Wednesday, 23 November 2016

Solar Energy Projects : Why do they Fail?

Solar Energy could be used to generate Power through direct conversion of Sunlight by use of Photo Voltaic cells, commonly known as PV Solar. The other way is by the use of heat energy of the Sun to generate steam for running power turbines, commonly known as CSP or Concentrated Solar Power. 

Solar PV is a clear winner among the two due to lesser capital requirement for project installation, ease of commissioning, modularity, scalability, minimal O&M and minimal water requirement etc. It is comes as no surprise that CSP forms less than 1% of total Solar installations across the Globe whereas 99% of the Solar market is dominated by Solar PV.

Fig. 1 Global Cumulative PV Installation (in MW)



Despite good number of Solar installations and a very good experience there are a number of Solar Projects fail. The failure cannot be necessarily attributed to Technology aspects alone but also to financial and other aspects. Read on to know more including a few Case-studies.

Technology Aspects
PV Solar Project, although relatively easier to install and commission as compared to other Renewable Technologies, has it's own share of Technology challenges. These could be related to selection of wrong technology, manufacturing defects, O&M related issues etc.

To begin with the chosen technology for a site plays a crucial role in optimum output, project reliability as well as longevity. PV Solar has various types of technologies under Crystalline and Thin Film. A particular technology suitable for one site may not be suitable for another one. This depends on the radiation levels, climatic conditions, environment, project layout etc.

There have been instances of projects with output issues and downtimes. A critical analysis of these projects point out a lack of feasibility check and preliminary study. Some of these projects are listed on MNRE website too and the list is updated quite frequently. A case in point is a 5 MW PV Solar ground mounted project installed in Gujarat. As can be seen in Fig. 2 there has been a rapid degradation primarily attributed to the selection of wrong (outdated) technology and improper vendor.

[Other Popular Post - Solar Energy Project : Execution Steps]

Fig.2 Degrading output for a wrongly chosen PV Solar Technology for a
5 MW PV Solar Power Project

Another important point of consideration is the quality of PV panels or modules which play a key role. A PV panel may appear perfect to the naked eye but could be micro-cracked the result for which would be visible only 3-5 years down the line. This may also be a result of sample / batch testing which could range from as low as 10% to 20% of all the modules being produced by the manufacturer. Good quality manufacturers generally rely on random and periodic testing (more than 50%) of the modules being produced. This results in good quality and reliable output.

Similarly there are claims of 100% PID (Potentially Induced Degradation) free panels by several PV Module manufacturers whereas as per a recent study more than 95% of the Module manufacturers have failed the PID test. Like in the previous case a PID affected module will start showing rapid degradation after 3-4 years in operation. Lack of safety measures such as absence of lighting protection or appropriate earthing with refer to general electrical safety., which are expected to be practiced in all projects.

Fig. 3 Micro-cracks visible through Electro-Luminence (EL)
tests and not to a naked eye
While manufacturing defects can be avoided by careful evaluation of vendor and their testing parameters, a developer or investor should also pay close attention to the insurance of the module manufacturer against manufacturing as well as against performance related issues.

A typical static PV Solar project requires minimal or zero maintenance. But the panels need to be kepts clean and may require periodic or frequent cleaning - depending on the air quality and site conditions. Design aspects, Dust collection or bird droppings can result in issues such as hot-spots which could disrupt operations (in severe cases) or negatively impact output. Hot-spots could also be a result of manufacturing defects.

Fig. 4 Hot Spots in PV Array revealed through Thermography

Commercial Aspects
In addition to the Technical aspects the success of a Solar Project depends largely on Financing. Correct financial structuring of the project is imperative and it is necessary to know all the financing options available before finalizing on the most suitable one.

[Others are reading - Solar Energy : Why the Sudden Interest]

There cannot be one-size-fits all approach in this space too. For instance a company which is looking for tax benefits would prefer funding the project itself. The IRR could range between 13% and 16% depending on various factors. Alternatively if a company is looking to cut on it’s energy bills would prefer a 3rd party invested project. Another company may look for a low-cost debt financing or an innovative financing mechanism for joint ownership or performance-linked loan to ensure high quality. There is a need for customized financial solution which fits inline with the long-term vision and strategy of the Company.

