How entrepreneurs can benefit from selling energy
While trying to understand more about the cost of solar photovoltaic (PV) and the business of selling energy, I ran across a particularly interesting white paper from Deutsche Bank Securities.
“Solar Photovoltaic Industry: Looking through the storm” (download the PDF) was bullish on the business model of selling energy and recommended that investment be targeted to this segment of the industry. The study states that for the commercial scale market, owning and operating the PV plant, as opposed to selling modules and systems, will likely offer the best long-term returns.
In order to validate this point and to obtain a second opinion, primarily one from within the industry, I interviewed Jason Gray, VP and Country Manager Canada at SunEdison, one of North America’s leaders in commercial and utility-scale PV integration.
Solar entrepreneurs and component manufacturers will find this interview very interesting.
Q: Is selling energy one of the most attractive segments for solar PV industry?
A: Jason Gray, VP and Country Manager Canada, SunEdison
Yes. In the long-term, PV systems and components will be commoditized, driving out margin in the supply chain. The price of energy, however, will be set by the prevailing utility rates. Plus, there will likely be additional value for producing clean energy (e.g., carbon and/or renewable energy credits). At SunEdison, our focus has always been on selling solar energy, rather than just selling and installing solar systems. Our entire organization has been built around achieving maximum energy generation from solar PV systems (via Power Purchase Agreements and Feed-In-Tariffs), through our expertise in solar monitoring, operations and continuous R&D.
Q: Some industry experts say the best way to compare the costs of energy technologies is through the Levelized Cost of Electricity (LCOE). Do you agree?
A: Yes. LCOE is a good way of comparing technologies, as long as:
- All technologies are being compared against the same time horizon
- The same discount rate is being applied
- All technologies are compared without government subsidies.
Q: What other ways can we compare costs of energy?
A: There are many alternate ways to compare the cost of energy, but it’s important to understand the pitfalls of each. Payback period, for example, ignores time value of money and may hide high long-term operating costs.
Q: Operating expenditure is difficult to estimate in energy production. Are there standards to use?
A: There is no clear, consistent standard for estimating operating costs of a PV system. As such, different operators may end up with slightly different LCOE estimates for PV systems. Because of SunEdison’s large installation base – over 400 PV systems installed worldwide – our experience enables us to provide some of the most accurate cost estimates in the industry. Knowing the kinds of challenges and obstacles your PV installation will encounter over the 20 years of operation is a critical factor to success. This knowledge can only really be gained through experience.
Additionally, the operating costs for PV installations are significantly lower than the costs of fossil fuels and are much more predictable. So, when comparing PV systems to other energy sources – particularly fossil fuels – the error introduced by operating costs is much less than the error introduced by estimating 20+ years of fuel prices.
Q: What drives LCOE reduction for PV?
A: The primary drivers reducing cost are:
- Reduced installation costs resulting from increased supply and commoditization of components
- Increased energy production resulting from higher efficiency components and improved system designs
- Reduced operating costs from increasingly efficient service operations
Investing in Grid Connected Solar PV
Q: What is a typical payback period for the utility scale PV industry? What’s your target payback period for a plant to be considered “viable”?
A: The payback period for the utility-scale PV industry is dependent on factors like:
- the integrators experience
- the technology being deployed
- the cost of capital
As such, there is really no typical scenario. Each customer has different goals for their systems; it’s a matter of what makes sense for achieving sustainability and investment goals.
Q: What makes a solar integrator company bankable?
A: This is a great question. Because solar is a nascent industry, most organizations and customers don’t understand or underestimate the importance of “bankability”, which solar companies must demonstrate through years of experience, a strong track record of monitoring and servicing solar installations and a solid balance sheet which can stand behind warranties or deal with cost overruns.
As well, having a strong supply chain, based on good relationships with the right suppliers of bankable components, is really important to the success of solar projects. It takes time and experience to build up these relationships and the track record required to secure high levels of financing.
The role of system components in LCOE
Q: What are some of the most dramatic changes you’ve seen in power optimization?
