Solar PV Business Models and Key Policy Considerations

Solar PV Business Models and Key Policy Considerations

Sopitsuda Tongsopit, Ph.D.

Energy Research Institute, Chulalongkorn University

Presentation at

Singapore’s Future Solar PV Strategies Conference

April 9, 2015

Outline

1. Context:

Grid parity

Singapore vs. Thailand’s Context

2. Solar Business Models

3. Key Policy Considerations

4. Thailand’s Case Study

Solar Grid Parity Map

Source: Deutsche Bank estimates. https://www.db.com/cr/en/concrete-deutsche-bank-report-solar-grid-parity-in-a-low-oil-price-era.htm (March 10, 2015)

https://www.db.com/cr/en/concrete-deutsche-bank-report-solar-grid-parity-in-a-low-oil-price-era.htm


























Countries with Regions of Grid Parity

Deutsche Bank Securities Inc. 2015. Deutsche Bank’s 2015 solar outlook: accelerating investment and cost competitiveness. https://www.db.com/cr/en/concrete-deutsche-banks-2015-solar-outlook.htm. Accessed March 12, 2015.

Context for Innovative Rooftop PV Business Model Expansion

Singapore

• High reliance of natural gas for power generation (≈95%)1

• From 2005-2013, retail electricity rose by 5.1% (CAGR)2

• Average daily solar insolation: 4.55 kWh/m2/day

• Current solar power capacity: 25-30 MW

Thailand

• High reliance of natural gas for power generation (≈70%)

• Between 2005-2013, retail electricity rate rose by 3% (CAGR)

• Average daily solar insolation: 5.01 kWh/m2/day

• Current solar power capacity: 1,300 MW (end of 2014)

Source: 1. EMA. 2014. Singapore Energy Statistics 2014, Table 2.2 2. REC. 2014. Study on the Profitability of Commercial Self-Consumption Solar Installations in Singapore, http://www.recgroup.com/Documents/Downloadcenter/Solar%20product%20downloads/Solar%20Whitepapers/Solar_Study_Self_Consumption/Study_Self-Consumption_Singapore_Web_20141027.pdf?epslanguage=en

LCOE Solar Power in Thailand Approaching Grid Parity Scale THB/kWh USD/kWh

Utility-Scale (>1 MW)

3.77 0.12

Commercial (10 kW-1MW)

4.71 0.15

Residential (<1 kW) 5.17 0.16

Notes: 1. Average residential electricity tariff (Apr 2015): 4.07 THB/kWh (0.13 USD/kWh)

2. Assume investment cost for utility-scale, commercial-scale, and residential scale: 50, 65, 70 THB/Wp respectively

3. Assume D:E ratio = 75:25 for all scales, varying interest rates

4. Assume 1 USD = 32 THB

Grid Parity

Even when the numbers make sense, rooftop solar businesses do not automatically take off.

The right market conditions require policy push.

Existing Financing Options & Business Models for Rooftop Solar Systems

• Cash Purchase

• Bank Loans Self Financing

• Utility Loans (On-Bill Financing)

• Property Assessed Clean Energy (PACE) Utility and Public

Financing

• Crowdfunded Loan • Crowdfunded Leasing

Crowdfunding

• Solar Leasing

• Solar Power Purchase Agreements (PPA) Solar Service Models

• Solar Shares

• Roof Rental

• Community Solar, Etc. Other Models

Self Financing: Loan Structure

EPC

Bank Residential/ Commercial

Utility

Sale of electricity

Installation +

Maintenance

Investment Cost

Loan

Paid P + I

Key Success Factor Credit Risk Management

PPA

PACE Financing

EPC

Residential / Commercial

Municipality

Installation +

Maintenance

Investment Cost

Loan

Paid P + I with

Property Tax

Key Success Factor Lower interest rate/Longer

Loan Term Supportive Municipality

Offered in 31 U.S. states and Washington D.C.

Utility

Sale of Electricity or

Self-Consumption

Sale of Electricity or

Self-Consumption

Utility Financing: On-Bill Financing

EPC


Utility

Installation +

Maintenance

Investment Cost

Loan

Paid P + I through

Utility bill

Key Success Factor Lower risk of non-payment Supportive Utility

Offered by SCE, SMUD, Palo Alto Municipal Utility, and SDG&E in California; Hawaiian Electric Co

Crowdfunding Loan Structure

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I7 I8 I9 I10 I11

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I...

