Solar PV Business Models and Key Policy Considerations
Transcript of Solar PV Business Models and Key Policy Considerations
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Solar PV Business Models and Key Policy Considerations
Sopitsuda Tongsopit, Ph.D.
Energy Research Institute, Chulalongkorn University
Presentation at
Singapore’s Future Solar PV Strategies Conference
April 9, 2015
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Outline
1. Context:
Grid parity
Singapore vs. Thailand’s Context
2. Solar Business Models
3. Key Policy Considerations
4. Thailand’s Case Study
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Solar Grid Parity Map
Source: Deutsche Bank estimates. https://www.db.com/cr/en/concrete-deutsche-bank-report-solar-grid-parity-in-a-low-oil-price-era.htm (March 10, 2015)
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Countries with Regions of Grid Parity
Deutsche Bank Securities Inc. 2015. Deutsche Bank’s 2015 solar outlook: accelerating investment and cost competitiveness. https://www.db.com/cr/en/concrete-deutsche-banks-2015-solar-outlook.htm. Accessed March 12, 2015.
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Context for Innovative Rooftop PV Business Model Expansion
Singapore
• High reliance of natural gas for power generation (≈95%)1
• From 2005-2013, retail electricity rose by 5.1% (CAGR)2
• Average daily solar insolation: 4.55 kWh/m2/day
• Current solar power capacity: 25-30 MW
Thailand
• High reliance of natural gas for power generation (≈70%)
• Between 2005-2013, retail electricity rate rose by 3% (CAGR)
• Average daily solar insolation: 5.01 kWh/m2/day
• Current solar power capacity: 1,300 MW (end of 2014)
Source: 1. EMA. 2014. Singapore Energy Statistics 2014, Table 2.2 2. REC. 2014. Study on the Profitability of Commercial Self-Consumption Solar Installations in Singapore, http://www.recgroup.com/Documents/Downloadcenter/Solar%20product%20downloads/Solar%20Whitepapers/Solar_Study_Self_Consumption/Study_Self-Consumption_Singapore_Web_20141027.pdf?epslanguage=en
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LCOE Solar Power in Thailand Approaching Grid Parity Scale THB/kWh USD/kWh
Utility-Scale (>1 MW)
3.77 0.12
Commercial (10 kW-1MW)
4.71 0.15
Residential (<1 kW) 5.17 0.16
Notes: 1. Average residential electricity tariff (Apr 2015): 4.07 THB/kWh (0.13 USD/kWh)
2. Assume investment cost for utility-scale, commercial-scale, and residential scale: 50, 65, 70 THB/Wp respectively
3. Assume D:E ratio = 75:25 for all scales, varying interest rates
4. Assume 1 USD = 32 THB
Grid Parity
Even when the numbers make sense, rooftop solar businesses do not automatically take off.
The right market conditions require policy push.
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Existing Financing Options & Business Models for Rooftop Solar Systems
• Cash Purchase
• Bank Loans Self Financing
• Utility Loans (On-Bill Financing)
• Property Assessed Clean Energy (PACE) Utility and Public
Financing
• Crowdfunded Loan • Crowdfunded Leasing
Crowdfunding
• Solar Leasing
• Solar Power Purchase Agreements (PPA) Solar Service Models
• Solar Shares
• Roof Rental
• Community Solar, Etc. Other Models
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Self Financing: Loan Structure
EPC
Bank Residential/ Commercial
Utility
Sale of electricity
Installation +
Maintenance
Investment Cost
Loan
Paid P + I
Key Success Factor Credit Risk Management
PPA
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PACE Financing
EPC
Residential / Commercial
Municipality
Installation +
Maintenance
Investment Cost
Loan
Paid P + I with
Property Tax
Key Success Factor Lower interest rate/Longer
Loan Term Supportive Municipality
Offered in 31 U.S. states and Washington D.C.
Utility
Sale of Electricity or
Self-Consumption
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Sale of Electricity or
Self-Consumption
Utility Financing: On-Bill Financing
EPC
Residential / Commercial
Utility
Installation +
Maintenance
Investment Cost
Loan
Paid P + I through
Utility bill
Key Success Factor Lower risk of non-payment Supportive Utility
Offered by SCE, SMUD, Palo Alto Municipal Utility, and SDG&E in California; Hawaiian Electric Co
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Crowdfunding Loan Structure
I5 I1 I2 I3 I4
I7 I8 I9 I10 I11
I6
I...
