Solar Energy Consultancy Scope
Core expertise in the following areas.
Project & Equity Financing
Understanding Project and Equity Financing for solar energy projects is key for success of every venture in the industry and a basic requirement for every clean energy consultant. Access to capital remains the biggest advantage of project developers and investors, while lending institutions are selectively deploying in proven sponsor companies, technologies and geographies.
When it comes to solar project finance, cash is queen: most energy consumers, or “off-takers,” finance their solar installations. There are three factors driving the prevalence of solar project finance:
Savvy buyers employ a “matching strategy” to reduce solar project finance exposure and risk by tying the duration of the asset’s financing to its lifespan. A well installed solar facility should produce energy for 30+ years, so longer term financing makes sense.
Today’s debt is cheap. In our persistent low-interest rate economy, investors are increasingly turning to solar investments to deliver a reliable, compelling returns. Faced with 20-year T-bill yields under 3%, many investors prefer the stability and return of a solar project finance investment.
PPA & Lease Agreements
A Solar Power Purchase Agreement (SPPA) is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and a host customer agrees to site the system on its property and purchases the system’s electric output from the solar services provider for a predetermined period. This financial arrangement allows the host customer to receive stable and often low-cost electricity, while the solar services provider or another party acquires valuable financial benefits, such as tax credits and income generated from the sale of electricity.
With this business model, the host customer buys the services produced by the PV system rather than the PV system itself. This framework is referred to as the “solar services” model, and the developers who offer SPPAs are known as solar services providers. SPPA arrangements enable the host customer to avoid many of the traditional barriers to the installation of on-site solar systems: high upfront capital costs, system performance risk, and complex design and permitting processes. In addition, SPPA arrangements can be cash flow positive for the host customer from the day the system is commissioned. Your PV consultant will guide you through the specifics of a good PPA.
Market Analysis & Research
The global solar energy market was valued at $52.5 billion in 2018 and is projected to reach $223.3 billion by 2026, growing at a CAGR of 20.5% from 2019 to 2026.
This global solar energy market size is segmented based on technology, application, component, marketing channel and region. Depending on technology, the market is classified as photovoltaic systems and concentrated solar power systems (parabolic trough, solar power tower, Fresnel reflectors and dish stirling). As per solar module, it is segregated into monocrystalline, polycrystalline, cadmium telluride, amorphous silicon cells and others. Based on application, it classified into residential, commercial and industrial. Depending on end use, the market is classified into electricity generation, lighting, heating and charging. Based on region, it is analyzed across North America (U.S., Canada, and Mexico), Europe (Germany, France, Italy, Spain, UK and rest of Europe), Asia-Pacific (China, India, Japan, South Korea, Australia, and rest of Asia-Pacific), and LAMEA (Brazil, South Africa, Israel, and rest of LAMEA).
The competition has significantly increased among manufacturers with the development in photovoltaic-based power distribution systems. Moreover, the price of solar modules differs significantly in regions of Europe and Asia-Pacific, as the market is demand oriented. In addition, reduced profitability of module manufacturers and market acquisition stress lead to decline in the prices of solar panels. Furthermore, fluctuating price of silver, which is a major raw material in solar module, drives the demand for solar panel installations and assist the solar energy market growth.
Every single solar consultant will confirm that the adoption of PV system technology is marginally affected by factors such as reliability, overall production, and competitiveness. In addition, overall climatic conditions and geographical latitudes restrain the solar energy market growth, especially in snowfall- and rainfall-prone regions.
The development of photovoltaic (PV) storage systems is essential to increase the ability of PV systems to replace the existing conventional sources. With the rise in demand for PV installations, the adoption of storage grid is projected to increase, which fuels the demand for lithium ion-powered battery for solar energy storage and increase the solar energy market growth.
Legal Framework & Regulations
Government regulation has an important role to play in encouraging renewable energy investment around the world.