EPC

Residential /Commercial

Installation +

Maintenance

Investment Cost

Utility

Sale of electricity

Developer Company

Loan

Paid P + I

Repayment P+I Fund PPA

Key Success Factor Strong Platform Compliance to Legal

Framework

12

-Use of online communities to raise money from individuals to fund a project, initiative, or business.

-Investors/donors are typically ordinary people with little or no financial background. They invest because they want to support causes they believe in, more than seeking highest returns on money.

-Can be donations, lending, or investment in equities, but only donations face no regulations

-Proving to be a reliable and scalable solution – not just very early seed financing.

What is crowdfunding?

The Solar Mosaic model

13

-The projects are first set up as a solar PPA, lease, or loan, and contracted with a host. Then Solar Mosaic gets the word out to seek funding for the project.

-Once it’s fully funded by individual investors, Solar Mosaic provides a loan to developers at the rate of 5.5% and pays a guaranteed rate of return over specified period to the investors (e.g. 4.5 percent interest for 9-10 years).

-Solar Mosaic gets: 1 percent fee from investors, and loan origination fee from the borrower.

Solar Service Models: Leasing Structure

EPC

Leasing Company (Lessor)


(Lessee)

Utility

Sale of electricity Or Self-Consumption

Installation +

Maintenance

Investment Cost

Lease

Lease Payment

Key Success Factor Net Savings > Lease Fee Tax Incentives Financially strong leasing

companies

Investors

Fund Repayment P+I

Solar Leasing is a financing structure for rooftop solar systems in which…

• The developer (“solar lessor”) owns, installs, and operates a rooftop solar system on the site host’s property

• The site host (“solar lessee”) pays for the solar systems through monthly installments (fixed or escalating) and uses the solar electricity produced or sell it to receive FiT

• The site host receives benefits in terms of energy savings or FiT income

• Interest rates vary; The lease term is 15-20 years in the U.S. and potentially 3-10 years in Thailand (incentive structure highly affects interest and lease term)

• The Lessor provides performance guarantee and warranty against roof damage during the lease term

• Lessors in the U.S. include:

– Private companies (SolarCity, SunRun, Sungevity, SunPower, SunEdison)

– Utilities (Green Mountain Energy)

– Government’s fund (e.g., Connecticut Clean Energy Fund)

What is Solar Leasing?

Solar Service Models: PPA Structure

EPC

Solar PPA Company

Residential/ Commercial

Installation +

Maintenance

Investment Cost

Electrical supply

PPA

Key Success Factor LCOE of Solar < Price of Electricity System O&M Enabling Legal Framework

Investors

Fund Repayment P+I

payment

What is Solar PPA Model? • Similar to solar leasing model in that the

developer owns, installs, and operates a rooftop solar system on the site host’s property

• The only difference is that customers pay for power (kWh) the solar systems produce, as opposed to paying in monthly installments to lease the equipment.

Community Shared Solar

Electrical supply

Key Success Factor Cooperation with

utility Virtual net-metering

regulation

I

5

I

1

I

2

I

3

I

4

I

7

I

8

I

9

I

1

0

I

1

1

I

6

I.

..

Community Solar Array

Utility

On-Bill Credit

Purchase of panels

What is Community Shared Solar?

• There are variations in the structures, still being studied by US DOE.

• In one community shared model: – Customers (typically non-homeowners) have a share

in a solar farm by paying through cash/loan

– Solar electricity production is credited to the bills

– The developer earns profits from equipment mark-ups.

• Customers under master-sub metering scheme in Singapore can benefit from this business model.

Key Policy Considerations 1. Are government incentives necessary? Can the business models emerge and

expand on their own?

2. Regulatory issues in liberalized vs. non-liberalized markets

– Will third-party owned systems be subject to regulation by the regulator?

– What kinds of permits are required? From which parties?

3. Presence and details of net-metering regulations

– Rate

– Fixed or escalated

– Rolling credit timeframe

– Capacity Cap

4. Roles of distribution and retail companies

– Invest

– O&M service

– Financing

5. Roles of policymakers/regulators

Key Policy Considerations (1) 1. Are government incentives necessary? Can the business models emerge and expand on their own?