A: There is a tremendous amount of innovation and exploration occurring in the PV power management space at this time. The industry is exploring multiple architectures which go beyond the traditional central inverter concept. This is an evolution that will take several years to play out as cost comes down, reliability improves and efficiency improves. Integrators need to learn how to use these new technologies most effectively and how to integrate them in a cost effective way. Improvements in module efficiency are important as well. Increased cell efficiency is important because of the impacts it has on the cost of all other aspects of the system, from glass and steel to land and labor. And finally operation and monitoring technologies that are specifically focused on solar related requirements are two areas where we are seeing some great leaps in innovation.
Q: What do you think about the increasingly popular AC inverter architecture (micro-inverter + solar module)?
A: Micro-inverters have the advantage of allowing every individual module to operate at its own optimal point. However, many of the dual-stage inverter technologies have this advantage as well. Many of these technologies distribute the maximum power point tracking into the array at the module or string level but still rely on a single (central) point inversion where it can be done most efficiently and cost effectively. Another advantage of micro-inverters is the fact that they can eliminate the need for DC power and componentry which is obviously not as common and familiar as AC. However, in systems of significant size — commercial to utility scale — DC power does not represent a significant hurdle.
Q: Have you used micro-inverters in any of your projects? What is the most suitable market for these compared with centralized inverters?
A:SunEdison has deployed a wide variety of inverter solutions including microinverters, string inverters and large central inverters. In general, the smaller the system, the more appealing micro-inverters become (with the exception of off-grid systems with storage which utilize the DC power directly). Large scale powerplants will be dominated by central inverters for the foreseeable future but dual-stage systems will almost certainly be predominant within the next several years.
Q: What are the key technology benefits that will identify the clear winner in the competitive inverter market?
A: LCOE. LCOE is a complicated metric but captures and balances the trade-offs between cost, performance, reliability and longevity. Inverters have already reached extremely high efficiency levels – upwards of 97%. Improvements will come in the form of enhanced capabilities, improved serviceability and improved reliability. Cost reductions will be driven by scale and improvements in manufacturing. Being technology agnostic means you can take advantage of these types of technology improvements as they become a reality.
Q: In terms of power optimization, are there any changes you would like to see?
A: As mentioned, there is a tremendous amount of innovation happening now in the DC power management space in terms of how to maximize the energy harvest from PV systems. A lot of this innovation is being driven by entrepreneurs and start-ups. Ultimately though, the inverter space will be increasingly dominated by large and sophisticated companies who excel through product development and manufacturing sophistication. Another important aspect of development, especially in places with FIT tariffs, is around grid efficiency to allow for more fluent integration of renewable energy projects. Innovations, such as the Night Solar project (by University of Western Ontario’s Rajiv Varma) showcase opportunities for easier and better distributed energy adoption and provide further areas of opportunity.
Thanks to SunEdison for giving me a tour of their 9.1 MW Solar Plant “First Light“ — a ground-mount solar plant located in Stone Mills, Ontario. Their extensive experience with solar installations lends credence to the overall interview (a significant percentage of the industry players have no or minimal experience with installations and are relegated to studies).
MaRS connects our client entrepreneurs with established companies, such as SunEdison, bringing value to both parties.
I invite Ontario entrepreneurs offering low LCOE PV equipment and other established cleantech players in Ontario to connect with us.
SunEdison develops, installs, finances, operates and owns distributed solar power plants around the world. SunEdison has raised over $1.5 billion dollars in project financing and has deployed more than 400 active solar power plants, which have produced more that 350 GWh of energy, making them the largest solar services company in North America.
The Feed-in Tariff program supported by the Green Energy Act has incented SunEdison to come to Ontario and has enabled them to create more than a thousand green jobs within province to support the 40+ MW of solar ground mount and rooftop projects they currently have under construction.
The company’s latest projects Norfolk I & II produce a combined 18.31 MW of solar energy for Simcoe County, Ontario. A third SunEdison ground mount project will come online in the spring of 2011.
SunEdison has partnered with a local manufacturer to produce their proprietary racking system in Scarborough, Ontario and has announced that its parent company MEMC, will be partnering with Flextronics to manufacture an initial 50 MW of solar PV panels in Newmarket, Ontario.
Located in Toronto, the SunEdison Canadian office also experienced rapid growth in 2010 to accommodate the expanding team of over 35 highly specialized employees including engineers, project managers and financial experts.
Jesika BrionesJesika is the International Program Manager for the Advanced Energy Centre. She works with MaRS cleantech advisors and experts from academia, industry and government to support the development and adoption of clean energy technologies in local and international markets. See more…