renewable energy Posts

Guest Article: How to Tune Your German Green Energy Asset Without Getting Sun Burnt in the Attempt

How can the returns on green energy assets be amplified without refinancing? What can be done to eliminate those “love handles” on wind or solar parks? For some readers, what follows will probably be a review of the basics of managing a renewable energy asset in general, however, I will highlight a few focus areas  that can generate further value, considering nuances of the German renewable energy regime (Erneuerbare Energien Gesetz – EEG). Perhaps as a backdrop, I have been focusing on the photovoltaic (PV) business (particularly large parks), yet, the EEG itself covers a much broader spectrum of technologies from hydropower and different types of biogases, to biomass, geothermal as well as wind (onshore, offshore, repowering), the tactics below, a priori, being applicable to all of them.

Martin Supancic writing about how to Tune Your German Green Energy Asset Without Getting Sun Burnt in the Attempt

German renewable energy assets are quite appealing due to the stable regulatory framework, although costs are mounting for German households. As a consequence, the pressure is growing for painful political decisions to be taken in order to curb this phenomenon. The surge of German renewable investments over the past few years has led to a gradual adjustment of the corresponding Feed-in-Tariffs (FiTs) in an attempt to disincentivise the amount of newly built capacity, especially in the form of large ground-mounted projects going forward. Thus, investors who were lucky enough to fetch a park in recent months have had to conform themselves to ever lower returns.

Finding strategies to lift the relatively low equity IRRs (5% to 6%) is challenging but not impossible. Buyers of PV parks prior to Jan. 2012 will probably find it easier to uncover hidden value – during the heydays of investment frenzy, project developers, EPCs and O&M contractors could easily turn a quick buck while dictating the transaction terms. Demand was gleaming hot and projects quickly sold in competitive bidding processes, even before being completed, to ensure the highest possible FiTs. As the tariffs dropped, all stakeholders adjusted to the circumstances: PV module prices fell substantially (e.g. global glut, new manufacturing capacity being added in China…), EPC and O&M costs came down to permit attractive prices perMWp, while project developers reined in their margins. As a result, both project costs (EUR/MWp) and O&M prices are quite different today compared to those two or more years ago, opening the door to optimisation potentials.

When we examine options allowing investors to extract further value from their existing assets, we can differentiate between pure financial (e.g. refinancing) and operational measures – I will focus on the latter. The typical “P&L” of a PV park is a good starting point:

– Sales
– Maintenance
– Insurance
– Miscellaneous Expenses: Accounting, Electricity…

Sales: Since the first of January2012 the revised EEG 2012 offers under §33b the opportunity to directly market renewable energy via the so-called “Market Bonus Scheme”, a limited-time opportunity. Provided the park is equipped with remote control devices, allowing it to be decoupled from the grid (e.g. negative market prices), the owners may earn two small margins (total approximately 1.4-1.7%) on top of the FiTs. Sounds like peanuts but for parks upwards of 20 MW, this can easily mean some EUR +100,000 over 18 months.

Maintenance: This is a more complex issue, where risk, covered/non-covered expenses and legal contracts must careful be considered. The result will depend on the existing supplieragreements, options to premature rescissions, and particularly bank consent, assuming the assets are debt financed. Its weight in overall operating costs is significant, thus, even a 1 or 2 EUR/kWp reduction positively impacts the recurring cash flow.

Insurance: As a percentage of operating costs, this is a relatively small item but it too, can be optimized, although absolute savings will be more limited.

Miscellaneous Expenses: This is a bit of a rag bag, with limited potential for a “hair cut”.

Stay tuned as subsequent blog posts shed additional light on the revenue-enhancing and cost cutting potential available to German green asset owners. Looking forward to your comments and particularly for your experiences in executing the mentioned optimization measures.