Finance can play a big role in facilitating the European Union (EU)’s clean energy transition and that the EIB hopes to become the EU’s climate bank. The EU Green Deal reflects a strong system change, with ambitions to attract EUR 1 trillion in renewable energy investments over the next decade, and to align all EU financing activities to The Paris Agreement principles by year-end.
As renewables interest has boomed across Europe, the EU has introduced state aid guidelines to moderate funding, and now, the European Commission Renewable Energy Directive requires member states to adapt their existing regulations “away from green certificate systems to more market responsive systems. This makes “renewable energy projects more exposed to market forces. They need to be more competitive which is good for consumers” but risky for investors “as their investment may not result in an attractive return.
Japan’s 2011 Fukushima Daiichi nuclear disaster drove Japan’s transition to clean energy. Before 2011, 20% to 30% of Japan’s electricity came from power plants, but in 2012, the government introduced a feed-in tariff for renewable energy, requiring electric utility operators to purchase electricity generated from renewable sources for fixed prices and durations set by the Minister of Economy, Trade and Industry. It is anticipated that this will drive investment in Japan’s renewable energy industry.
The contrast between the United Arab Emirates’s “large-scale renewable energy projects procured via the government, which has a controlling interest in utility scale projects, against Saudi Arabia, where the government develops renewable energy policies via government-controlled companies.
Financial Modelling & IRR Calculations
The adoption of a photovoltaic system has positive environmental effects, but the main driver of the choice in the industrial and commercial sector is economic profitability. Hiring a solar consulting firm and preparing to switch from acquisition of energy to production of energy is an investment with costs (e.g. leasing annual payment, O&M costs, capital expenditure) and benefits (e.g. savings in the electric bill, sale of the energy exceeding consumptions). In my work, I use an accounting-and-finance model to calculate the Equity Net Present Value in different scenarios and a sensitivity-analysis method (Finite Change Sensitivity Index) to explain the reasons for differences in results. This technique enables identifying the contribution of any input factor in the output value variation. In this way, the investor can draw attention on the most significant critical variables in the initial estimations to ensure success in forecasting.
Key Market Participants
A Competitive Analysis from your solar energy consultant can help you learn the ins and outs of how your competition works, and identify potential opportunities where you can out-perform them.
It also enables you to stay atop of industry trends and ensure your product is consistently meeting — and exceeding — industry standards.
Let’s dive into a few more benefits of conducting competitive analyses:
- Helps you identify your product’s unique value proposition and what makes your product different from competitors’, which can inform future marketing efforts.
- Enables you to identify what your competitor is doing right. This information is critical for staying relevant and ensuring both your product and your marketing campaigns are outperforming industry standards.
- Tells you where your competitors are falling short — which helps you identify areas of opportunities in the marketplace, and test out new, unique marketing strategies they haven’t taken advantage of.
- Learn through customer reviews what’s missing in a competitor’s product, and consider how you might add features to your own product to meet those needs.
- Provides you with a benchmark against which you can measure your own growth.
Marketing & Sales Strategies
Without a strategy from a solar power consultant, all your Marketing and Sales activities and tactics might be for nothing. After all, if they don’t all work in concert to drive pipeline and customer acquisition, what’s the point? Savvy companies realize that a Sales and Marketing strategy is the next most important one after the overall business plan. It outlines how Sales and Marketing will orchestrate their efforts to achieve your key business goals, helping shape your organization’s success and future.
Supply Chain & Project Construction
There are distinct segments within the whole eco-system of solar power, starting from the manufacturing of equipment and module production all the way to the installation and operation. Among them are also activities that span the whole lifecycle such as consulting and financing as well as publishing and training. The main products of the manufacturing process are polysilicon, wafers, cells, modules, mounting and tracking systems and electrical components. Services include project development, wholesale distribution, design, engineering, construction and maintenance.
