Thursday, 13 February 2020

Solar Energy Projects - Observations about Installed Projects (and Remedies)


Background

Several rooftop and ground mount Solar Projects have been installed in India in the last few years. While utility scale projects have scored higher in terms of installed capacity (which is quite obvious given their size) the captive Solar segment is now gathering pace. Momentum in the captive space is expected from Industrial Plants and Commercial facilities. As per Government of India targets, the rooftop or captive segment will account for 40% of the total installed capacity i.e. 40 GW (40,000 MW) of the total target of 100 GW by 2022. It is therefore important to learn from the issues outlined in installed Solar Projects to avoid similar potential issues that could impact your project in the long run.



In the installed Solar projects in India, majority of them i.e. more than 70% are facing performance issues i.e. output lesser than designed or projected output. In some cases the PR (Performance Ratio) is less than 75% which is extremely low by any standards either due to bad design or selection of wrong technology or configuration mismatch.


Nearly 60% of the projects are facing non-performance issues related to Contractual or Financing of the project or in terms of Safety and Reliability. Many of these issues could have been avoided if certain simple measures were undertaken before project execution. Post-project corrections can be done but are typically expensive and time consuming. These issues can be corrected but better avoided.

This does not trivialize the potential of Solar Project audit (of installed projects) which throws open several options to improve project performance, reliability and safety.

This short write-up highlights the observations made from some of the installed Solar Projects in India – through study as well as interview of the stakeholders involved. A list of possible remedial measures - although not comprehensive – follows the observations and could be used as a guideline.



Key Points observed during study of Installed Solar Projects in India:

1.    Technical issues with engineering and design aspects leading to performance issues.

2.    Lack of technical due-diligence resulting in performance issues (including vendor selection,  technology suitability, factory visits, material handling etc.).



3.    Site related issues primarily with respect to shadow analysis, weather conditions, roof strength etc.

4.    Limited information on availability of various financial models available leading to re-financing or off-taker dissatisfaction and even re-negotiation.

5.    OPEX / RESCO PPAs not properly framed considering all possible future scenarios including (but not limited to) technology upgradations.

6.    Operation and Maintenance not effectively carried out resulting in lesser than possible generation.

7.    Lack of Safety measures which may not directly impact output but can

challenge project durability and longevity.

So how does one avoid such issues? Continue reading about the remedial measures (continued below)



Remedial Measures :

1.    Carrying out Pre-project Techno-Commercial due-diligence by an expert to ensure all the parameters impacting the project – not just in present but also in future are considered including –

a.    Site conditions

b.    Location

c.     Government Policy

d.    Financial model evaluation

e.    DISCOM tariff and future projections

f.      Technology selection

g.    Vendor selection Etc. Etc.


(To know more about Solar TEFR check out our services section)


2.    Understanding the pros and cons of each financial model (yes, there are several financial models possible other than CAPEX and BOOT) before finalizing the model., especially in case of 3rd party financing. There is no one-size-fits-all approach for the financial model and the modeling should be done based on Company’s strategic goals.

3.    Stringent EPC contracts to ensure project quality and desired generation., especially in case of CAPEX / Self-financed projects.

4.    Vetting of design and engineering by a 3rd party before project execution to ensure all technical parameters have been given due considerations.

5.    Review of a PPA by a domain expert for RESCO / BOOT / OPEX projects to ensure PPA is legally sound and does not leave loopholes or gray areas which could be misconstrued at a later stage. This is important as the PPA duration could be 10 / 15 / 20+ years.

6.    Ensuring all safety parameters as per International Safety standards to avoid potential hazards.

7.    Regular audit of installed Solar Project to ensure performance is upto the mark and to ensure that project longevity is not compromised. This is also known as PRS (Performance, Reliability and Safety) Audit and more information can be seen on our website section - Solar Energy PRS Audit.

Know more about emerging trends in Solar Energy by downloading the White paper - Solar Power : Emerging Trends in Technology & Financing

Wednesday, 25 December 2019

INR 5.65 Crores SAVINGS by Good Solar Design !

Solar Energy - Importance of System Engineering & Design

Solar Energy systems, especially Solar Photo Voltaic systems are very easy to implement and maintain. However there is a lot of complexity that goes behind in terms of software simulation for technology selection, system sizing, generation estimation, PV modules and Inverters permutation & combinations, site related challenges (panel orientation) etc.

Below is a screen shot of a variety of Solar output possible for the same site with different project sizes and project configurations.