EPC
Residential /Commercial
Installation +
Maintenance
Investment Cost
Utility
Sale of electricity
Developer Company
Loan
Paid P + I
Repayment P+I Fund PPA
Key Success Factor Strong Platform Compliance to Legal
Framework
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12
-Use of online communities to raise money from individuals to fund a project, initiative, or business.
-Investors/donors are typically ordinary people with little or no financial background. They invest because they want to support causes they believe in, more than seeking highest returns on money.
-Can be donations, lending, or investment in equities, but only donations face no regulations
-Proving to be a reliable and scalable solution – not just very early seed financing.
What is crowdfunding?
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The Solar Mosaic model
13
-The projects are first set up as a solar PPA, lease, or loan, and contracted with a host. Then Solar Mosaic gets the word out to seek funding for the project.
-Once it’s fully funded by individual investors, Solar Mosaic provides a loan to developers at the rate of 5.5% and pays a guaranteed rate of return over specified period to the investors (e.g. 4.5 percent interest for 9-10 years).
-Solar Mosaic gets: 1 percent fee from investors, and loan origination fee from the borrower.
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Solar Service Models: Leasing Structure
EPC
Leasing Company (Lessor)
Residential / Commercial
(Lessee)
Utility
Sale of electricity Or Self-Consumption
Installation +
Maintenance
Investment Cost
Lease
Lease Payment
Key Success Factor Net Savings > Lease Fee Tax Incentives Financially strong leasing
companies
Investors
Fund Repayment P+I
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Solar Leasing is a financing structure for rooftop solar systems in which…
• The developer (“solar lessor”) owns, installs, and operates a rooftop solar system on the site host’s property
• The site host (“solar lessee”) pays for the solar systems through monthly installments (fixed or escalating) and uses the solar electricity produced or sell it to receive FiT
• The site host receives benefits in terms of energy savings or FiT income
• Interest rates vary; The lease term is 15-20 years in the U.S. and potentially 3-10 years in Thailand (incentive structure highly affects interest and lease term)
• The Lessor provides performance guarantee and warranty against roof damage during the lease term
• Lessors in the U.S. include:
– Private companies (SolarCity, SunRun, Sungevity, SunPower, SunEdison)
– Utilities (Green Mountain Energy)
– Government’s fund (e.g., Connecticut Clean Energy Fund)
What is Solar Leasing?
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Solar Service Models: PPA Structure
EPC
Solar PPA Company
Residential/ Commercial
Installation +
Maintenance
Investment Cost
Electrical supply
PPA
Key Success Factor LCOE of Solar < Price of Electricity System O&M Enabling Legal Framework
Investors
Fund Repayment P+I
payment
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What is Solar PPA Model? • Similar to solar leasing model in that the
developer owns, installs, and operates a rooftop solar system on the site host’s property
• The only difference is that customers pay for power (kWh) the solar systems produce, as opposed to paying in monthly installments to lease the equipment.
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Community Shared Solar
Electrical supply
Key Success Factor Cooperation with
utility Virtual net-metering
regulation
I
5
I
1
I
2
I
3
I
4
I
7
I
8
I
9
I
1
0
I
1
1
I
6
I.
..
Community Solar Array
Utility
On-Bill Credit
Purchase of panels
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What is Community Shared Solar?
• There are variations in the structures, still being studied by US DOE.
• In one community shared model: – Customers (typically non-homeowners) have a share
in a solar farm by paying through cash/loan
– Solar electricity production is credited to the bills
– The developer earns profits from equipment mark-ups.
• Customers under master-sub metering scheme in Singapore can benefit from this business model.
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Key Policy Considerations 1. Are government incentives necessary? Can the business models emerge and
expand on their own?
2. Regulatory issues in liberalized vs. non-liberalized markets
– Will third-party owned systems be subject to regulation by the regulator?
– What kinds of permits are required? From which parties?
3. Presence and details of net-metering regulations
– Rate
– Fixed or escalated
– Rolling credit timeframe
– Capacity Cap
4. Roles of distribution and retail companies
– Invest
– O&M service
– Financing
5. Roles of policymakers/regulators
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Key Policy Considerations (1) 1. Are government incentives necessary? Can the business models emerge and expand on their own?
