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Guest Article: Focusing on the German so-called “Market Bonus” Scheme

In the previous article, the limelight shone on the direct marketing options as a way of adding value to your German renewable energy assets. Of the three revenue-generating options discussed, besides the classical EEG Feed-in-Tariff, the predominant choice to date has been the “Market Bonus Scheme”.

Some Statistics on Direct Marketing vs. Classical FiT

Up until April 30, 2013, PV assets accounted for a total installed capacity of 33,533 MWp. Of these, 27,413 MWp benefit from the Renewable Energy Law (§ 20a Abs. 2 Nr. 2a EEG), having been grid connected between January 1, 2009 and April 30, 2013. Prior to 2009, only 6,120 MWp worth of PV capacity had been built. At the start of June 2013, 3,527 MWp, or roughly 10% of the installed PV capacity, had opted for the “Market Bonus Scheme”.

When interpreting the low percentage (in comparison with wind parks) of PV assets having opted for direct marketing one has to bear in mind that, from the total installed power in Germany, many PV plants are under 100 KW for which direct marketing is not technically feasible. The threshold from an economic perspective (feasibility) lies around 300-500 KW – systems. In the wind industry, the installed capacity tends to be on average far larger (the current smallest “large” wind turbines tend to be 1 MW, while the standard for onshore is approx. 3 MW). If you check the table below, taken from p. 58 in a recent study published by the “German Association of Energy and Water Industries” (BDEW), you will note that as of Dec. 2012, 80.6% and 100% of the onshore and offshore wind parks respectively, had already switched to Direct Marketing. This percentage has increased in the meantime; as of June 2013, 25,138 MW (onshore) and 378 MW (offshore) are operating in direct marketing versus 23,929 MW and 248 MW in Dec. 2012.

This table shows the EEG Assets under Direct Marketing in 2012.

Who Pays What?

Figure 1 compares the two „tariff“ systems. The classical FiT is equivalent to the sum of the “average spot market price” and “variable market bonus”. The Average Spot Market Price (as a function of the average monthly reference market price) is paid by the energy trader/utility in charge of managing the sale of energy produced by your asset. For comparison purposes, in the classical FiT, the grid operator pays you.

Subtracting the Average Spot Market Price from your originally allocated FiT, the resulting residual value is the Floating Market Bonus. This portion continues to be borne by the grid operator (e.g. E.On, RWE, Vattenfall or EnBW).

Figure 1 shows a comparison between the classical EEG scheme and Market Bonus Scheme.

What is “new” are the bonuses paid on top of the FiT level, e.g. the sections marked in green shades in Figure 1, comprising the “Management Bonus” and “Remote Control Bonus”, both paid by the same business partner (energy trader/utility) handling the spot market sales. The EEG legislation differentiates between a Management Bonus “with” and “without” remote control facilities. To enjoy the mark-up available through remote controlling, the assets must be equipped with the electronic devices allowing your energy trader to disconnect the asset from the grid in cases of extreme negative prices. Although the dimensions of the green rectangles look relatively large compared to the FiT, this is done only for illustration purposes. In reality, the added margin accounts for approximately 2% of the original FiT.

What Occurs in Case of Insolvency?

Suppose your asset is already operating under the Market Bonus Scheme and your energy trader is filing for insolvency. This is undoubtedly an extreme hypothetical case, as to date no German grid operator has ventured into such dire straits. Nevertheless, legally a renewable energy asset is entitled to the EEG FiT. The local grid operator exercises this entitlement and receives the corresponding FiT compensation for the renewable energy (assuming the asset operates under the umbrella of the EEG), fed into the transmission grid, which in turn is transferred to the asset owner.

