Economic and financial feasibility of PV projects

Transcription

1 Economic and financial feasibility of PV projects Monika BIERI Research Associate Solar Energy Research Institute of Singapore (SERIS) National University of Singapore (NUS) SERIS INDUSTRY DAY on PV Quality and Asset Management NUS, University Hall 14 August

2 Agenda 1. Country and market risk assessments (macro level) 2. Solar economics studies 2

3 1. Country and market risk assessment (macro level) 3

4 What factors banks/lenders consider: Top-down decision-making Country level Sector level Sponsor level Project level Political and macroeconomic situation Enforceability of contracts Supply/demand Regulation Competition Future development Stakeholder analysis Track record Financial health Reputation Technical experience Capacity Design, technology Procurement Competitiveness Tariff, demand Environmental, social aspects Off-takers credit quality 4

5 Country level: cost of financing Example: WACC calculation across different cities, 60% debt ratio Cambodia: high country risk Germany, Switzerland, Japan: low risk-free rates US: high tax rate India: high inflation rate Thailand: favourable financing RFR = risk-free rates, MRP = market risk premium, b = beta, CoE = Cost of Equity, DP = debt premium, CoD = Cost of Debt, TR = tax rate, WACC = weighted average cost of capital, IF = inflation rate 5

6 Sector level remuneration framework Supportive policies and level playing field important Global market incentives and enablers: An end to fossil fuel subsidies (USD 325bn*) would make renewable energy subsidies (USD150bn*) obsolete Data source: IEA PVPS Trends 2016 in Photovoltaic Applications, *IEA 2015 data (WEO2016) 6

7 Example: Singapore s policy approach While there are no direct subsidies, there is indirect support government private sector 7

8 No FiT: what future electricity prices? Scenario analysis important to understand underlying key drivers What is the cost of the primary fuel (gas) of the marginal power plant? What is the supply/demand outlook for the sector? Will the update of renewables change the merit order of the market? Oil price scenarios* Reserve margin scenarios + wholesale electricity price scenarios * As per Brent oil forward price curve of 27 June 2017 grid price scenarios 8

9 Wholesale electricity price scenarios* Uniform Singapore Energy Price (USEP) The addition of bulky new gas power plants to prevent the reserve margin to fall below 30% (25% for the maximum scenario) causes the spikes in the energy price. *As per 27-Jun-2017 Brent forward price curve, Spot Brent oil price: 46.7 USD/barrel 9

10 Other aspects of market analysis Identify and analysis key stakeholders and the amount of competition Electricity generation mix and how it will evolve in the future Regulation versus liberalisation, implication on power price, consumer choice, political component etc. Legacy issues being solved in the future (e.g. halt of vesting regimes, re-negotiation of supply or IPP contracts etc.) 10

11 2. Solar economics studies 11

12 Example: 1MWp industrial roof in SGP System size: 1 MWp, System price: ~920 USD/kW p Total investment: USD ~920k (of which equity ~370k) 60% debt finance, 3% over risk-free rate, 10 years at 5.5% 8.9% equity cost, 17% tax rate, 6.3% discount rate 80% performance ratio, average irradiance of ~1,632 kwh/m 2 (P50) First year energy yield: ~1,306 kwh/kwp 1.0% degradation rate p.a., 25 years operational life 0.3% insurance cost p.a. (in % of total investment cost) Cost inflation 2.7% p.a. Annual operating and maintenance expense: 7.1 USD/kW p Inverter warranty extension cost at 20%, 45% and 60% of prevailing inverter price factored in every 5 th year, respectively (increasing with the average age of the inverters) LCOE = 7.6 USD cents per kwh (pre-tax) 12

13 Sensitivity analysis (individual ranges) Most critical LCOE parameters are discount rate and durability 13

14 How does that compare to other cities? Main input parameters into the LCOE calculation Singapore compares well in terms of system price (competitive EPC landscape) and discount rate (base on 60% debt-financing) Due to cloudy skies in the afternoon, does not has enjoy as much as irradiance as in India and other surrounding cities, however is still considerable more than in Germany and Switzerland 14

