USAID-Sector Reform and Utility Commercialization

Utilities of the Future Training

December 12 & 13, 2016

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VOICES FROM THE INDUSTRYFrom Project Developer’s Perspectiveby Miguel Silva

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Renewable Project Motivation

The opportunity has a clear path to success with enough upside to keep commitment, involves:

– baseline or fundamental reason to exist

– positive economics

– supportive policies and regulatory environment

– technologically reliable and bankable

– consensus between all stakeholders

Source: NREL A framework for PD in the Renewable Sector

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Key Project Development Elements

The project development process implies several parallel paths and rigorous and continuous fatal flaw analysis:

– Site planning: legal aspects and physical

constraints

– Solar resource and weather data

– Off taker (PPA)

– Technology (i.e. selection, EPC cost, etc)

– Team and CapitalSource: NREL A framework for PD in the Renewable Sector

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Project Stages with Risk and Unknowns

TIMESource: NREL A framework for PD in the Renewable Sector

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Challenges from Utilities

• Barriers originated from their fear to change or to new technologies

• Difficulties derived from silo operation and culture

• Do not know what they want or what to expect.

• Legacy documentation which does not describes how actual business are conducted

• Tendency to avoid sharing information

• Some time there is reluctance to take Project Developers seriously, after initial interaction due to weak project technical case

• Engineering start; may open a can of worms!

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Impact of Silo Culture: Honduras

• 2013 to 2014 230 MWac (9 projects) were awarded PPAs

• All projects were authorized to interconnect at the Santa Lucia SS in Honduras

• Hondura’s installed Capacity at the time PPAs were awarded was 1.8GW. Honduras's solar penetration reached 11% at one point in the grid!!

• PPA’s were awarded w/o consulting technical viability within utility’s Operations Group

• A lot of confusion, i.e. it was not clear who will be responsible for reactive compensation

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Final Tips

• Project Developer must create and cultivate a good and collaborative relationship with the utility

• Very important to have a good scoping meeting and define process and protocol to be followed. With well clear milestones and regular consistent progress updates.

• Promote the creation of viability tools to weed out in early stage flawed opportunities; with a focus on Real State and Environmental studies

• Project Developers must understand very well transmission rights and how ISOs monetize imbalance charges. Specially important when crossing balancing areas boundaries

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Miguel Silva

+1 415 793 9156

+1 510 812 1900

miguelsilvabb1@gmail.com

Skype: Solarpro1

www.miguelsilva-pv.com

THANKS

Q & A(see next slide)

Q> In auctions, it seems as though historically low prices seemto not triangulate with what the utility and energy agencies(Mexico, Chile) were expecting. What drives themisunderstanding between the utility company and the solardevelopers in terms of the price per MWh?

A> I believe that prices for solar electricity in the last auctionsdo not realistically reflect the true LCOE for utility scale PV solarpower, but rather reflect a distortion in the market caused byany of the following factors:

1. Many Chinese manufacturers are selling their products below cost;which is clearly reflected on their unhealthy balance sheets.

2. Willingness of large global IPPs to bid low in order to gain marketshare, potentially using cheap cost of capital and/or existing localportfolios (mix of thermal, wind, hydro and/or biomass) as leverageto improve the economics of otherwise non-feasible solar PVprojects.

3. The ability that some solar developers have in LATAM to leverage rich three-year-old long term PPAs from one country in order to bid low in another; with the intention to later consolidate the new poor PPA in a portfolio, where the weight the rich ones have is such that the portfolio itself is still attractive to investors.

4. Lack of knowledge/experience at the utility and regulatory level; which sets the bar low with respect to the maturity level and the technical strength with which participating projects arrive to the different auctions (i.e. Argentina, Brazil, Panama, etc).

5. The fact that an important number of developers do not know what they are doing and many of them are not interested in the project’s long term success but rather the short term (project flippers). For these developers one of the key metrics is NPV instead of the LCOE.

Q> What could be done to prevent or mitigate un realisticprices?

A> It is important to train all stake holders (i.e. policy makers,regulators, utilities, financiers and project developers) earlier,before the auctions and before regulations and norms bedeveloped and/or implemented.

As well as to look for mechanisms that make more difficult tointroduce foreign market elements and/or practices which causedistortion into the markets where the auctions are taking place.

These should help to set up a better competitive environmentwhere technical viability and pre engineering are of betterquality as well as increased project development maturity; thiscould translate into more realistic PPA prices and better lessriskier projects in future auctions.