If a local grid operator files for insolvency, an alternative grid operator would take over its role, for example, by taking control of the local electricity grid. Another possibility could be that one of the transmission lines operators (e.g. 50Hertz, TenneT, Amprion, TransnetBW) temporarily or permanently assumes ownership of the local electricity grid operator, thus, receiving the FiT but acting as a mere payment intermediary by handing over the money to the renewable energy asset owner. A delay in these payments may occur depending on the complexity of the process. The switching time back into the classical EEG regime takes a total of three months, e.g. 1st month = invoice month, 2nd month = when delay of payment is registered, 3rd month= based on delay in 2nd month, the process initiated in month 2 reverts back to EEG/FiT. The EEG sanctions the maximum “switching time” as 3 months. Considering this time span and depending on the credit rating of the direct marketing utility, the financing banks may insist on a 3-month payment guarantee, to cover revenue shortfalls.

What are the Switching Costs?

a)      Direct Marketing Scheme:

This will depend on various factors. What are the internal reporting requirements of your company? Will you require extensive legal advice? Is your asset project financed? Who is the selected commercialization partner?

Some banks charge a one-time “study fee” per Direct Marketing contract (SPV), entailing the legal review of the contracts and the necessary internal paperwork, such that direct marketing contracts adjust to the bank’s legal department’s criteria. If your overall installed capacity is distributed amongst X SPVs, be prepared to pay the study fee X times.

Utilities, who benefit by handling your account, normally do not charge any fees – they benefit from the management fee shared with their customer.

b)      Remote Control:

Your commercialization partner may charge one-time set-up fees per SPV. Furthermore, the asset owner must also pay for the installation of the remote control sensors (e.g. either to the O&M supplier or the utilities’ trusted installers).

Enabling Remote Control

In general, renewable energy assets will require the installation of electronic elements permitting the remote monitoring and grid connection management. The components are supplied by different hardware manufacturers and installed either by the O&M contractor or the utilities’ trusted third party. To gauge whether it is viable to apply for the remote control bonus, the asset owner needs to analyze installation costs and the potential for additional revenues. Some utilities, prefer taking a step at a time by beginning the business relations with the market bonus scheme. For smaller green assets (

Once the viability of such an installation has been financially studied and approved by the asset owner, the direct marketer begins the application process with the grid operator. The direct marketing agreement is thus extended to include an addendum for the “remote control” system. Depending on your counterparty to the contract, the bonuses paid per kWh will vary, thus, it is sensible to compare offers.

Suppose the market price is extremely negative (e.g. Market Price < – (FiT+Management Bonus+Remote Control) ), every kWh sold generates a negative margin to the utility. Under the given circumstance, it is more profitable for the asset to be disconnected than to continue selling in the market. The asset owners, nevertheless, continue to perceive the FiT + management premium +remote control bonus, thus, nothing changes from an economic perspective. For the utility, however, there is an incentive to minimize losses if the market price dips below zero, by temporarily taking generating capacity offline.

Additional Remote Control Revenues

The added revenues available to a renewable energy asset depend on installed operating capacity and the rate offered by the energy trade. A 24 MW asset could generate until the end of 2014 (roughly 17 months), some EUR 50,000 in total. This should be more than sufficient to cover the one-time investment costs of the remote control devices, provided your park was not equipped with these from the outset. Operating costs that could arise are generally related to component replacement and/or software updates.

Switching Process

To transfer from the regular FiT regime to direct marketing, the customer must complete, with the help of the direct marketer, an application form,  whose technical and legal data is subsequently incorporated into a standard legal contract. In case the PV investment is project financed, the mentioned contract must receive the approval of the bank. Based on the experience of some utilities, banks tend to approve signature-ready contracts, i.e. all project-relevant data must already be incorporated. Prior experience of the direct marketing utility with financial entities tends to accelerate the process as they are well aware of the banks’ common requirements.

Once the owner has both signed the bank’s Consent Letter (presupposes debt financing of the asset), Assignment and the Direct Marketing Agreements, your asset is ready to initiate the switch to the market bonus scheme. The current utility provider is not involved in this legal process as it is already covered by a previous Assignment Agreement. For a timely switch, it is vital for the utility to obtain bank approval and the asset owner’s signature a few days prior to the month’s end, otherwise the process may be delayed by an additional month.