15 Singapore ranks third After Delhi (1.) and Bangkok (2.) Delhi benefits from its excellent irradiance resource Bangkok s low discount rate is thanks to its favourable debt financing schemes Singapore would rank 6 th in case debt financing is not available 15

16 Solar PV competitiveness in Singapore With latest solar module price declines, solar reached grid parity against new gas-fired plants again in 4Q16 Grid parity not yet reached with wholesale power prices, which are lower due to overcapacity (1H17 average ~5.9 USD cents/kwh) Data source: EMA for LCOE of a new gas-fired power plant (allocated vesting price), EMC 16

17 Self-consumption is economic viable NPV profile example of a 1 MWp rooftop system Assumption: base year 0 = 2016, future prices in line with SERIS contestable client price scenarios* Equity IRR: Equity Equity IRR: IRR:25.9% Maximum: Most-likely: 18.0% Most-likely: 18.0% 23.7% 18.0% Most-likely: Minimum: 7.8% Project IRR: Project IRR: IRR: Project Most-likely: 12.1% Most-likely:16.1% 12.1% Maximum: Most-likely: 12.1% Minimum: 6.2% Discounted payback period can be shortened by four years in case loan maturity is extended to 20 years instead of 10 years. *As per 27-Jun-2017 Brent forward price curve, Spot Brent oil price: 46.7 USD/barrel 17

18 Lowest LCOE tendered (USD cts/kwh) Dubai 2.99 Mexico 2.70 India 3.80 Chile 2.91 Abu Dhabi 2.42 Picture source: Solargis, price sources PV-Tech, as of June

19 How is 2.4 USD cents/kwh possible? Unique composition of favorable financing cost, high irradiance resource and economies of scale benefits (1.18 GW) High capturing of irradiance possible via 1-axis tracking system Comment: only for illustrative purpose to show how 2.4 USD cents/kwh is possible by changing certain underlying parameters, *inverter warranty extension and insurance premium reduced 19

20 Grid parity a challenge in Southeast Asia Biggest disadvantage for solar are ongoing fossil fuel subsidies in some of the countries Grid parity reached or in reach: Cambodia, Vietnam, Lao PDR, Philippines, Singapore and Thailand Government incentives might help to grow solar in countries with no grid parity Source for implied subsidy estimates: International Energy Consultants (IEC), Regional/Global Comparison of Retail Electricity Tariffs, provided for Meralco 20

21 Environmental Attributes Calculator Country-specific parameters to visualise environmental benefits Green electricity production (kwh): 23,651,704 Avoided CO 2 emissions over the system s lifetime (tco 2 ): 9,539 On-line web-tool available on request to issue environmental attributes assessment reports Example: 1 MWp rooftop system in Singapore, operating 20 years 21

22 Selling voluntary green attributes Additional revenue stream to fulfil corporates sustainability targets APX forms the central platform where each 1 MWh produced green attributes are tracked via individual serial numbers until retirement Interested client virtual off-site commercial PPA agreed quantity and price per TIGR* (1 TIGR = 1 MWh green attributes) Renewable generator verified MWh retirement account TIGRs* Registry (APX) asset owner account QRE account verified generation APX verifies assets *Tradable Instruments for Global Renewables, **Qualified Reporting Entity 3 rd Party Verifier (QRE**) 22

23 Summary Why fundamental analysis is important A number of country-specific factors influence the economic viability of a PV project, especially financing Where grid parity is not yet in reach, the regulatory framework and robustness of policy support needs to be carefully analysed A scenario analysis of future electricity prices is important to understand revenue impact and competitiveness of project A stakeholder analysis of the sector is required for strategic reasons (i.e. is a level-playing field ensured or is a co-operation with incumbents a better choice?) With solar electricity becoming increasingly competitive (hence don t need government support anymore), classic assessments of investments (in PV) will take over and therefore risk mitigation measures will be key, especially country and exchange rate risks 23

24 Don t hesitate to contact us: monika.bieri@nus.edu.sg More information at SERIS.Singapore Solar Energy Research Institute of Singapore 24