Software Simulation Results for same site

Following are the observations made -
  1. For the same site project size can be varied depending on technology selection. It can be observed that the same site can suffice project size ranging from 4.89 MWp to 5.78 MWp.
  2. Higher Project size does not necessarily mean higher output. Here a 4.89 MWp Project can generate more power (kWh per kWp) than project size of 5.78 MWp based on design and engineering. 
  3. In this case two projects of same size also do not mean similar output. For example both designs of 5.78 MWp have a varied output. 
One of the 5.78 MWp project give 1609 kWh per kWp whereas other same size project gives 1661 kWh per kWp. For a 1 MWp Solar project the difference would be 
    1. Lower configuration : 16,09,000 kWh per annum
    2. Higher configuration : 16,61,000 kWh per annum
Considering these projects have been used to consume power under captive mode at INR 7.0 per kWh (standard Industrial tariffs in India) the loss is 52,000 kWh per annum i.e. INR 3,64,000 per annum., which translates into a revenue loss of 
  • 36,40,000 in 1st 10 years
  • 36,03,600 from 10th to 20th year (considering standard nominal output degradation)
  • 17,29,000 from 20th to 25th year (considering standard nominal output degradation)
Which means a total loss of INR 89,72,600 over the total useful PV Solar project life of 25 years. The actual loss is much higher as we have assumed a basic flat tariff of INR 7.0 per kWh for 25 years, whereas in reality the power tariff is expected to rise inline with inflation + economic growth.

Adding up the additional revenue due to good design the total comes to INR 5.65 Crores over the total useful life of the project i.e. 25 years. Considering the prices in 2019-20 additional savings is nearly 20% of the total project cost.

It is better to put in best efforts during the planning phase as majority of the installed Solar Projects (nearly 70%) in India are facing performance issues. This means the generated output is lesser than the projected or designed output. Many of these projects have a PR (Performance Ratio) of less than 75%.

(Read - Why is planning stage important in Solar as nearly 70% of Solar Projects are not performing well.)

In a nutshell, a badly designed Solar project can impact -
  1. Project Size
  2. Output or Power Generation
  3. Under-utilization of project area
  4. Revenue or Savings from the project
It is therefore mandatory to use the best-in-class technology inline with the site conditions and location coupled with better design which results in best performance. A well-designed Solar Project goes a long way in ensuring optimum output over it's useful life.

To receive a detailed presentation with calculations, just drop us a mail on solar@econserve.in

Thursday, 11 April 2019

Solar Project Financing - CAPEX vs OPEX / RESCO - which is better for you?

Solar CAPEX
(Investment by Power Off-taker / Consumer)
Solar OPEX / RESCO / BOOT
(Investment by ENERCO)
Capital investment of upto INR 4.0 Crores per MW would be done by the consuming company.
Capital investment of upto INR 4.0 Crores per MW would be done by ENERCO. No initial investment required by the consuming company.
40% Accelerated Depreciation as per Indian IT Rules can be claimed by off-taker.
40% Accelerated Depreciation as per Indian IT Rules will be claimed by ENERCO.
Operation and Maintenance of the Project is the scope of Consuming Company., typically about INR 6-8 Lakh per MW per Annum + replacement cost of equipment, if any.
Operation and Maintenance of the Project is in the scope of ENERCO.
After initial investment recovery period of about 3 to 5 years, FREE power is available to consuming Company for 20+ years.
Off-taker continues to pay to ENERCO for the duration of PPA (typically 10 to 20 years).
Technology risks are more as once installed the projects would have a life of 25 years.
Technology risks are lesser as technology up-gradation could be negotiated with the ENERCO (subject to conditions).
Expected Project IRR would be 15% (+Tax Benefits)
Consumer will start saving from the first day of project commissioning on discounted grid tariff (typically INR 4.5 per kWh for a MW+ project)
Assets owned by off-taker from the 1st day of operations.
Assets can be transferred to off-taker with a buyback option for each year post commissioning.
Performance of the project is responsibility of one-time Contractor chosen for the project.
Performance of the project is responsibility of ENERCO to give ensure most optimum output.

(Others are also reading - INR 89,72,600 loss due to bad Solar design?!?)

There are other possible FINANCIAL models such as :
1.    EMI with payback option of 3 to 5 years.
2.    Combination of above 2 models i.e. Performance linked PPA.
3.    Open Access OPEX / 3rd party Open Access.
4.    Deferred EPC + Customized EPC Package etc.
5.    Customized Financial model.

You can download the above FREE in PDF format from - Solar CAPEX vs OPEX (PDF)

Contact us to NOW know more : www.econserve.in / solar@econserve.in /
   +91 9890737447
ENERCO ENERGY SOLUTIONS LLP (estd. 2009) is India’s oldest and most reputed Solar Power Company. Clientele – Reliance Industries, Aditya Birla Group, JSW Steel, Ambuja Cement, Emami Group, Essar Steel, Mahanagar Gas Ltd. etc. to name a few.

