solar 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 – An Introduction

Canada is one of the highest energy consumers per capita in the world. Due to its geography, Canada is currently the world’s second largest producer of hydroelectricity and is sixth in wind power generation. Nevertheless, solar energy is also expanding rapidly in Canada and especially, in Ontario. In 2011, there was 289 MWDC photovoltaic (PV) capacity installed throughout the country representing 335 GWh annually.

Canada has a significant amount of annual solar radiation, much greater than that of Germany’s the leader in solar energy. Ontario, Quebec, and the Prairies are leading the country in solar resources. Solar potential tends to accumulate in the southern regions but is much lower in the territories due to their high latitude. Canada’s small population is most scattered throughout the country with very few densely populated regions besides the Greater Toronto Area, Vancouver, and Montreal. In the last decade, PV installations were concentrated in off-grid systems for purposes such as navigational aids, remotes homes, and telecommunication.  These systems made up almost 90% of the solar capacity in Canada in 2009. Off-grid system remains prominent in Canada but will decrease in its market share as grid-connected systems continue to grow swiftly.

Government Regulations

Federal incentives are lacking in Canada, with the exception of the Income Tax Act’s Accelerated Capital Cost Allowance for certain PV systems. Solar energy legislature is almost always left solely to the provincial government. Most provinces in Canada have Net Metering programs that allow smaller renewable energy generating units to connect to the grid system.

Ontario has so far been the clear winner in Canada’s solar race. Ontario’s Renewable Energy Standard Offer Program (RESOP) and feed in tariff (FIT and microFIT) program has had substantial support. In 2010, the public budget for photovoltaics in Canada was $61.8 million with the majority funding Ontario’s solar efforts. Formal solar networks and testing facilities for panels have also been established, funded by both federal and provincial governments, which have worked to increase the collaborations and PV innovations throughout Canada.

Community

In 2010, Sarnia, Ontario’s solar plant, Sarnia Solar, was considered the world’s largest solar plant. It has since been exceeded by other plants around the world. It has an installed capacity of 97MW and consists of 635 acres of modules, approximately 1.3 million thin film panels. Municipal governments and communities have also worked towards developing renewable energy. House owners now view the addition of a PV system as a normal house upgrade and base it on affordability and reductions in environmental impact. In 2007, the Drake Landing Solar Community was completed in Okotoks, Alberta. It is the first community heated by a district system and is able to store energy generated during the summer for the winter months. This allows 90% of each home’s heating to be generated directly from solar energy.

Despite all this, Canada is still behind some of the major competitors. However, politicians all around Canada are aiming to reduce greenhouse gas emissions through use of renewable energies. New legislation such as Ontario’s Green Energy and Green Economy Act established in 2009 is also pushing the country towards a renewable energy  -based economy. As older electricity plants begin to degenerate and age, Canada is looking towards renewable energy to replace ever increasing energy demands. Canada’s vast landscape is an unlimited resource for sustainable energy from renewable sources.

Check out the article on Ontario later on in the week which will expand on its legislation and accomplishments in solar energy.

Sources: Canmet, Cansia, DLSC, Pembina Institute