About the Author

Martin Supancic (37) is external financial advisor to Sojitz Europe plc, the European operations of Japanese trading company Sojitz Corp., with offices on all continents and in major European business capitals. He analyzes photovoltaic investments in Europe and Latin America, and has closed transactions worth 27 MW (more than EUR 65 mill.). In addition, he scouts for innovative cleantech start-ups, helping them grow their sales and arrange venture capital financing. Prior to advising Sojitz Europe plc, Martin advised companies in their internationalization efforts, headed international corporate development at now defunct Spanish biodiesel start-up Green Fuel Corporacion, SA, (shareholders included Endesa, Tecnicas Reunidas, Grupo TSK) and worked on multi sector deals, incl. wind and solar parks, at Deloitte Corporate Finance/Transaction Advisory Services in Madrid, Spain.

Photovoltaics in Canada: Ontario

Area: 1,076,395 km2
Population
: 13.5 million
Installed Photovoltaics
: 289 MW (2011)

Ontario has a clear lead in Canada’s solar photovoltaic (PV) industry and is even one of the leaders within North America. Approximately 91% of Canada’s 289 MW of PV was installed in Ontario alone, in 2011. Ontario is a leader in Canada’s renewable energy race due to its various procurement programs. These programs have all lead to increases in solar energy investment. It also helps that southern Ontario has one of the greatest solar resources in Canada.

Green Energy and Green Economy Act

In May 2009, Ontario’s government passed the Green Energy and Green Economy Act (GEA). Its main goals are to:

– Promote growth in renewable energy production such as  solar, wind, and biomass;
– Encourage energy conservation through savings and well-managed household energy expenditures;
– Create 50,000 jobs for people in Ontario within its first three years.

Ontario is one of the leaders of solar energy in North America. iStockphoto.com©xyno

Ontario is one of the leaders of solar energy in North America. iStockphoto.com©xyno

The GEA promotes energy conservation and attempts to build an economy based on clean energy. This act makes energy efficiency a key part of Ontario’s building codes and creates energy efficiency standards for household appliances. It also works with local electricity utilities to achieve energy conservation targets. Nevertheless, the GEA has been surrounded by some controversy as it demands a certain amount of labour and manufacturing to be done within Ontario in order to receive the tariffs. Ultimately, the GEA is part of Ontario’s effort to protect the environment and prevent climate change.

Ontario’s Feed-in Tariff Programs

One of the GEA’s most prominent features is its Feed-in Tariff (FIT) Program that acts to support its goals. In October 2009, the Renewable Energy Standard Offer Program (RESOP) was replaced by Ontario’s FIT program. RESOP was an incentive offered through the Ontario Power Authority (OPA) which enabled small-scale energy producers to sell their renewable power to the grid at a fixed price.

The FIT program offers a guaranteed funding structure through competitive pricing and long-term contracts for energy that come from renewable sources. Cansia, a national trade organization for Canadian solar companies, stated that FIT is the, “…single largest climate change initiative in North America.” Eligible electricity generators can sign a contract with OPA to sell energy produced by a renewable energy source and receive a fixed amount per kilowatt hour for 20 years. The FIT program is designated for larger solar projects while the microFIT program is intended for installations with a 10 kilowatt capacity or less (ie. homeowners, farmers, and small business owners). The tariff rates are reviewed annually and have decreased since its establishment. As of April 5, 2012, the FIT and microFIT rates are as follows in Table 1. A significant number of PV projects have been installed since FIT was introduced; Table 2 indicates the number of contracts and FIT applications in kilowatts. Approximately 75% of FIT projects are ground-mounted. This program also enabled one of the largest solar parks in the world to be built in Sarnia, Ontario at 97MW.

Table 1. Tariff rates for solar photovoltaic installations for FIT and microFIT program as of April 5, 2012.

Fuel

Project Size

Price (cent/kWh)

Solar Rooftop ≤10kW

54.9

>10 kW ≤100 kW

54.8

>100 kW ≤500 kW

53.9

>500 kW

48.7

Solar Groundmount ≤10 kW

44.5

>10 kW ≤500 kW

38.8

>500 kW ≤5MW

35.0

>5MW

34.7

Table 2. FIT contracts and large FIT applications as of January 31, 2013 (kW for contracts and applications).