Mergers & Acquisitions
Much of the M&A activity in renewables is being driven by traditional energy businesses scrambling to acquire new capabilities and institutional investors looking for stable and predictable returns. In addition, we see diversification of the landscape with new players like oil and gas companies coming into the game.
Utilities are also racing to keep pace with public demands to tackle climate change.
Another deal driver is renewable energy integration. Australia, for example, is facing some of the most complex integration of renewables in the world, with coal down 20 percent since 2008 and wind power up 325 percent in the same time period according to the Australian Energy Market Operator (AEMO). There is also the “potential for an annual energy shortfall in the domestic gas market” in eastern and southeastern Australia. Solar and wind power, while on the rise, are dealing with a fragile and stretched energy grid in many areas.
While integrating such a complex energy mix can cause headaches for end users and government policy-makers, it gives investors opportunities.
Valuation is a factor in investment decisions, with investors anticipating major shifts in value for some renewables sub-sectors. Among the deal-specific factors influencing the valuation of individual renewable assets are asset quality, cost of finance, regulatory stability, the state of the wholesale energy market, evolution of the competitive environment, the lifecycle stage of the asset relative to the prevailing subsidy regime, and curtailment risks that lie beyond the control of the asset owner.
All of these factors vary markedly between geographies and across sub-sectors. Eighty-two percent of respondents expect valuations to rise over the next 24 months for offshore renewables, closely followed by photovoltaic solar (81 percent). Majorities also expect increases in the hydropower (68 percent) and thermal solar (51 percent) sub-sectors.
Electricity & Feed-in-Tariffs
A feed-in tariff (FIT, FiT, standard offer contract, advanced renewable tariff, or renewable energy payments) is a policy mechanism designed to accelerate investment in renewable energy technologies by offering long-term contracts to renewable energy producers. Their goal is to offer cost-based compensation to renewable energy producers, providing price certainty and long-term contracts that help finance renewable energy investments. Typically, FITs award different prices to different sources of renewable energy in order to encourage development of one technology over another. For example, technologies such as wind power and solar PV, are awarded a higher price per kWh than tidal power. FITs often include a “degression”, a gradual decrease of the price or tariff, in order to follow and encourage technological cost reductions.
In 2020 states, cities, utilities, and businesses continued to announce or pursue decarbonization plans, despite the onset of a global pandemic and an economic recession. Even without a direct incentive for green infrastructure development in the economic stimulus measures passed in response to COVID-19, clean energy demand in the United States proved resilient as renewables and storage recorded declining costs and rising capacity and usage factors. What’s more, renewables edged out other electricity generation sources when electric demand fell this year. As of early December, the share of renewables had exceeded that of coal in generation for 153 days compared with 39 days in 2019. According to the US Energy Information Administration (EIA), electricity consumption will likely fall by 3.9% year over year in 2020 and increase 1.3% in 2021.
Solar power consultants predict that Renewable growth may accelerate in 2021 as the new administration starts to execute on a platform that includes rejoining the Paris Climate Accord, investing $2 trillion in clean energy, and fully decarbonizing the power sector by 2035 in order to achieve a larger goal of net-zero carbon emissions by 2050. A new administration is expected to wield its executive authority to facilitate the deployment of renewables. This may include powers over emissions, public lands, procurement, foreign relations, trade, and agency appointments.
For an industry that has focused heavily on solar and wind, supportive actions could help progress timelines for further expansion into new technologies, including advanced batteries and other forms of storage, offshore wind, and green hydrogen technology. As these new technologies, especially green hydrogen production and storage, move toward commercialization, we may see more power-to-x projects to store, convert, and reconvert surplus solar and wind power into carbon-neutral fuels and chemicals.
The potential for increasing renewable energy demand, as well as the electrification of the transportation and industrial sectors and oil and gas companies’ plans to increase participation in the electricity value chain, are accelerating energy industry convergence. These trends may foster collaboration that gives rise to new business models and helps advance the energy transition.
Get in touch today