimum temperature of the site conditions while doing the array layout .During winters the temperature go as low as 0 C and the module surface temp is also reaching to C and hence the voltage of the string reach 770 V. It may be noted that the temperature has the greater impact on voltage ,while the irradiance has greater impact on current .Hence while selecting array size maximum irradiance and minimum irradiance will dictate cable size for interconnecting the modules in the string.
Are there any equipment warrantees? Are the manufacturers still able to service them? What are the components failure/Reliability Risk? Is there adequate availability of spare parts?
EPC Selection
Selecting the right EPC is key to ensure the project commissioning as scheduled and as per the quality standards specified. Reputed EPCs offers significant advantage through their linkages for equipment procurement and standard installation practices. Many times the banks and financial institutes have their comfort for some of the empanelled EPC contractors who maintain certain quality standards and developers are required shortlist EPCs from the empanelled EPCs only. Some of the developers would like to reduce their upfront cost through fragmenting the single EPC into multiple EPC contractors, however this exposes the developer in terms of performance guarantee of the overall plant. If the EPC contractor is not reputed this increases the project risk ratings and in-turn increases the cost of capital available to the project. While selecting EPC the developer should consider not only experience and reliability but also the balance sheet of EPC should also take in to consideration so that the EPC can honor the guarantees and warrantees for the future. We have personally seen that in 2009-2011 years, many investors in India adopted only one criteria for the selection of EPC contractor. Yes, you are right, it was Money. At present many of those are not happy with their plant and for some of them, conditions are so bad that when they want to sell their solar plant to get rid of it, they didnt find any buyer. Banks/ financial institution are the major stakeholder in the solar plant investment. Selection of a reputed EPC contractor for your solar money plant can help you to get cheaper finance. Typically saying a 0.5% decrease in cost of debt can reduce the LCOE (Levelized cost of electricity) even by 30 paisa/ kWh. Chances of meeting the promised time line for the commission of solar money plant are very high with a reputed EPC contractor. Take a case that this reputed EPC contractor commission plant one month before than the other one, and a typical 1 MW solar money plant generated around 1.3 Lac unit of electricity. This means you can enjoy this 1.3 lac of units which you cannot even think with another EPC contractor.
How strong is your EPC provider? Is the EPC Firm experienced?. Does it have strong balance sheet? Are the Risks allocated to various parties through contracts ?
Technology Selection PV module supplier 5-10 year workmanship Performance Guarantee Corporate Sustainability BOS DC/AC Ratio
Many times the solar field terrain is uneven and requires variable leg length to achieve the level installation and avoid the shading of one table over another table. It becomes critical if the liner shading is not taken into consideration while designing the differential heights of the table. Selection of foundation is also one of the important factors for the structure design and layout. Where ever excavation/ drilling is possible, concrete structure are recommended, however, some of the project developer use ramming rather than concrete structure to save time and money. Rammed structures are more prone to corrosion and life expectancy for 20 years becomes critical. The structures vertical member should be designed in such a way that they can accommodate variability in height from one table to another table. Apart from the structure member clamping of module is also one of the critical consideration to mount the module on the structure, structure frame, there are various top down clams are available which can hold the with frame and frameless module efficiently. In case these considerations are not made during array installation the structure faces sagging and the tilt angle get disturbed.
Are there any equipment warrantees? Are the manufacturers still able to service them? What are the components failure/Reliability Risk? Is there adequate availability of spare parts?
1000
500
0 1 2 3 4 5 Mwh 6 7 8 9
Is the project developer balance sheet strong enough to cover this generation shortfall? Does the generation shortfall threaten the project debt service?
Conclusion
Making solar projects bankable needs careful attention to the not only five key factors which are highlighted in this paper but also there are many other factors such as PPA, Local issues, curtailment which may affect the project economic viability. The project developer should strive in reducing the risk associated with solar radiation and collect local and satellite based data to attract more investors and lower the cost of capital in the project. In other words bankability of the solar projects is key for future capacity installations and developers have experienced this issues in recent installations. Structuring a project as a bankable project requires detailed consideration on the technical, legal and economic aspects of the project. Every bank and financial has its own set of criteria through which it assess the bankability of a project. However the basic requirement is that the project should have a stable and visible cash flow throughout the entire financing period of the project. The major aspect which any bank or financial institution assess for the bankability of a solar project is the local site conditions. The local site conditions are typically evaluated on the basis of solar radiation available at the site and expected yield (Annual Energy Generation) which dictates the cash flow of the project. It is not only important to assess the energy yield for a single year, there is a requirement to have the energy yield assessment on longterm basis for which you are required to have the historical solar radiation data at least for 10 years for the site location. So that the trend can be forecasted to give the expected future energy generation for the banker.
Firstgreen Consulting
Firstgreen provides consulting services in the area of Renewable Energy, Building Energy Efficiency, and Climate Change. We are one of the leading consulting firm in the field of Solar PV projects in India and have been involved in MW class grid connected as well as Rooftop Solar projects. We have provided Project Management consulting, Design and Engineering services for over 200 MW of solar projects since 2010 of which about 100 MW is already being commissioned and balance is under various stages of development. We provide various services to the client right from the inspection of project, Design and Engineering support, Policy and Regulatory support, financing support and strategic business advisory to our clients. Firstgreen has been conducting training and capacity building programs for solar, wind and building energy efficiency projects in India and abroad. Our training programs has been widely attended by senior management of various organizations which provide hands on experience and step by step approach to implement solar, wind, and building energy efficiency projects. We believe in sharing our knowledge through technical articles on our blog (www.firstgreen.co/blog). So far we have published around 680 articles which reflect our experience i policy, technology, financing, and project management. Our blog is visited by 64 countries in the world and having footfall over 1,40,000 people across the globe. We provide 360 degree turnkey solutions for solar projects and also provide EPC services. Some of the clients who believe in getting a quality installations (Grid connected/Rooftop) through us.