In several cases the financial modeling is not done appropriately either due to lack of options or due to lack of awareness. For example a Company was looking to save on it's Electricity Bill but was not aware of the BOOT / RESCO  / OPEX option of 3rd party financing. They installed a 1 MW Rooftop Project under the CAPEX model but realized they could have saved more by going in for 3rd party financing.
Table 1 Comparison between 3rd party financed Solar Project and self-financed Solar Project

Later when they were approached with the option of 3rd party financing they were surprised to know that such an option existed. Due diligence before installation and commissioning of the project is imperative as it enables one to understand all the Techno-Commercial aspects as well as financing options available.

It becomes difficult to refinance such projects due to the quality of components used and at times the drafting of the agreement. It is thus imperative to consider all the financing options (there are various options and not just BOOT and EPC) which should be considered before execution of the project.

Even for a BOOT or a 3rd party financed project it is necessary to evaluate all possible factors and draft the PPA accordingly. This is important as the PPA is for 15 to 20 years and the rooftop / ground of the off-taker is blocked for that period. The cost of opportunity needs to be incorporated with all future eventualities.

Policy Aspects
Although there is a Central Policy for Utility scale projects, each State has it's own policy as well. The State policy drives the rooftop market as well as utility scale projects. 

In the utility scale projects, which are basically multi-MW projects the State drives the PPA conditions primarily about payment security, transfer of ownership, tariff escalation etc.

[Have you read Solar Energy FAQs?]

In the rooftop space there are many more aspects especially related to net-metering. Many of the States (viz. Maharashtra, Gujarat, Karnataka, Andhra Pradesh, Madhya Pradesh etc.) have adopted Net-metering policy. Under this policy a PV Solar power generator could export excess power to the grid. Each State has defined the tariff, banking period, rollover period etc. inline with the State requirements. However it is necessary to understand the policy aspects in detail so as to avoid any issues.

A case in point is a developer which installed a small rooftop Solar project of 20 kW under the net-metering scheme in Maharashtra. The reason they opted for Net-metering scheme was the operating process plant (a small remote plant) was not operational over the weekends (Saturday and Sunday). In view of this the excess power would have been fed to the grid. However they failed to realize that the policy only allows 40% of rated transformer capacity under net-metering. Owing to this nearly 10 kW of power generated goes waste every weekend. Annually this would translate into a wastage of INR 80,000 over an investment of INR 13,00,000. The payback has become longer than anticipated.

If you are planning to Go Solar or have any queries related to Solar Power, feel free to drop us a mail on SOLAR@ECONSERVE.IN

Enerco Energy Solutions LLP is one of the oldest Solar Consulting Companies with a vast experience including TOP 10 Indian Companies as Clients. We offer the maximum number of Financing options possible for a Solar Power Project.

6 comments:

  1. Excellent Post. One of the best and most informative post I have seen in Solar Power.

    Rgds.,
    Nagarajan.

    ReplyDelete
    Replies
    1. Dear Sir,

      Thank you very much for your appreciating words. It is our endeavor to make India a Solar-educated Country which we believe is necessary for the rapid induction of Solar Projects.

      Thanks again.

      Best Regards,
      Rahul
      Marketing Director
      Enerco Energy Solutions LLP

      Delete
  2. Dear Sir,

    Delighted to see this post which lists down the potential issues in a Solar Project. But can you throw some light on how can such issues be avoided?

    Thanks,
    Lalit K. Sharma

    ReplyDelete
    Replies
    1. Dear Sir,

      Thank you for your encouraging words. This post is in continuation to our last released writeup article on "Solar Expert ensures Solar Project SUCCESS". If you would like to receive a copy of the same then please send us a mail on solar@econserve.in

      As seen in this blog post there are several potential issues in a Solar Project including Technology, Commercial, Financing, Government policies etc. Engagement of a Solar Expert ensures that all these issues are avoided. We have been at the forefront of offering Expert Advisory to several leading Companies across India and overseas.

      Regards,
      Rahul

      Delete
  3. Hello,

    Are CAPEX and OPEX the only possible financing models in Solar or any other possible too?

    Thanks,
    Kanan

    ReplyDelete
    Replies
    1. Dear Mr. Kanan,

      Thank you for your query and apologies for the delay in replying.

      There are other financing models other than CAPEX and OPEX which could be leased model, low cost debt financing, performance linked financing etc.

      Kindly let us know if your further queries if any.

      Thanks,
      Rahul

      Delete