Assessing & Modeling Solar Resource; For Small and Mid-Sized Solar Developers [SMDs]
In the previous article, we covered the Cost of Capital which is the main driver for PPA prices, and the competitiveness of an SMD. Today, we will cover another major driver; The Solar Resource Potential.
We have started eDGe Renewable Partners with a mission to help SMDs find the right financing, technology and development partners; we believe that SMDs are the key to the world’s successful transition into a green, low-carbon and sustainable economy. (To learn more about us, follow us on Linkedin or visit our website below).
The higher the solar production, the higher the MWh, the more competitive an SMD will be in an auction, bid or PPA pricing scenario. We will cover the major drivers that impact the solar resources and provide some financial modeling tips to efficiently model this item.
Solar production is driven by two factors 1- The solar global horizontal irradiation or the sun energy hitting a given location and 2- The efficiency of transforming sun light into energy.
1- Irradiation
Solar irradiation is mainly driven by the location of the plant with a high correlation to the number of day light hours and the elevation above sea level and local climate (i.e. deserts with mostly no rain and clouds will have high solar irradiation). Looking at the map below the greatest solar irradiation areas are coincide with the desert regions of the world.
Africa, Middle East, Australia and parts of South America high in the Andes, offer the highest irradiance and consequently, the lowest PPA prices being offered in those regions. Conversely Europe and Northern parts of North America and Asia have the lowest solar irradiation and thus have much higher winning PPA prices.
As an SMD, depending on the kind of project, you might have some control on the project location which then might provide you with a competitive advantage. However, in most cases, location is already chosen for you and you would only be able to compete on the technology & the efficiency of transforming the solar irradiation into solar energy.
2- Technology & Efficiency
A solar plant is composed of three main parts, the solar panels, panel mounting system and the inverters.
“http://www.torpsystems.com/solar-specification.html”
2.1 - Panels
Solar panels are pretty much off-the -shelf items which most developers will have access to. The choice of panels should be driven by three main factors: their efficiency, cost and bankability. Debt providers usually insist on panels coming from reputable first-tier suppliers that provide comprehensive warranties and have been tested. Once a list of panel suppliers has been narrowed to bankable suppliers an economic optimization process should be performed by running a financial model and evaluating the cost of the panel’s vs the solar generation.
Bifacial panels is a new and emerging technology which can provide an additional boost to the efficiency and production of the panels. This technology aims to also capture the solar energy that gets reflected from the ground (i.e. the back side of the panel). The reflection potential is known as albedo and it is shown below.
“https://earthobservatory.nasa.gov/images/2599/global-albedo”
This reflection potential is mainly driven by how well the surface reflects sunlight. It mostly correlates with desert areas (which have sand surface covering) and snowy areas. Bifacial modules might be able to provide a 10-15% (depends on the region ) increase in production at a slightly higher panel cost.
Most winning bidders of the auctions will use aggressive assumptions and will assume a price decrease on module prices, bet on a new technology that has yet to be tested or will try to use cheaper panels and aim to convince lenders on the bankability.
2.2 - Panel Mounting System
Panels can be mounted at a stationary tilt or on systems that provide tracking technology that follows the sun throughout the day. There are single-axis trackers which follow the sun only on one-axis and dual-axis trackers. Tracker can provide an additional boost in production but optimally gathering most of the sun’s energy but come at a cost. The costs are increased capital expenditures at the out set of the project as well as higher operations costs during the life of the projects due to more moving parts than a fixed tilt project. Certain sites might not be optimal for trackers due to space constraints and shading from nearby panels.
SMDs should perform an economic optimization study that analyzes the trade-off between the higher costs of tracking technology and the improved solar generation.
2.3 - Inverters
Inverters are mostly of the shelf-items. There are two main technologies central and string-inverters. String inverters are located near the panels and convert less energy while central inverters are much bigger and collect the DC energy from a high number of panels and convert it centrally. Central inverters are cheaper than string inverters but come at the cost of possible higher outage costs. If a central inverter is out there is a much bigger loss in revenue compared to a string inverter being out. String inverters also provide an additional source of optimization by allowing to tweak the inverters for each panel rather than centrally.
3 - Resource Assessment
The industry standard resource assessment tool is PVSyst software which combines the solar irradiation data, albedo data and solar manufacturer specifications, and local details such as topography to calculate the production of a solar plant. During those studies scrutiny has to be given to the assumptions used such as the meteorological data sets and loss assumptions.
There is a number of meteorological data vendors some provide the data for free such a NREL and NASA, while other provide it for a cost such as SolarGis, DNV, Solaranywhere, Meteonorm and Solcast. When evaluating the datasets use detail should be taken to the source of the data (satellite or ground based), the distance of the collected data to the plant location as well as the historical data used to obtained the datasets. Lenders will typically hire an independent engineer to perform a independent resource study in order to determine bankability and inputs used for obtaining financing.
SMDs should assess the aggressiveness of their assumption and be aware of any revisions that they might have to make once an independent assessment is done.
There are a number of free resource assessment tools available online which can be used quickly to screen projects. Those should not be used as an alternative to a full blown analysis.
4- Modeling the Solar Resource:
Remember that: All technologies are freely available in the market; there are no competitive advantages when it comes to the technology used in a solar bid.
This means, similar to cost of capital in our previous article, that it is on you to figure out the most optimal technology partner for your project.
We usually see SMDs falling in the same mistake and modeling one scenario for their technology and/or design. We always recommend that you run as many scenarios (design, equipment, technologies, etc..) as possible in your model, to find the optimal financial model that will win you the bid.
Ensure that your capex and technology inputs match in your financial model (common error) when you run all these scenarios.
Similar to the 20:80 rule, differentiate between drivers and optimization. Bids/auctions usually have very tight timelines so focus on key drivers in your model that you control and could change to get the maximum impact. Optimizations (precision) could come later to get you additional margin or a few bps in your IRR.
5- Conclusion
The solar resource is a major driver that govern the solar production and thus the PPA price that can be offered. It is mainly driven by the location of the project.
SMDs should perform as assess the following items prior to submitting PPA bids:
Location of the project, projects should be located in areas with highest solar irradiation
Optimize technology selection for a given location considering different panels, panel mounting systems and inverters. Those should be optimized using a full financial model to obtain the best configuration that provides the most optimal generation for a given capital expenditure
Perform a full solar resource assessment with focusing on using bankable assumptions
To learn more about how eDGe Renewable Partners helps SMDs find the right financing, technology and development partners, follow us on LinkedIn or connect with us via email at samy@edgerp.ca
