PV Investor Guide - Solarwirtschaft · 4 — PV INVESTOR GUIDE - NE BUSINESS MODELS FOR...

PV Investor GuideNew business models for photovoltaics in international markets

ImprintStatus - June 2014

PublisherBSW-Solar, The German Solar Industry Association (Bundesverband Solarwirtschaft e. V.), www.solarwirtschaft.de/en

AuthorsChristian Grundner, eclareon GmbH

María Jesús Baez Morandi, eclareon S.L.

Christoph Urbschat, eclareon GmbH

Collaboration/EditingRainer Brohm, Joscha Rosenbusch, Jan Knaack, Marco Tepper, Jörg Mayer, BSW - German Solar Industry Association

Dr. Christine Wörlen, Arepo Consult

© BSW – German Solar Industry Association, Berlin, www.solarwirtschaft.de, with the kind support of eclareon GmbH (www.eclareon.com)

and Arepo Consult (www.arepoconsult.com)

DisclaimerThis guide is protected by copyright. Any reproduction, modification or other use of the guide in full or in part that extends beyond purely

private use is prohibited without prior approval of the German Solar Industry Association. This applies in particular to reproductions/copies,

translations, microfilming and entry into electronic data systems.

The guide was compiled with greatest possible care and to the best of our knowledge. However, as mistakes can never be ruled out and content

is subject to change, we draw attention to the following: The German Solar Industry Association provides no guarantee for the topicality, cor-

rectness, completeness or quality of the information provided in this guide. For any damages of material or immaterial nature caused directly

or indirectly by the use or non-use of the information provided, or caused by the use of flawed or incomplete information, the German Solar

Industry Association assumes no liability as long as it cannot be demonstrably charged with intentional or grossly negligent action.

BSW-Solar, The German Solar Industry AssociationQuartier 207 | Friedrichstr. 78 | 10117 BerlinTelephone +49 (0)30 29 777 88 0Telefax +49 (0)30 29 777 88 [email protected]/en

With more than 850 member companies, the German Solar Industry Association (BSW-Solar) is the interest group of the German solar in-

dustry. Forming a strong community of companies, BSW-Solar acts as a source of information and an intermediary between business and the

political and public sectors. It represents the common commercial interests of businesses within the solar energy value chain.

BSW-Solar exerts a decisive influence on creating and securing a suitable policy framework for stable growth, and thus on investment security

througout the entire solar industry. Our objective is to establish solar energy as a permanent pillar of the energy industry.

PV Investor GuideNew business models for photovoltaics in international markets

4 — PV INVESTOR GUIDE - NEW BUSINESS MODELS FOR PHOTOVOLTAICS IN INTERNATIONAL MARKETS

— 3

TABLE OF CONTENTS

— Impress 1

CHAPTER 1

— Introduction for PV business models 6

1.1 General Characteristics 7

1.2 General Project Structure 8

1.3 Overview on Export Financing 9

1.4 Leasing for self-consumption and net-metering 10

CHAPTER 2

— PV self-consumption 11

2.1 Introduction 11

2.1.1 General Characteristics 11

2.1.2 Reasons for PV self-consumption 12

2.1.3 Application Segments 13

2.2 Project Development 15

2.2.1 Project Structure 15

2.2.2 Planning and Design 16

2.2.3 Implementation 17

2.2.4 Operations 19

2.3 Project Economics 20

TABLE OF CONTENTS

PV INVESTOR GUIDE - NEW BUSINESS MODELS FOR PHOTOVOLTAICS IN INTERNATIONAL MARKETS4 —

2.3.1 Key Input Parameter 20

2.3.2 Sample Project Calculation 21

2.3.3 Sensitivity Analysis 23

2.4 Key Success Factors 25

2.5 Sample Projects 26

2.5.1 Supermarket “Super Selectos”, El Salvador 26


CHAPTER 3

— Net-metering 28

3.1 Introduction 28

3.1.1 General characteristics 28

3.1.2 Reasons for net-metering 29

3.2 Project development 35




3.2.4 Operation 38







3.5.1 Net metering in San Francisco, California 46

3.5.2 Net metering, Mexico 50

CHAPTER 4

— Power Purchase Agreements 53

4.1 Introduction 53


4.1.2 Reasons for PPA’s 57

4.1.3 Application segments 58


— 5

4.2.1 Project structure 59



4.2.4 Operations 63







4.5.1 Direct Line PPA, San Salvador, El Salvador 70

4.5.2 Generation Utility PPA, La Paz, Mexico 74

CHAPTER 5

— PV-hybrid Mini Grids 77

5.1 Introduction 77


5.1.2 Reasons for PV-hybrid Mini Grids 80

5.1.3 Application Segments 82





5.2.4 Operations 98







5.5.1 PV-DieselMiniGridforIslandElectrification,CapeVerde 110

5.5.2 PV-hybrid Mini Grid for Telecom Towers and Villages in Uganda 110

6 Charts and Tables 112

7 Annex: Glossary 113

8 Annex: Acronyms 113

— 6

1

—

Introduction for PV business models

© BSW-Solar/Sharp

1

—

Introduction for PV business models


REASONS FOR PV-HYBRID MINI GRIDS

There are three distinct value propositions for implementing PV-hybrid Mini Grids. The first one is