– In Singapore, “solar leasing” model has already emerged at the LCOE that is competitive with grid electricity

– However, more incentives can rapidly scale up the market. An example is the U.S. is the Investment Tax Credit (equivalent to 30% of the installed cost , available to system owners)

– Existing incentives in Thailand:

Board of Investment (BOI) tax incentive scheme: Three–year corporate income tax exemption on the tax base of an existing project, accounting for 50 percent of the investment cost of PV, excluding cost of land and working capital.

Key Policy Considerations (2) 2. Regulatory issues in liberalized vs. non-liberalized markets

– Will third-party owned systems be subject to regulation by the regulator? • In liberalized Singapore market, retail customers that have consumer

choice of their power providers (contestable customers) can choose to purchase power from a solar leasing company or from other suppliers or both.

• In partially liberalized power market of Thailand, it is not clear whether retail customers can purchase electricity from an entity other than the monopoly utility in their service areas.

– What kinds of permits are required? From which parties? • Solar lessor in Singapore: is considered a system owner and requires

wholesaler (generation) license from the EMA if the generation is more than 1 MW and is connected to the grid ; Below 1 MW, the generator is exempted from licensing (EMA, 2014; EMA and Building and Construction Authority, 2014)

• Solar lessor in Thailand: same permitting requirements but may also need the “power selling” license

3. Presence and details of net-metering regulations

– Rate: retail, wholesale, or others

– Rolling credit timeframe (hourly, daily, monthly, yearly)

– Cap of Capacity

• kW cap per system

• System-wide program cap (e.g., (e.g., 0.2% of peak demand in Georgia,

15% of peak demand in Vermont)

• Cap per circuit (e.g., % of peak demand in each circuit)

Key Policy Considerations (3)

4. Roles of Distribution and Retail Companies • In liberalized market, retail companies can be active players in

innovative rooftop solar PV businesses

• In non-liberalized market, distribution companies may:

– Invest in rooftop solar businesses

– Provide O&M service

– Provide Financing (e.g., on-bill financing)


4. Roles of Policy Makers/Regulators:

• Singapore’s several initiatives to accommodate rooftop solar PV :

– For systems <1 MW, streamlining the process of selling electricity to

the grid

– For larger systems, setting a market participation framework and

pricing schemes

– Solar PV Handbook

• Thailand is in the process of drafting a net-metering regulation;

crowdfunding regulation

• Virtual net-metering offers opportunities for residents in public housing to

earn savings from solar power


Thailand’s Case Study

Hydro 9.67%

Lignite & Coal 12.53%

Natural Gas 66.52%

Solar PV 2.26%

Wind 0.61%

Biomass 6.37%

Hydro

Fuel Oil

Diesel

Lignite & Coal

Natural Gas

Geothermal

Solar PV

Wind

Cogeneration

MSW

Biogas

Biomass

Share of Installed Capacity by Fuel type, 2013 Source: Department of Alternative Energy Development and Efficiency (DEDE), Ministry of Energy

Renewable Energy in Thailand

Hydro 3.330%

Diesel 0.125%

Lignite & Coal 20.927%

Natural Gas 70.556%

Solar Cell

0.553%

Wind 0.209%

MSW 0.094%

Biogas 0.227%

Biomass 2.800%

Hydro

Fuel Oil

Diesel

Lignite & Coal

Natural Gas

Geothermal

Solar Cell

Wind

Cogeneration

MSW

Biogas

Biomass

Black Liquor

Waste Gas

Share of Generation by Fuel in 2013 (MWh)

Source: Department of Alternative Energy Development and Efficiency (DEDE), Ministry of Energy

Total = 168,477,511.462 MWh Share of renewables in total share of MWh = 4% (Excluding Hydro)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Policy Initiation

Change of Rates 6.5 Baht/kWh

Solar Rooftop 6.16 – 6.96 Baht/kWh

1st Implementation: 8 Baht/kWh

15-year Plan (REDP) Solar Target: 500 MW

by 2022

10-year Plan (AEDP) Solar Target: 2000 MW by

2021

Change of Rates 5.66 - 6.85 Baht/kWh

(Draft) 20-year Plan Solar Target: ….. MW by

2036

Adder Scheme Feed-In-Tariff Scheme

3 Phases of Thailand’s Solar Policy and Support Schemes

On-Grid Solar Installation Capacity, 2006-2014 (attributable to the Adder Scheme)