This is the third part of a series of guest articles written by Martin Supancic. You can find the other articles in his series here:
1. How to Tune Your German Green Energy Asset Without Getting Sun Burnt in the Attempt
2. The German Direct Marketing Framework and Potential Benefits for your Assets

Interview with Project Manager of UK’s National Solar Centre – Jonny Williams

The BRE National Solar Centre (NSC) in the UK opened on April 25th this year as a centre for excellence and knowledge for solar energy in the UK. It aims to drive the UK solar market and solar innovation forwards through industry-led research, data analysis, testing, and training. The NSC will also connect to universities world-wide to further research and future technologies. The NSC can also act as a united voice for the UK industry and connect to international photovoltaic (PV) players. The centre also hopes to develop set standards for large-scale installations that will also compliment UK’s current standards, the Microgeneration Certification Scheme (MCS) supported by the Department of Energy and Climate Change (DECC) and offer due diligence consulting.

Milk the Sun is interviewing Jonny Williams, the project manager of UK’s recently opened National Solar Centre.

Johnny Williams (right) states that quality information will support the UK solar industry.

Milk the Sun: Mr. Williams, what will be the main goals of the NSC in 2013?

Williams:  To establish the BRE National Solar Centre as the leading knowledge centre for solar PV and solar thermal in the UK.  Also we wish to look at international opportunities and to set up our solar test site.

Milk the Sun: NSC wants to focus on evidence-based information for the people involved in the PV supply chain. How can this type of information and research benefit the UK solar market?

Williams: The rapid development of the UK solar industry since April 2010 has seen a lot of benefits for the industry but also a number of problems to do with a lack of reliable information.  The provision of good quality information on cost, quality and energy generation for a range of different projects will support the industry to grow, mature and thrive.

Milk the Sun: How will the NSC reach out to international players? How does the NSC plan on contributing research to the international PV market?

Williams: We are actively pursuing a number of international opportunities through BRE’s existing network of contacts and also via UK government departments such as UKTI (UK Trade and Investment).

Milk the Sun: Do you think that UK public opinion on solar energy is dependent on their knowledge of solar energy?  Will research acquired by the NSC be transparent and accessible to the public?

Williams: The public perception of all type of energy generators or energy savers is subject to many different influences, some of which bear little resemblance to science or good quality data.  All BRE National Solar Centre key outputs will be available to the public.

Milk the Sun: What do you expect to see in UK’s future government policies in regards to the solar energy sector?

Williams:  We have been very pleased to see the UK government’s continuing support of the solar industry.  Clearly energy security, UK jobs and low carbon generation are viewed as being key contributions from the UK solar industry.  As such I would expect to see support in the UK to continue, as long as the industry can focus on quality and innovation.

Milk the Sun: What do you predict for the future of UK’s solar PV market, especially with the EU’s tariff on Chinese solar modules?

Williams:  The job for the BRE National Solar Centre is to focus on reliable evidence produced by independent research and testing.   By providing this the industry will continue to develop in the future.

Milk the Sun would like to thank Mr. Williams for a compelling interview and are excited to see how the NSC will change the UK solar industry.

Opinion: The Aesthetics of Solar Panels – The Beauty of Symmetry

Please check out Second Silicon where the original article was written.

Since the mass production of steel, nothing will change the earth’s urban and rural landscapes as much as solar panels may. Permanent fixtures to urban life such as train tracks, cars, skyscrapers, and even lamp posts have altered the Earth’s landscape and some have suggested it has made the planet seem a little smaller, less unique. Perhaps, to a lesser extent, solar panels may do the same. Some people, especially traditionalists are still resisting this change but it is inevitable – solar panels are taking over our roofs. Those against solar panels complain it would make their houses look like factories. However, the majority of the world realizes the importance and the extent of the value that solar panels add to a home and a business. Nevertheless, there are definitely ways to make solar panels more appealing and even artistic. Some artists have even created various artistic works based on solar installations. More importantly, for our buildings, we must find a way to combine form and function because solar is not going anywhere.

