{"id":116465,"date":"2013-11-20T16:19:05","date_gmt":"2013-11-21T00:19:05","guid":{"rendered":"https:\/\/www.sma-sunny.com\/?p=116465"},"modified":"2021-01-04T08:23:55","modified_gmt":"2021-01-04T07:23:55","slug":"redefining-bankability-in-utility-scale-pv","status":"publish","type":"post","link":"https:\/\/www.sma-sunny.com\/us\/redefining-bankability-in-utility-scale-pv\/","title":{"rendered":"Redefining Bankability in Utility-Scale PV"},"content":{"rendered":"

Over the last two years solar equipment prices have plummeted by as much as 70 percent, making utility-scale PV plants a more attractive option for investors of all types. However, project \ufb01nancing still remains a complex and costly task for many utility- scale PV system developers.<\/p>\n

<\/p>\n

U.S. Growth & Projections<\/b><\/h5>\n
\"A<\/a>

A variety of criteria determine a company’s bankability<\/p><\/div>\n

The United States is expected to see a 30 percent growth in PV installations by the end of 2013, according to a recent study by SEIA<\/a> and GTM Research<\/a>. The report states that the utility segment of PV completed 38 total projects in the second quarter of 2013, totaling 452 MW.<\/p>\n

While PV plant costs have been falling at an unprecedented rate, price alone does not eliminate all potential risks for investors. What truly makes a PV plant \u201cbankable\u201d? \u00a0We will examine that topic in the following article.<\/p>\n

Despite the hugely successful build-out of PV in Europe over the last 10 years, due to a lack of familiarity with technologies and suppliers, U.S. market investors continue to view PV as a higher-risk investment than other options for their capital.<\/p>\n

\"With<\/a>

With 30 years of experience, SMA continues to be the global solar inverter manufacturer<\/p><\/div>\n

Various solar incentives\u2014such as state and utility Renewable\u00a0Portfolio Standards\u00a0(RPS), the Federal Investment Tax Credit (ITC), and the post-recession emergence\u00a0of \ufb01nancial\u00a0institutions with suitable tax appetites\u2014have helped create an environment where solar project developers\u00a0and their equity and debt partners can get deals done. However, project \ufb01nancing remains a complex and costly task for many utility-scale PV system developers.<\/p>\n

Binary Metric or Sliding Index?<\/b><\/h5>\n

To help facilitate these deals, suppliers have relied on \u201cbankability\u201d\u00a0of their products and technologies.\u00a0 However,\u00a0despite this apparent \ufb02ight to quality, project transaction costs remain high. Suppliers do themselves a disservice by presenting the term \u201cbankability\u201d\u00a0as a binary metric: either a product or supplier is bankable or not. In reality, bankability should be an index, with suppliers placed along a continuum of risk.<\/p>\n

Projects built with technologies\u00a0from lower-risk suppliers should be afforded a decreased cost of capital than those from higher-risk suppliers. Project developers\u00a0and their \ufb01nance partners should benchmark these risks to create a bankability index.<\/p>\n

The Key to Performance and Risk Mitigation<\/b><\/h5>\n
\"An<\/a>

An inverter is the “brain” of the PV plant, playing a critical role in energy production, delivery schedule, management, and grid integrity.<\/p><\/div>\n

In utility-scale PV, all those gigawatts of direct current must \ufb02ow through inverters to ultimately reach the grid. Inverters, therefore, play\u00a0a central role in project risk mitigation. Many\u00a0of the well- known components of risk are directly linked to the PV inverter: energy production\u00a0(off-take), delivery schedule, operations, management, and grid integrity, to name a few. In PV, as with most investments, best practices dictate allocating these risks to the parties best capable\u00a0of managing them.<\/p>\n

