Financial risk of solar’s growing pains

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit
Share on email
Email

One renewable energy form's loss is another’s gain. After a year of breakneck installations in the wind industry and a stay of execution for the Production Tax Credit until the end of 2013, investors are swinging their focus towards the sun. That much was clear from PV America East last week.

Izzet Bensusan, the President and Chief Executive of Karbone, a renewables and carbon brokerage and project finance adviser based in New York, is clearly optimistic about solar's horizon, at least until 2017, when solar's own tax credit drops to 10%.

“We think huge growth is going to happen. I don't mean to say this only on the side of where the need is to build renewable energy, but I also mean it in the sense of where we see investment coming in. That's very important.”

The day before his presentation in Philadelphia, he said he had been talking to managers at a fund looking to invest in renewable projects that has already raised $500 million equity and close to getting another $500 million. Another “shop” was slated to close a $750 million fund, he added.

“If you start adding … it's close to $29 billion over the next four years. People should see this as an opportunity and a risk. With more capital you can be sure that any commodity price we're chasing will go down in value.” [slide]

Bensusan added a very large caveat when investors rely on solar renewable energy certificates (SRECs) for their return on investment, particularly in New Jersey where supply is going to increase.

“Renewable energy credits are designed to go in value to zero not stratospheric because it means we have achieved the goal of having the technology reach the cost we want it to be at.”

The good news is that the consistent long-term price is settling at an average level of $100/MWh, he said.

Forrest David Milder, partner at Nixon Peabody, a Boston-based law firm, said that over-reliance on grants and tax credits could also pose problems for investors.

“We see lots of people who are hoping they did it right,” he said. “They have the elevator problem: they chatted to their tax advisers at the elevators for five minutes and got some advice about what to do and hope that it works.

“You can have a situation where you are counting on getting what you spent and Treasury isn't giving you that much. You can have an investor that's counting on you getting that much and you've really got a problem because you've promised it to somebody.”

Sequestration could also threaten 1603 grants that have been applied for but not awarded, he added. Plus the Inland Revenue Service could audit Treasury awards and scale them back if they were deemed over-allocated on a dollar per watt basis.

Courts had also started to “make a big deal out of selling tax benefits”, he said.

“There's a lot of care that people should be taking to refer to allocating tax credits that people are getting as a benefit of being a limited liability company or partnership.”

Performance risk

Product and performance risk underpin all these layers of complex financing structures.

Matthew Frankel, senior vice-president of global asset management at De Lage Landen Financial Services, said: “The industry and mainstream press consistently report the huge financial pressure that PV manufacturers are under. With the trend of manufacturer failure and consolidations we must continuously reform our views on this topic of bankability. Over just a few short years we've seen tectonic shifts in a global PV market and industry players.

“Less obvious without deeper insight are the smaller more impactful changes in the way PV products are engineered, tested and assembled. It's my belief that these more subtle changes represent a much greater long-term risk than my firm's portfolio and the PV industry as a whole.”

Module design, production and interoperability were all risk areas largely underappreciated by the investment community, he said.

Frankel said the basic PV design was developed and tested by the US Jet Propulsion Lab over a decade from 1975 and was used in the industry for its initial 20 years. Module lifetimes increased from one or two years to 20 to 30 years. Extensive field-testing by the National Renewable Energy Laboratory proved their reliability.

“We know that these modules worked. A critical issue for the industry today is that with all the cost pressure on module manufacturers and the rapid growth model of number of suppliers in the market and their capacity, the modules are no longer made to this fixed design. Today we often don't know what's going into the modules deployed in the field.

“History tells us that the best way to assess performance risk of a system design is to conduct testing on products from the service environment. There's been relatively little of this work done in the PV industry. Accelerated lab tests may not correspond to long-term performance.”

Testing performed by DuPont found some worrying responses to government policy, he said.

“In Japan, a 10-year feed in tariff programme was enacted to spur development of rooftop systems. In response, the Japanese module manufacturers changed their designs to compete on that 10-year horizon. By the way, these were the same designs that were sold into the US market with the 25-year warranties.”

After his own visits to some Chinese factories, Frankel's concerns were not only validated, but heightened, he said.

