www.solarbankability.eu

Quantifying and Managing the Technical Risks for Current and New Business Models toImprove the Financeability and Attractiveness of Sustainable Energy Investments in Photovoltaics

The Solar Bankability project has received funding from the European Union’s Horizon 2020 research and innovation programme under the grant agreement No 649997.

MAIN FINDINGS

SOLAR BANKABILITY

DescriptionSolar Bankability is a project funded by the European Commission’s Horizon 2020 programme which aims at reducing the technical risks associated with investments in solar PV energy projects.

The project establishes a common practice for professional risk assessment based on technical and financial due diligence. It focuses on photovoltaic (PV) installations, with emphasis on rooftop and ground-mounted projects, and explores the respective financing solutions provided by professional investors. By doing so, it helps increase trust and mutual understanding between the solar industry and investors, financers and insurance companies.

Recommendations for Risk Management StrategiesSolar Bankability provides concrete tools to better manage technical risks throughout the PV project lifetime.

Based on the findings of the project, stakeholders are recommended to develop their own individual risk management strategy along the life cycle of a PV project based on a three-step process:

RISK IDENTIFICATIONRISK ASSESSMENTRISK MANAGEMENT

For each of these steps, Solar Bank-ability developed methodologies and tools to support stakeholders’ quality management processes. &

Init

ial r

isks

Iden

tifi

ed r

isks

Iden

tifi

ed r

isks

Iden

tifi

ed r

isks

Iden

tifi

ed r

isks

Res

idua

l ris

ks

Unidentified risks (gaps)

Prevent

Reduce

Transfer

Bear

SOLAR BANKABILITY

RISK IDENTIFICATIONIdentification and Assessment of Technical Risks in PV Project LifetimeBased on a statistically significant number of existing PV installations, Solar Bankability documented the technical risks which can affect solar plants, either during the development phase or during operation.

More than 140 types of risks have been identified and documented in our Technical Risks Matrix.

For each technical risk identified, the project provides an assessment of the related economic impact. There are two types of technical risks: those which influence the assessment of the energy yield of a PV system in terms of uncertainty and those which cause failures affecting the plant availability and performance. In the latter case, so-called “Cost Priority Numbers” (CPN) have been developed to reflect the value of preventive and corrective actions expressed in EUR/kWp/year:

€ 0.00 € 10.00€ 1.00€ 0.10€ 0.01

Soiling

Shading

Glass breakage

PID = Potential Induced

degradation

Failure bypass diode and junction box

Theft of modules

Snail track

Hotspot

Defectivebacksheet

Delamination

Never detected - base case (€/kWp/year) CPN (€/kWp/year) Failure fix (€/kWp/year)

SOLAR BANKABILITY

RISK ASSESSMENTImpact of Technical Risks on the Cost of Solar GenerationSolar Bankability evaluated the impact of technical risks on the cost of generating solar electricity and the efficiency of different types of mitigation measures.

The project assesses the relative impacts the identified technical risks would have on PV Levelised Cost of electricity (LCOE) via sensitivity analysis thus pinpointing the areas where mitigation measures should be placed in priority.

Eight mitigation measures have been assessed: Component testing; Design review and construction monitoring; EPC qualification; Implementation of basic monitoring; Advanced monitoring; Visual inspection; Advanced inspection; Spare part management

Our findings reveal that the most effective mitigation measures are those implemented at the early stage of project lifecycle. Mitigation measures implemented in the operation phase still show some positive impact on LCOE but less gain is found.

Although the implementation of mitigation measures increases either CAPEX, OPEX or both, the overall LCOE decreases as the gain in yield surpasses the extra cost incurred.

List of various cost items in CAPEX and OPEX found in surveyed PV financial models

CAPEX items

EPC Service agreement

Decommis-sioning

Development contract

Permits/ licenses

Grid connection fee

Land purchase/ lease upfront

payment

Environmental study

Start-up/ mobilization

cost

Due diligence Financing costs Interest during construction

Insurance Contingency budget Success fee

OPEX items

O&M fixed and variable

Service agree-ments/warranty

extensionLand lease

Auxiliary cost Generalmanagement

Asset management

Accounting, audit,

administrative

Financing charges during

operation Bank fees

Insurance Taxes

SOLAR BANKABILITY

RISK MANAGEMENTTransfer of Technical Risks to Relevant PartiesSolar Bankability suggests how to allocate risks to those parties which are the best positioned to control them.