Residential Solar

In a somewhat surprising move, homeowners’ associations have been the primary sticklers against solar installations. Although, they have often been connected with nitpicking small details – green lawns and perfectly trimmed hedges – it is surprising that their traditional aesthetic views have caused them to avoid solar energy. Some have severely restricted or even outright banned solar panel installations. However, in early 2012, nearly 24 states in the US have prevented homeowners associations and local governments from banning solar. This issue has even created some lawsuits. Nevertheless, there are groups that are helping solar energy expand. Some associations are helping fund solar energy for housing communities and in other countries, like Germany, solar panels have already become the norm.  Ideally, we could create beautiful buildings with integrated solar panels, which is what the biennial Solar Decathlon teams are trying to do. The US Department of Energy sponsors this event for student teams that design houses based on “affordability, consumer appeal, design excellence with optimal energy production and maximum efficiency”.  Perhaps, it will become a standard for future housing – a home that looks nice and works well.

Urban Cities

Something new that we may come to see in larger cities will be solar panels on skyscrapers. Or perhaps, not at all. Realistically, most people will not be able to see any solar panels installed on the tops of these buildings and will not even know they are present. These panels will not disrupt the modern and regal appearance of skyscrapers.

The Willis Tower in Chicago (previously the Sears Tower) has motioned to exchange their old windows with solar panels. A prototype was installed in 2011 by Pythagoras Solar. A massive energy skyscraper, a downdraft tower, has been proposed for the Arizona-Mexico border which could really alter the future functionality of skyscrapers. New technologies such as spray-on solar panels and see-through technologies are improving and could really change the appearance of solar panels we think of today.

Companies Using Solar

Many businesses have also moved towards using solar, Google and Apple being two of its more famous supporters. Google recently invested $12 million in big solar projects in South Africa. Apple owns the largest privately owned solar array in the world. Their solar farm in North Carolina covers 100 acres with a capacity of 12MW, with an additional 100 acres to be purchased for more solar farms. Generally, many businesses will continue to install solar panels that will go unnoticed on flat roofs, while allowing them to save money on electricity.

Aesthetic Issues and the Future

One of the issues surrounding the aesthetics of installing solar panels is the lack of symmetry. Putting solar panels on north-facing roofs is pointless, often panels are installed only on southern (east or west too) facing walls. To create symmetry, installers could place faux solar panels but this could be more costly than necessary. Despite the absence of perfect symmetry, solar panels will continue to take over our roofs. Architects are integrating solar panels into new houses, combining form and function. Solar energy is becoming more affordable every day with government incentives, increasing fossil fuel prices, and decreasing solar panel prices. Even the utilities themselves have admitted that they need to alter their age-old models to accommodate solar and other renewable energies. We are witnessing a great energy paradigm shift, some sort of revolution. Solar is no longer “on the rise”, it is already here and we need to take full advantage of its possibilities.

Additional Sources: Huffington Post, Solar Decathlon

 

 

 

Opinion: Fundamental Changes in the Energy Industry are Necessary for the Growth of Solar Energy

The solar photovoltaic (PV) movement is moving rapidly. In California alone, there are 150 000 unique distributed solar PV systems totaling a capacity of 1.5GW. In 2012, the United States connected a 1.2GW of net metered solar projects, an increase of 46% from 2011. There is a total capacity of 3.5GW of net metered PV systems in America, or the equivalent of 3.5 nuclear plants. The incentives surrounding the solar PV projects have kickstarted the growth in PV energy around the world. The growth in the solar industry is also said to be partially due to third party ownership and financing.

A fundamental shift in the current energy industry for the independence of solar energy iStockphoto.com©Richard Schmidt-Zuper

Even major utility companies have noticed the strong emergence of the solar industry. NRG Energy has started to shift their sights towards solar energy. Once, the company’s main focus was on providing central thermal power to distribution utilities but today, they are offering solar and natural gas products directly to their consumers. An example such as NRG Energy is evidence of a fundamental market shift in the energy industry. Such companies and especially, vertically integrated and investor-owned utilities are aware that their futures may be in jeopardy. The increase in distributed energy systems, such as rooftop and community solar projects, has and will continue to shift the basic framework of the energy industry – business models, economics, and operations. Ultimately, the growth in solar energy could lead to conflicts within the existing market. There are players in the industry who are obviously unhappy about the way solar has altered an archaic energy industry, could the growth in solar ironically become a barrier to itself and other renewable energies?