When developing a bankability index, \ufb01nancial strength and stability are foremost factors. Utility- scale PV investments typically\u00a0have a 20-year design life, if not longer. Developers and \ufb01nance partners with output guarantees and liquidated damages\u00a0 on the line look to inverter suppliers to back up these guarantees either with extended warrantees or careful due diligence\u00a0 to provide\u00a0 the assurance that the plant will still be operating\u00a0 in year 10, 20 or 30. In this area, one trend in which solar PV can be expected\u00a0 to follow\u00a0 the wind industry\u2019s lead is the decreased\u00a0 reliance on extended warranties in favor of more stringent supplier selection and due diligence. Among others, project stakeholders should look to common \ufb01nancial\u00a0metrics, such as debt-to-capital ratio and cash \ufb02ow per share, to properly understand the relative stabilities of inverter suppliers.<\/p>\n

\"Developers<\/a>

Developers can reduce risks by looking for suppliers demonstrating technology leadership.<\/p><\/div>\n

Technology Leadership<\/b><\/h5>\n

Developers\u00a0should also insist on technology leadership. Unlike solar modules, racking systems and other balance-of-system components, leading inverter suppliers can differentiate themselves by the dynamic performance of their technology, which directly affects energy yield and project returns. Although initial capital costs are quite close among leading inverter companies, energy harvest over the project lifetime can vary signi\ufb01cantly. Developers, investors, utility off-takers and other stakeholders should rely on leveled cost of energy, Posit analysis and other long-term metrics in order to properly compare proposals from one supplier to another and reduce the risk of insu\ufb03cient production to meet contractual obligations.<\/p>\n

Global Reach<\/b><\/h5>\n
\"SMA<\/a>

SMA has experience in PV markets around the globe with inverters installed in all types of climates and connected to all types of grids.<\/p><\/div>\n

Another critical factor is whether inverter technology suppliers have global reach with su\ufb03cient local resources. As the solar market moves rapidly\u00a0beyond\u00a0its reliance on Germany and other countries\u2014like the U.S., China, Japan and South Africa\u2014become meaningful consumption markets, developers themselves must continue\u00a0to go global in order to achieve\u00a0best-in-class cost structures. Engineers and plant designers who can rely on a single, stable set of products, regardless of project location, can reduce the risk of margin erosion as their businesses scale.<\/p>\n

\"SMA's<\/a>

SMA’s Compact MV Power Platform utilizes leading technology to increase yield, improve reliability, and reduce system costs.<\/p><\/div>\n

PV Industry Focus<\/b><\/h5>\n

Also, inverter suppliers\u00a0must have su\ufb03cient focus and critical\u00a0mass. As the solar market achieves\u00a0truly global scale, established energy and industrial corporations have entered the market through acquisitions of smaller inverter suppliers. Since power plant development is a capital-intensive endeavor, these new entrants can be viewed in a positive light. However, one should look carefully at the revenue and pro\ufb01t contribution of the inverter business relative to the overall size of the company. Will the parent company reinvest pro\ufb01ts in the growth of the PV industry or will the inverter business suffer in contention for internal investment?<\/p>\n

Experience Matters<\/b><\/h5>\n

Finally, developers should leverage the experience of their suppliers. Every PV project is unique, and small variations in module technology, site conditions\u00a0or utility interconnect requirements can affect the performance\u00a0of the inverter and, therefore, project returns. Developers should ask for detailed references from suppliers and be cautious of new entrants promising\u00a0oversized\u00a0returns with technology unproven over the long term.<\/p>\n

As the utility-scale PV industry achieves true scale, accurate\u00a0risk assessment and mitigation in project \ufb01nancing is critical in enabling developers to deliver consistent returns. Developers who effectively benchmark suppliers using metrics like a bankability index can shorten the \ufb01nance cycle, improve returns and increase project turnover.<\/p>\n

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<\/div>","protected":false},"excerpt":{"rendered":"

Over the last two years solar equipment prices have plummeted by as much as 70 percent, making utility-scale PV plants…<\/p>\n","protected":false},"author":43,"featured_media":126207,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1314],"tags":[1596,1598,1597,1372,1599,1600],"class_list":["post-116465","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-company","tag-bankability","tag-investor","tag-project-development","tag-pv","tag-risk","tag-utility"],"acf":[],"yoast_head":"\nRedefining Bankability in Utility-Scale PV - Sunny. 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