– In Singapore, “solar leasing” model has already emerged at the LCOE that is competitive with grid electricity
– However, more incentives can rapidly scale up the market. An example is the U.S. is the Investment Tax Credit (equivalent to 30% of the installed cost , available to system owners)
– Existing incentives in Thailand:
Board of Investment (BOI) tax incentive scheme: Three–year corporate income tax exemption on the tax base of an existing project, accounting for 50 percent of the investment cost of PV, excluding cost of land and working capital.
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Key Policy Considerations (2) 2. Regulatory issues in liberalized vs. non-liberalized markets
– Will third-party owned systems be subject to regulation by the regulator? • In liberalized Singapore market, retail customers that have consumer
choice of their power providers (contestable customers) can choose to purchase power from a solar leasing company or from other suppliers or both.
• In partially liberalized power market of Thailand, it is not clear whether retail customers can purchase electricity from an entity other than the monopoly utility in their service areas.
– What kinds of permits are required? From which parties? • Solar lessor in Singapore: is considered a system owner and requires
wholesaler (generation) license from the EMA if the generation is more than 1 MW and is connected to the grid ; Below 1 MW, the generator is exempted from licensing (EMA, 2014; EMA and Building and Construction Authority, 2014)
• Solar lessor in Thailand: same permitting requirements but may also need the “power selling” license
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3. Presence and details of net-metering regulations
– Rate: retail, wholesale, or others
– Rolling credit timeframe (hourly, daily, monthly, yearly)
– Cap of Capacity
• kW cap per system
• System-wide program cap (e.g., (e.g., 0.2% of peak demand in Georgia,
15% of peak demand in Vermont)
• Cap per circuit (e.g., % of peak demand in each circuit)
Key Policy Considerations (3)
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4. Roles of Distribution and Retail Companies • In liberalized market, retail companies can be active players in
innovative rooftop solar PV businesses
• In non-liberalized market, distribution companies may:
– Invest in rooftop solar businesses
– Provide O&M service
– Provide Financing (e.g., on-bill financing)
Key Policy Considerations (4)
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4. Roles of Policy Makers/Regulators:
• Singapore’s several initiatives to accommodate rooftop solar PV :
– For systems <1 MW, streamlining the process of selling electricity to
the grid
– For larger systems, setting a market participation framework and
pricing schemes
– Solar PV Handbook
• Thailand is in the process of drafting a net-metering regulation;
crowdfunding regulation
• Virtual net-metering offers opportunities for residents in public housing to
earn savings from solar power
Key Policy Considerations (5)
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Thailand’s Case Study
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Hydro 9.67%
Lignite & Coal 12.53%
Natural Gas 66.52%
Solar PV 2.26%
Wind 0.61%
Biomass 6.37%
Hydro
Fuel Oil
Diesel
Lignite & Coal
Natural Gas
Geothermal
Solar PV
Wind
Cogeneration
MSW
Biogas
Biomass
Share of Installed Capacity by Fuel type, 2013 Source: Department of Alternative Energy Development and Efficiency (DEDE), Ministry of Energy
Renewable Energy in Thailand
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Hydro 3.330%
Diesel 0.125%
Lignite & Coal 20.927%
Natural Gas 70.556%
Solar Cell
0.553%
Wind 0.209%
MSW 0.094%
Biogas 0.227%
Biomass 2.800%
Hydro
Fuel Oil
Diesel
Lignite & Coal
Natural Gas
Geothermal
Solar Cell
Wind
Cogeneration
MSW
Biogas
Biomass
Black Liquor
Waste Gas
Share of Generation by Fuel in 2013 (MWh)
Source: Department of Alternative Energy Development and Efficiency (DEDE), Ministry of Energy
Total = 168,477,511.462 MWh Share of renewables in total share of MWh = 4% (Excluding Hydro)
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Policy Initiation
Change of Rates 6.5 Baht/kWh
Solar Rooftop 6.16 – 6.96 Baht/kWh
1st Implementation: 8 Baht/kWh
15-year Plan (REDP) Solar Target: 500 MW
