Business Models in Distributed Solar PV Presented by Nalin Agarwal (PR Clean Energy) FGC-MNIT Training program on solar power project development October 2015
THE BASICS: WHAT MAKES SOLAR UNIQUE AS AN ASSET CLASS Projects Technology: Mature & reliable Yield Estimation: Increasingly improving weather prediction models Execution: Short time to commissioning Mature eco-system of stakeholders: /SIs, Developers, Investors & Lenders Financing Capital Cost: Downward curve (stabilizing period now) Cash Flow: Stable & predictable Sophisticated financial engineering: Green Bonds, Corporate Bonds, ABS (e.g SolarCity) Monetisation: Yieldcos, Growthcos Regulatory Dispatch: Must-run / priority
MARKET SEGMENTS: HOW THE GRID-TIED PV MARKET IS CLASSIFIED Utility scale Distributed C&I Residential Ground-based gridconnected 11kV & above injection On-site gridconnected at commercial or industrial sites 415V-11kV interconnection Rooftop gridconnected ~220V interconnection
THE DRIVERS: WHAT INFLUENCES DECISION MAKING Distributed C&I Residential / Educational institutions Lower cost of power With or without upfront capital investment Tax benefits Green/CSR Lower cost of power With NO large upfront capital investment
CAPITAL STRUCTURING: HOW SOLAR PROJECTS ARE FINANCED Debt Equity 60 80% 20 40% Debt Type of Debt Bridge/Construction financing Long-term financing Sources Commercial Banks Development banks Bond issuances Equity Type of Equity Common equity Sources Promoters or Internal Accruals Private Equity (Later) Insurance or Pension funds
BUSINESS MODELS: WHAT IS COMMERCIALLY VIABLE SOLAR ASSET Self-Owned Third-party-Owned (TPO) Single-party (Capex) Communityowned PPA Lease Crowdfunding
BUSINESS MODELS SELF-OWNED: CAPEX The owner & the consumer is the same Company Risk Allocation Own. Cons. Contract payment Development Construction O&M Owner + Consumer Generation Power consumed
BUSINESS MODELS SELF-OWNED: COMMUNITY-OWNED The community (and/or developer) is the owner, and also the consumers Contract Developer Company Project Company Community payment Risk Allocation Own. Cons. Development Construction O&M Generation PPA Energy sale payments Community Power consumed
BUSINESS MODELS TPO: PPA/OPEX The owner is the investor, and the consumer is the offtaker Company Risk Allocation Own. Cons. Contract payment Development Construction O&M Developer / Investor (SPV or Balance Sheet) Generation PPA Energy sale payments Consumer / Off-taker Power consumed
BUSINESS MODELS TPO: LEASING The legal owner is the investor, and the consumer is the beneficial owner Company Risk Allocation Own. Cons. Contract payment Development Construction O&M Solar Leasing Company (Lessor) Generation Hire-Purchase Agreement Hire rental payments Consumer / Off-taker (Lessee) Power consumed
BUSINESS MODELS - INNOVATION: TPO: CROWDFUNDING Contractual relationship same as PPA; Crowd substitutes debt or equity Company Risk Allocation Own. Cons. Contract payment Development Construction O&M Project Company Generation Developer Crowd PPA Energy sale payments Consumer / Off-taker Power consumed
ANALYSIS OF BUSINESS MODELS: BY COUNTRY Country C&I Residential USA Capex (Tax-led) Leasing / PPA Germany Capex (FIT-led) Capex (FIT-led) France Capex (FIT-led) Capex (FIT-led) Italy Capex (FIT-led) Capex (FIT-led) Japan Capex (FIT-led) Capex (FIT-led) Australia - Capex (FIT-led) India Dominant business models by country-segment Capex (Tax-led) & PPA HP Leasing next?
ANALYSIS OF BUSINESS MODELS: BY COMPANY Business models of different companies Company Geo-focus B-Model Focus Segment SolarCity USA Leasing / PPA Residential Sungevity USA Leasing / PPA Residential Mosaic USA Crowdfunding Edu. Abundance UK Crowdfunding Edu./Townships Amplus Southeast Asia PPA C&I Clean Tech India PPA C&I Azure India PPA C&I PRCE India - HP - CF PPA - C&I - Edu.
FINANCIAL INNOVATION: IMPROVING RETURNS FROM SOLAR Green Bonds Corporate Bonds Asset-backed securities Which kind of financial innovation is happening in solar? Yieldcos / Growthcos Tax efficient trusts (REITs, BTs) Pay-as-you-go (Off-grid)
BOTTOMLINE: RISK MANAGEMENT It all boils down to managing risk once identified & assessed, risks must be managed by either Avoidance (A), Mitigation (M), Transfer (T) or Acceptance (Ac) Type of Risk Nature of Risk Management Country risk External None (A or Ac) Policy/regulatory risk External None (A or Ac) Currency risk External Hedging (M) PPA Counter-party risk External Credit-assessment (M) Radiation risk External Yield assessment (M) Development risk Internal Process-control (M) Execution risk Internal Process-control (M) Operational risk Internal Process-control (M) Force Majeure External Insurance (T)
Thank you! (and Questions)