a reliable access to electricity, the second one is fuel savings and last but not least the reduction of

emissions. The following chart uses a triangle build from these value propositions to allocate diffe-

rent applications according to the individual importance of each value proposition to it.

5.1.2

Value Propositions of PV-hybrid Mini Grids

Figure 2:

— 81

The main reason for building a completely new PV-hybrid Mini Grid is the unavailability of a con-

nection to the public grid in remote areas. It happens to be more cost effective than to install a

grid connection over a long distance to the public grid. In case a connection to the public grid is

available another reason for building a new PV-hybrid Mini Grid could be that the costs of outages

(e.g. production losses) of the public grid are higher than the operation costs. Because most elec-

tric service outages are caused by disturbances in the electric distribution system the only way to

avoid these outages is to locate electric generation and storage at the consumers location. Users

with a need for high reliability have always had local backup systems. These were typically battery-

based uninterruptible power systems (UPS) for small loads and reciprocating generators powered

by diesel, propane, or natural gas for larger loads. Mini Grids are a natural evolution that integrates

these technologies with automated switchgear, load management, and renewable power systems.

Although most energy systems have substantial economies of scale so that larger systems are

more efficient than smaller systems, there are factors that create an economic advantage PV-

hybrid Mini Grids. First, remote loads lack pipeline access to natural gas and are often too small to

take advantage of the economy of scale of large coal or nuclear generation facilities. As a result,

they rely on diesel and fuel oil for power generation, which makes PV-hybrid systems very cost

competitive because photovoltaics are just as cost effective in small applications as in large ones.

The implied independence from a central utility and fossil fuels like diesel results in reduced fuel

cost and a simplified forecast of future energy cost.

Finally, the hybridization of Mini Grids with PV and other renewable sources also reduces its en-

vironmental impacts like CO2 and noise emissions. More importantly, the load management and

distributed storage allow a high share of volatile PV generation in Mini Grids.

Project developers and investors need to ensure that PV-hybrid Mini Grid projects are designed in

a way to address the different value propositions in an optimal combination for each application

segment.

The advantages of Mini Grids on a macro level are the electrification of rural areas which usually

triggers increased economic activity and contributes to job creation and business opportunities in

communities. In developed countries on-grid Mini Grids can help to reach very high penetrations

of volatile PV and other renewables due to the load management and storage capabilities on local

level.

INTRODUCTION FOR PV BUSINESS MODELS


PROJECT STRUCTURE

Building and operating a PV-hybrid Mini Grid involves a large group of stakeholders with different

interests and contractual relations between them. Mini Grids are usually supplying a group of po-

wer consumers via PPA contracts or prepaid models. Figure 6 gives an impression of stakeholders

and their relations when supplying a group of different types of consumers.

The business environment in Figure 6 gives a general overview on the business environment of a

project and differentiations are driven by the characteristics of the individual project. One main

differentiation for the general business environment and the project development is whether an

existing Diesel Mini Grid shall be hybridised with a PV system to save on fuel or if a completely

new PV-hybrid Mini Grid shall be build.

In the case of an existing Diesel Mini Grid the addition of a PV system is just an extension and the

main goal is to reduce the fuel costs of the diesel genset, which significantly reduces the com-

plexity of the project structure. The consumer usually owns the existing Diesel generator and he

5.2.1

Figure 6:

Business Environment for PV-hybrid Mini Grids

— 87PV-HYBRID MINI GRIDS

may invest himself in the PV system and the operator is just contracted for the operation of the

PV-hybrid Mini Grid based on a savings contract. For PV companies this is a fairly easy business

because, it is key to understand the load profile and to design the PV system in a way that the

optimal savings in a total costs approach are being achieved. The second option would be that an

operator takes over the whole Mini Grid, adds the PV generation and sells the electricity to the

consumer and potentially also to other consumers. The resulting project structure is very similar

when building a completely new PV-hybrid Mini Grid. The situation is far more complex and riskier

due to a lack of information. One of the key questions is what type of customers should be sup-

plied in terms of electricity demand and ability to pay during the project period. The ABC custo-

mer model is the main tool to address this issue and reduce the off-taker risks of different types

of customers. The Figure 7 illustrates the different types of customers and their characteristics

with regards to electricity demand and creditworthiness.