“Over the course of the past couple of years detectable manufacturing defects in independent finished module testing are up. There can be no doubt of the connection between manufacturer financial pressures and the speed and care with which they build their products.

“The most concerning part of manufacturing defects is that they are not all discoverable through the available testing and inspection techniques, which leaves investors and developers vulnerable to failures years later, potentially after the manufacturer has gone and any warranty support is exhausted.”

10 November 2021
The solar tracker market continues to mature at breakneck speed, with designs and component selections becoming ever-more complex in the pursuit of better project economics. But a more simplistic design could deliver a triple benefit of lower Capex, EPC and Opex costs. This webinar will set out the ideal single axis tracker design for utility-scale solar farms. The design leapfrogs from decades of experience, with a comprehensive understanding and attention to the three cost structures of Capex, EPC and Opx. Sun and Steel Solar has prototyped a single axis tracker designed to deliver up to US$0.03/W in real savings compared to existing single axis trackers on the market. That’s US$30 million for every gigawatt deployed.
15 November 2021
The 10th edition of the famous Metallization and Interconnection Workshop, MIW2021, will take place in the Thor Central venue in Genk, Belgium, on Monday, November 15, and Tuesday, November 16, 2021 as a face-to-face meeting. We are longing for direct exchange of knowledge and ideas after a long time. Hopefully you can be part of it! But of course, the organizors will keep an eye on the evolution of the Covid pandemic. It will be assess carefully, whether the workshop can be held without major risks or excessive restrictions. We are looking forward to exciting talks, discussions and meetings and to welcoming you in Genk!
23 November 2021
The solar, storage and EV industries in the UK are going from strength to strength. There is no better place for the community to meet, share ideas and do business than Solar & Storage Live from 23-25 November at the NEC.There’s something for everyone; more than 150 exhibitors, a high-level conference, a start up and innovation zone, a poster zone, strategic partners to network with and much more. 
1 December 2021
Understand fully the technical and logistical supply chains that determine the production and performance of solar modules, including all related factors impacting quality, reliability & bankability. This event will be run online with streamed content, access to session recordings and chat/messaging tools for delegates to connect.
2 December 2021
Intersolar is the world’s leading exhibition & conference series for the solar industry. As part of this event series, Intersolar India in Mumbai is India’s most pioneering exhibition and conference for India’s solar industry. It takes place annually and has a focus on the areas of photovoltaics, PV production and solar thermal technologies. Since 2019, Intersolar India is held under the umbrella of The smarter E India – India’s innovation hub for the new energy world.
13 January 2022
Intersolar North America and Energy Storage North America “Come Together” for the first time in Long Beach, CA—connecting installers, developers, utilities, technology providers, policy makers, and key stakeholders from around the world to advance the clean energy future. With best-in-class conference programming, integrated exhibits and pavilions, and the live Solar Games installer competition, #isnaesna21 will showcase the industry trends, innovative solutions, and emerging talent transforming the solar, energy storage, and e-mobility markets. Register today to redeem our exclusive offer for PV Tech readers—free expo hall or 20% off full conference pass.

Read Next

October 22, 2021
Alight has signed agreements to build three solar parks in Sweden that according to the company will be the largest in Sweden once built with a total installed capacity of 90MW.
October 22, 2021
The clean energy business of US utility NextEra Energy had a record quarter of origination success in Q3, adding approximately 2,160MW to its backlog, including 515MW of new solar projects.
October 22, 2021
The US Department of Energy (DOE) is to fund projects aiming to extend the operational lifetime of solar PV projects to 50 years and support the development of advanced materials such as perovskites.
October 22, 2021
Essentia Energia has begun operations at its 475MW Sol do Sertao solar power plant in the Brazilian state of Bahia
PV Tech Premium
October 22, 2021
Average winning solar bids in Spain’s renewables auction this week came in above those for wind as interest among PV bidders faltered against a backdrop of rising equipment costs and regulatory uncertainty.
October 22, 2021
Norwegian energy giant Statkraft has released a report that urges greater action on decarbonisation to meet climate targets, puts renewables at the centre of any strategy and places huge importance on the role of green hydrogen.

Subscribe to Newsletter

Upcoming Events

Upcoming Webinars
November 10, 2021
8am (PST) | 5pm (CET)
Solar Media Events
December 1, 2021