Monday, 26 February 2018

Solar Energy - Can it boost your Company's Profits?



Solar Energy installations in India have grown in the recent years with widespread acceptance due to fall in cost of project installation. The erstwhile target of 20 GW by 2022 set by the previous Government is already achieved in 2018 and we are now poised to achieve 100 GW (new target set by the incumbent Government) of Solar Power installation by 2022.

So far the installed Solar projects have been of utility scale with very few Captive Solar Projects. Another interesting point is out of 100 GW set Solar Energy target, 40 GW is for rooftop (or ground mounted) captive Solar Power Projects.  It is now estimated that a big number of Solar projects in 2018-19 would come up on Captive basis due to the following reasons :
  1. Solar Energy can boost a Company's profits.  (Really? Yes, read below.)
  2. Ease of project financing with a wide variety of financing options.
  3. Availability of net-metering in major States.
  4. Rising cost of conventional grid power.
  5. Improving business prospects.
While you would willingly agree on the other points., the point 1. above needs further detailing and explanation. Here is how Solar Energy can boost a Company's profits -


A. Direct savings by Solar BOOT / OPEX model 
(Recommended for immediate gains as a Company starts saving from first day of commercial operations of Solar Project)


BOOT OPEX SAVINGS CALCULATION
for a 500 kW PV Solar Project
Year
Solar Power Generation
Price Difference between Grid and Solar (INR per kWh)
Per Annum Savings
(INR per annum)
1
750000
2.50
1875000
2
749250
2.58
1929319
3
748501
2.65
1985211
4
747752
2.73
2042723
5
747004
2.81
2101900
6
746257
2.90
2162792
7
745511
2.99
2225449
8
744766
3.07
2289920
9
744021
3.17
2356259
10
743277
3.26
2424520
Total


21393092

Key points:
  1. A Company can save nearly INR 20 Lakhs (per Annum) by going Solar through BOOT / OPEX route., which translates into a savings of INR 2 Crores+ in 10 years WITHOUT any upfront investment.
  2. The projected savings are much higher as the grid power escalation is conservatively estimated at 3% whereas it is expected to shoot up much higher in the coming years.
  3. The above table is only considering 10 years but actual Power Purchase Agreements (PPAs) are for 15-20 years (or more) thereby more savings for the Company Year On Year.
  4. We have given the calculations for a 500 kWp PV Solar Power Project. For higher capacity installations savings could be much higher due to economies of scale.
(Check out our latest post on - Solar Project Financing - CAPEX vs OPEX / RESCO BOOT )

These savings can directly and positively impact the Company's bottom line as the savings translate into reduced cost of production.

B. Revenue addition by hedging against power cost rise + asset creation (CAPEX)
(Recommended for medium to long-term gains as Company starts saving once the project has paid back -> typically in 3 to 5 years and then FREE Power for remaining 20+ years)



Key points :
  1. CAPEX Project with Capital investment from the Company wherein payback can be anywhere in 3-5 years and the asset then delivers FREE Power for 20+ years.
  2. In the real world payback would be much shorter as we have considered a nominal grid tariff of INR 6.0 per kWh but the tariff is much higher than this for Industrial and Commercial users. 
  3. Per annum escalation in grid tariff is considered at a nominal 3% which is conservative as grid tariff is expected to shoot up at a much higher rate in the coming few years as Government continues to shut-down conventional older generation power plants.
  4. A Company can also claim 40% Accelerated Depreciation (as per Indian IT rules) benefit for investment made in Solar Power Project thereby reducing the Company's tax liability.
(Another interesting article - Does Energy Audit really save energy?)

We have only considered CAPEX (self-funded) and OPEX (100% 3rd party funded) financing models as they are the most popular ones in India. Additionally there are a variety of other financing options possible too. A customized financing option can work out in favor of all the stakeholders involved thereby providing maximum benefits to your Company.

If you have any comments / feedback / queries then please comment below. Alternatively you could also send a mail to ENERCO@YMAIL.COM    OR    SOLAR@ECONSERVE.IN  if you have any specific query pertaining to your requirements or in general.

Enerco Energy Solutions LLP (estd. in 2009) specializes in INDUSTRIAL & COMMERCIAL Solar Project Financing & Execution., we offer -
  1. Maximum possible financing options (OPEX / Low-cost EPC / EMI / Deferred CAPEX etc.) and assist you in choosing the most suitable financing option inline with your requirements.
  2. High-end Techno-Commercial solution to  ensure optimum project size and best output.
  3. Variety of Project Configurations including Captive / Open Access / Group Captive / 3rd Party  etc.
Do visit www.econserve.in to know more....