The Problem with the Current and the Need for the Future

The initial growth of solar energy is undoubtedly due to the incentives that have been offered to jump start the industry. Could these supportive polices, tax benefits, renewable energy credits, and net metering programs lead to completely new problems in the industry? Although, the decreasing costs of solar panels are making solar energy more feasible, the early incentives and subsidies will be unable to sustain this industry long-term. There is a need to turn towards other market mechanisms.

So far, the focus has remained mostly on low-cost strategies to deploy solar energy onto the grid without considering the performance costs and the benefits of integrating solar into the grid. The current utility pricing approach raises other issues as the industry becomes more complex. It consists of a bundled pricing which includes generation, transmission, and distribution – a single price per kWh. This rate program does not allow for pricing signals to indicate the benefits to the customer or the utility. Important factors that impact the grid such as location and timing of extra solar resources, ie. peak hours, are not clarified. This old model is unable to quantify, optimize, or capture value streams for distributed renewable energy networks. The lack of transparency and unwillingness to change has lead utilities to see PV as a threat to their profits – revenue losses, increased transaction costs, essentially, an emerging industry that is creating major challenges to their fundamental operation.

There needs to be a realignment of the regulatory ecosystem to allow for proper and long-term transition of the energy industry towards renewable energy systems. Transparency between the customers, utilities, distributed renewable resource like solar or wind should allow for a better understanding and more efficient system. Consideration of location and timing of PV installations are essential to understand and increase the potential value of the system. For example, solar can be used to minimize grid congestion. Using predictive modeling, real time data, advanced inverters, storage systems can significantly increase its value as well. Rocky Mountain Institute’s Innovative Solar Business Model (ISBM) allows for better analysis into the costs and values of PV energy, among other technologies. To succeed, solar energy must move away from being a passive energy source that functions mostly during peak hours and towards an independent source of energy that could shape the future.

Source: Renewable Energy World

Liquidity management gains importance for photovoltaic project developers

Years after the boom in PV project development, the current status of the European solar industry is forcing many developers to realize the importance of liquidity management. This new challenge is not due to technical or project-related risks; obstacles which the sector has mastered through experience gained in the realization of numerous projects over recent years. In the past the main financial challenge has been the search for investors and equity rather than liquidity management.

The resulting professionalism in the PV sector created a stronger division of labor within the implementation phase of solar projects, due in part to cost-pressure from sinking feed-in tariffs. This, in turn, corresponds to higher numbers of customer/contractor constellations throughout project stages, and the resulting payment obligations.
In the meantime, the solar industry has also been suffering from worsening payment conditions, a phenomenon likely due to low profit margins. These insecure cash-flows lead to the depreciation of project-rights portfolios still in the implementation phase.
This situation creates new cash and risk management challenges for companies, forcing closer cash-flow and debtor monitoring within ongoing projects.

For developers in search of liquid vehicles for strengthening capital cover and preventing liquidity bottlenecks, two options readily present themselves, provided they act early:

The first is the re-selling of project rights, with the second being the timely extraction of liquidity reserves from existing portfolio PV installations.

These may seem like radical steps, but they actually represent the realistic revaluation of one’s project-pipeline in light of internal business capacities, as well as the margin-caused implementation probability for the contractor in the context of limited half-life periods of project rights. Unrealizable projects should be identified and offered for sale as quickly as possible, so that they can generate at least a small profit.

“We have been able to assist numerous businesses in critically reviewing their project pipelines and helping them sell unrealizable projects via our market place. In the current economic situation the time-factor plays a significant role. Thus it makes sense to realistically reevaluate the implementation opportunities of certain pipeline projects.” – Felix Krause CEO of Milk the Sun.

The procurement of liquidity for the prevention of insolvency is paramount, affecting portfolio assets originally destined for longer investment. Often, a top question is the installation’s valuation, as the target sales price can be controversial. For this purpose we offer as an indicator our free PV sales value calculator.

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