Energy Type

Total Contracts (kW)

Existing Applications (kW)

Solar (rooftop)

250,722

63,864

Solar (ground-mounted)

938,571

3,786,710

Net Metering

Like most other provinces in Canada, Ontario has a net metering program available for those generating their own power through a renewable source. This program enables consumers to be paid for any excess electricity that is produced. The consumer connects to a distribution company that will read the meter and receive a credit for the excess power being supplied to the grid. Only generator facilities with less than 500 kilowatts are included in this program

Ontario’s Future

A shift in electricity supply in Ontario is expected in the near future. By 2030, 70% of electricity generation must occur in new or refurbished facilities. The demand for electricity will also increase, regardless of energy conservation measures. Ontario has developed the Long-Term Energy Plan (LTEP) to accommodate the change in Ontario’s energy supply and demand. LTEP calls for the majority of energy produced to switch to different sources such as solar and wind power. Solar PV is expected to contribute 1.5% of total generation by 2030. Ontario’s decision to phase out coal-generated energy by 2014 has also been revolutionary in promoting the move towards renewable energy. Ontario’s programs have attracted a significant amount of private investors towards the PV market. Its PV market is expected to generate $12.9 billion of total private investments by 2018.

Series in Photovoltaics in Canada
1. Photovoltaics in Canada – Introduction
2. Ontario

Source: Cansia, Ontario Power of Authority

 

Solar Energy is a Finally a Net Energy Producer

There has always been somewhat of an unsaid irony that so much fossil-fuel emitting energy is required to create solar panels, a fossil-fuel free energy source. Recently, research from Standford University has found that the amount of clean energy produced from already installed solar panels is finally exceeding the amount of energy that was required to manufacture the panels.

There are high energy costs to purify silicon.

There are high energy costs to purify silicon.

The amount of solar energy produced from all solar sources such as residential, industrial, and commercial, was compared to the energetic costs of manufacturing and installing PV systems as well as the costs required to maintain the systems. Michael Dale, a postdoctoral fellow from Stanford’s Global Climate Energy Project (GCEP) estimated that the world will reach net energy benefit by 2015 and at latest, 2020. Just five years ago, the manufacturing process was using 75% more energy than it actually produced. That value has decreased immensely due to continually increasing efficiency in the production of solar cells.

The manufacturing process of a solar panel can be heavily energy intensive. Approximately 90% of solar modules on the market are silicon-based. To extract silicon, silica rock must be melted at over 1500°C, often using coal-fired plants. Afterwards, the pure silicon must be melted again to obtain a crystalline structure, with an average purity of 99.9999%. Nevertheless, technology has improved and the process of making a solar cell has become more efficient. Thinner silicon wafers and less highly refined material for silicon feedstock are now used, while less expensive material is being lost throughout manufacturing process. The use of other elements for solar thin films such as copper, zinc, tin, and carbon can also be improved. The energy required to produce solar panels will likely continue to decrease over time.

The solar industry is still aiming primarily at reducing financial costs rather than energetic costs but there are several ways to reduce the latter. An easy solution is to place more PV installations in regions with greater solar resources. Using less material or switching to panels that have lower energy costs than silicon cells are also viable options. Other existing cells based on cadmium telluride and copper indium gallium diselenide can be also used. Together with silicon cells, these solar cells make up over 99% of the current market. Overall, Dale forsees a decline in the energy costs to manufacture panels, more durable panels, and more efficient conversion of sunlight with new technologies. Net energy production measurements should be taken into account in current and future renewable technologies to produce effective energy solutions. GCEP is also looking to apply these measurements to storage technologies and wind energy.

You can also see Stanford’s video on this topic

Source: Phys.org; Environmental Science and Technology

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