The A or Anchor customer has a large electricity demand and a high credit-worthiness. By signing

a long-term contract with this customer the project will be able to obtain financing. A second re-

venue stream will come from B or Business customers that use the electricity for productive uses.

Their ability to pay may be increased through micro-finance institutions that give small loans to

these businesses. The use of the loaned money is restricted to the productive use of the business

like the costs for electricity that decreases off-taker risks for the operator. The C or community

ABC Model for Mini Grids

Figure 7


customers are private households that use electricity for their households needs via pre-paid

schemes. The A and B customers make it possible to also supply C customers and the operator

and customers benefit from the increased scale and lower costs.

Another key questions is who owns and operates what or in other words what is the ownership

model for the PV-hybrid Mini Grid.

A good way to reduce the risks when building a new PV-hybrid Mini Grid with private sector

investments is to separate the relatively mobile generation assets and the immobile local grid

infrastructure like in Public Private Partnership Model 2 (PPP). The generation assets are built,

owned and operated by the operator but the local grid operator or any other public body owns

the local grid infrastructure. The operator uses the local grid for a fee and may also take care of

the installation and operation. That way the operator could move his generation assets to other

locations in case the public grid is being extended to the current location or the main electricity

off-taker defaults or terminates the supply contract.

Apart from the described key questions for the project set-up each stakeholder has individual

motivations and issues to consider that will be outlined in the following:

Equity investors play a key role for the financing of PV-hybrid Mini Grids because debt financing is

often not available for such projects especially in developing countries. To successfully implement

projects they must rely on local professionals with expertise in energy, legal, commercial and

Ownership model for the PV-hybrid Mini Grid

Table 7

— 89PV-HYBRID MINI GRIDS

environmental regulations. In addition, a good relation to the regulatory authority and a coordi-

nated approach in line with grid development roadmaps and rural electrification initiatives is key,

especially when developing projects in public private partnerships. In order to reach risk adequa-

te returns, electricity prices for the customers need to be quite high in comparison to the often

subsidized tariffs charged when connected to the public grid. Therefore, a strong support of the

public bodies and the local community is needed for a sustainable operation of the project.

Plant Operator is in charge of ensuring a flawless planning, construction and operation phase of

the project. A key challenge is the long project development duration for the first pilot project in

a country because it requires significant resources while the project success and the replication

potential is still uncertain. Through international donor organizations and public private partner-

ships these risks can be reduced. The SPV will contract an EPC company for the detailed design,

planning and construction. Operation and maintenance services may be contracted to a dedicated

service company. A further contract is concluded with the power consumers and if grid connected

with the responsible grid operator. The major goal of the Operator is to run the Mini Grid with a

high load factor in order to maximize revenues. It is key to have a local presence for the operation

and maintenance of the project, locals need to be trained and coordinated to support this. Lar-

ge anchor customers like telecom tower operators may require a fast scale-up of PV-hybrid Mini

Grids to many of their locations, which can be very challenging to impossible for a plant operator

from a human resource perspective.

Debt financing by Commercial Banks is a critical issue in new markets, even when bankable pro-

jects can be structured based on a suitable regulative framework, Banks are reluctant to build the

know-how to evaluate a handful of projects. In order to hire experts and introduce standard evalu-

ation processes a sufficient pipeline of projects is necessary. This chicken egg problem hindering

the financing in early stages of a market can be solved by the various financing schemes offered

by national and foreign development banks and export financing products as well as international

donors. Another opportunity is the cooperation with Micro Finance Institutes especially for econo-

mic activities of individuals that require a reliable supply of electricity. Via the micro finance loans

a certain share of the revenue for the supplied electricity can be covered while individuals are

incited to use the electricity to generate income to repay the loan rather than wasting the electri-

city for appliances like TV sets or air condition.

The EPC company undertakes engineering, procurement and construction of the Mini Grid. The

key challenge for the EPC is to design a flexible and modular solution that can be adapted to

changing demands of the customers to ensure a constantly high load factor during the project

lifetime. Most likely the same EPC company will also be involved as O&M service provider and con-

tracted for adaptations and extensions of the Mini Grid which requires a strong local presence and

can be challenging for remote locations. For example qualified O&M staff may not be available on

short notice to solve problems, fraud and theft is not easy to prevent, therefore the support of the

community is absolutely necessary. In addition to the classic EPC competences, specific know-how

on the integration of PV with other generators, storage and different loads is necessary. A suitab-

le partner for the required IT services and management software is an important added value for

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