The project findings reveal that besides risk mitigation, risk transfer is an integral part of any risk management strategy.

Solar Bankability suggests a plan to transfer risks throughout the lifetime of the project (see below).

A set of six checklists for utility-scale (ground-mounted) and commercial rooftop PV installations have been developed within the project to serve as guidelines for best practices:

Best Practice Checklist for EPC Technical Aspects

Best Practice Checklist for O&M Technical Aspects

Best Practice Checklist for Long-Term Yield Assessment.

EngineeringProcurementConstruction

Operations

Year 1-N

Decommissioning

Year > N Year 0

Service warranty(material & workmanship)

Service warranty(material & workmanship)

Product return anddisposal guarantee

Service warranty(material & workmanship)

Performance guarantee

General liability insuranceGeneral liabilityinsurance

Construction riskinsuranceInsurance

Tran

sfer

of

tech

nica

l ris

ks

Bank

EPC/Installer

O&M

Componentmanufacturer

Investor(Owner/Operator)

Property damage insurance

Business interruptioninsurance

Performance interruptioninsurance

Creditor default risk(Financing)

Creditor default risk(Pre-Financing)

Residual risksResidual risks Residual risks

SOLAR BANKABILITY

Impact of Technical Risks on Business ModelsTechnical failures will ultimately have an impact on expected return on investment. Solar Bankability analysed how such failures could influence business models.

To measure the impact of technical risks on PV investments a Financial Modelling Tool has been developed based on the PV project cash flow.

Four different business models have been analysed covering different system sizes, system technologies, geographic locations, climatic conditions and national incentive schemes.

Description

Business model 1

Business model 2

Business model 3

Business model 4

Residential rooftop PV system with crystalline modules located in central Europe (5,6 kW, c-Si, Germany)

Residential rooftop PV system with crystalline modules and battery storage located in central Europe (5,2 kW c-Si + storage, Germany)

Utility scale ground mounted PV system with crystalline modules, central inverters, located in northern Europe (7,6 MW, c-Si, UK)

Utility scale ground mounted PV system with CdTe modules, string inverters, located in southern Europe (0,6 MW, CdTe, Italy)

SOLAR BANKABILITY

Main findings and recommendationsBased on the findings of Solar Bankability, the following conclusions and recommendations can be derived:

Technical risks can have a major impact on the total project risk rating scheme.

The occurrence and impact of technical risks for different business models vary and depend on the system size, system technology, geographic location and climatic conditions.

The occurrence of technical risks follows a bathtub shaped curve with high occurrence at the beginning and end of the PV project life cycle.

The mitigation measures most effective in lowering PV LCOE are:

1. Qualification of EPC;

2. Component testing prior to installation; and

3. Advanced monitoring system for early fault detection.

PV Cash flow models are more sensitive to technical failures early in the project life cycle.

Small residential PV systems are more sensitive to the impact of technical risks than large utility scale PV systems.

Large utility scale PV projects under government tender schemes face severe price pressure. A quality management program should ensure the technical reliability and financial viability of projects.

A professional risk management strategy as suggested in the project should become integral part of each PV investment.

The risk management function should be hierarchically independent and can be provided by qualified in-house or external third party experts.

With such a professional risk management in place, PV systems will fall into the category of qualified infrastructure investments with a favourable risk/return profile.

SOLAR BANKABILITY

Project partnersEURAC - Accademia Europea per la Ricerca Applicata ed il Perfezionamento Profession www.eurac.edu

3E N.V. www.3e.eu

ACCELIOS Solar GmbH www.accelios-solar.com

SolarPower Europe www.solarpowereurope.org

TÜV Rheinland Energie und Umwelt GmbH www.tuv.com/solarpower

ContactProject Coordinator

EURAC Institute for Renewable Energy VIALE DRUSO 1 39100 Bolzano – Italy

David Moser: david.moser@eurac.edu

Technical Coordinator

3E N.V. Vaartstraat 61 1000 Brussels – Belgium

Caroline Tjengdrawira: Caroline.Tjengdrawira@3e.eu

Project Website

www.solarbankability.eu

Disclaimer: The sole responsibility for the content of this publication lies with the authors. It does not necessarily reflect the opinion of the European Commission. The European Commission is not responsible for any use that may be made of the information contained therein.

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