by 2022
10-year Plan (AEDP) Solar Target: 2000 MW by
2021
Change of Rates 5.66 - 6.85 Baht/kWh
(Draft) 20-year Plan Solar Target: ….. MW by
2036
Adder Scheme Feed-In-Tariff Scheme
3 Phases of Thailand’s Solar Policy and Support Schemes
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On-Grid Solar Installation Capacity, 2006-2014 (attributable to the Adder Scheme)
Source: Analyzed from VSPP, SPP data from EGAT, PEA and MEA
2006 2007 2008 2009 2010 2011 2012 2013 2014
Solar 0.01 1.09 1.78 7.72 26.29 102.97 353.91 775.94 1268.8
0
200
400
600
800
1,000
1,200
1,400MW
Solar
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On-Grid Solar Power in Different Countries by Scale of Installations
76%
97%
9%
19%
13%
19%
2%
81%
31%
1.26%
5%
1%
10%
50%
87%
98.73%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
UK
Italy
Germany
USA
Malaysia
Thailand
Residential-Scale Commercial- and Industrial-Scale Utility-Scale
(209 MW)
(776 MW)
(14,528 MW)
(507 MW)
(1,848 MW)
(24,800 MW)
Notes: status at various dates---UK (March, 2014); Italy (July, 2014), USA (first half, 2014); Malaysia (Jan 2014); Thailand (Dec 2013); Germany (2011)
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Changing conditions:
3.1 Declining solar PV module prices
3.2 Rooftop FiT in 2013, followed by net-metering policy framework passed by the National Reform Committee
3.3 Rising electricity prices
0
0.5
1
1.5
2
2.5
3
3.5
4
2000 2002 2004 2006 2008 2010 2012
THB
/kW
h
Average Electricity Tariff
Source: Electric Power in Thailand Report
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55 MW
609 MW
26 MW
100 MW
0
100
200
300
400
500
600
700
Residential (0-10 kW) Commercial and Industrial (>10 kW- 1MW)
MW
Total Capacity Proposed (MW) Total Capacity Approved (MW)
Feed-in-Tariff for Rooftop Solar PV (May 2014) Proposed and Approved Status vs. Target
3,283 projects
193 projects
1,481 projects
6,437 projects
TARGET
Response to 2013 Rooftop PV Feed-in Tariffs (First Round)
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Thailand Case Study
• Evolving from FiT era to grid-parity era
• Policy uncertainties during the FiT era gave rise to business models that are shielded from policy uncertainties
• Continuous support in the form of FiT very unlikely but other forms of incentives, such as tax credits, may be possible.
• Investment climate for rooftop solar is improving with many policy frameworks being studied and financial institutions’ involvement:
– Net-metering
– Solar crowdfunding
– Special loan packages for residential and commercial solar rooftop investment
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Emerging Rooftop Business models in Thailand
• Prospects: Developers, EPC, Utility
• Roof type: Warehouse, Shopping malls, Factories
• Limitations: FiT quota, bureaucracy’s unfamiliarity with roof rental contracts
Roof Rental
• Prospects: Developers, EPC, Utility
• Limitations: legal backing, transparency of tariff structure, prediction of grid parity
Solar PPA
• Prospects: Financial Leasing Companies, Developers, EPC
• Limitations: Collateral, Lease term, Lack of secondary markets, Risk-averse players, uncertainties on net-metering regulations
Solar Leasing
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Emerging Rooftop Business models in Thailand (cont.)
• Prospects: Co-ops, Developers, EPC, Utility
• Limitations: Legal interpretation of co-op purposes
Community Solar
Source: http://www.greentechmedia.com/articles/read/First-Solar-Jumps-Into-Residential-PV-with-an-Investment-in-CECs-Community
“In Thailand, 99% of the households that joined the feed-in tariff program are from the high-income segment”
-Dr. Dusit Krea-Ngam, Chairman of TPVA
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CODI Model
Electrical supply
Key Success Factor Strong Co-op Enabling Co-op rules EPC
Company
Co-op Co-op
Common Fund
Utility I
5
I
1
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2
I
3
I
4
I
7
I
8
I
9
I
1
0
I
1
1
I
6
I.
.. FiT
EPC and Investment
Return: 14.5% of FiT
Long-term Loan
Interest 2% / yr
65.5 % of FiT
20% of FiT
100 % investment
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Bangkok Slums Map,
(2013)
Estimated 1.2 Million
Residents and Rooftops
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Empowering Communities