Source: Analyzed from VSPP, SPP data from EGAT, PEA and MEA

2006 2007 2008 2009 2010 2011 2012 2013 2014

Solar 0.01 1.09 1.78 7.72 26.29 102.97 353.91 775.94 1268.8

0

200

400

600

800

1,000

1,200

1,400MW

Solar

On-Grid Solar Power in Different Countries by Scale of Installations

76%

97%

9%

19%

13%

19%

2%

81%

31%

1.26%

5%

1%

10%

50%

87%

98.73%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

UK

Italy

Germany

USA

Malaysia

Thailand

Residential-Scale Commercial- and Industrial-Scale Utility-Scale

(209 MW)

(776 MW)

(14,528 MW)

(507 MW)

(1,848 MW)

(24,800 MW)

Notes: status at various dates---UK (March, 2014); Italy (July, 2014), USA (first half, 2014); Malaysia (Jan 2014); Thailand (Dec 2013); Germany (2011)

Changing conditions:

3.1 Declining solar PV module prices

3.2 Rooftop FiT in 2013, followed by net-metering policy framework passed by the National Reform Committee

3.3 Rising electricity prices

0

0.5

1

1.5

2

2.5

3

3.5

4

2000 2002 2004 2006 2008 2010 2012

THB

/kW

h

Average Electricity Tariff

Source: Electric Power in Thailand Report

55 MW

609 MW

26 MW

100 MW

0

100

200

300

400

500

600

700

Residential (0-10 kW) Commercial and Industrial (>10 kW- 1MW)

MW

Total Capacity Proposed (MW) Total Capacity Approved (MW)

Feed-in-Tariff for Rooftop Solar PV (May 2014) Proposed and Approved Status vs. Target

3,283 projects

193 projects

1,481 projects

6,437 projects

TARGET

Response to 2013 Rooftop PV Feed-in Tariffs (First Round)

Thailand Case Study

• Evolving from FiT era to grid-parity era

• Policy uncertainties during the FiT era gave rise to business models that are shielded from policy uncertainties

• Continuous support in the form of FiT very unlikely but other forms of incentives, such as tax credits, may be possible.

• Investment climate for rooftop solar is improving with many policy frameworks being studied and financial institutions’ involvement:

– Net-metering

– Solar crowdfunding

– Special loan packages for residential and commercial solar rooftop investment

Emerging Rooftop Business models in Thailand

• Prospects: Developers, EPC, Utility

• Roof type: Warehouse, Shopping malls, Factories

• Limitations: FiT quota, bureaucracy’s unfamiliarity with roof rental contracts

Roof Rental

• Prospects: Developers, EPC, Utility

• Limitations: legal backing, transparency of tariff structure, prediction of grid parity

Solar PPA

• Prospects: Financial Leasing Companies, Developers, EPC

• Limitations: Collateral, Lease term, Lack of secondary markets, Risk-averse players, uncertainties on net-metering regulations

Solar Leasing

Emerging Rooftop Business models in Thailand (cont.)

• Prospects: Co-ops, Developers, EPC, Utility

• Limitations: Legal interpretation of co-op purposes

Community Solar

Source: http://www.greentechmedia.com/articles/read/First-Solar-Jumps-Into-Residential-PV-with-an-Investment-in-CECs-Community

“In Thailand, 99% of the households that joined the feed-in tariff program are from the high-income segment”

-Dr. Dusit Krea-Ngam, Chairman of TPVA

CODI Model

Electrical supply

Key Success Factor Strong Co-op Enabling Co-op rules EPC

Company

Co-op Co-op

Common Fund

Utility I

5

I

1

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7

I

8

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9

I

1

0

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1

1

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6

I.

.. FiT

EPC and Investment

Return: 14.5% of FiT

Long-term Loan

Interest 2% / yr

65.5 % of FiT

20% of FiT

100 % investment

Bangkok Slums Map,

(2013)

Estimated 1.2 Million

Residents and Rooftops

Empowering Communities

THANK YOU

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