Solar PV Business Models and Key Policy Considerations

Transcription

1 Solar PV Business Models and Key Policy Considerations Sopitsuda Tongsopit, Ph.D. Energy Research nstitute, Chulalongkorn University Presentation at Singapore s Future Solar PV Strategies Conference April 9, 2015

2 Outline 1. Context: Grid parity Singapore vs. Thailand s Context 2. Solar Business Models 3. Key Policy Considerations 4. Thailand s Case Study

3 Solar Grid Parity Map Source: Deutsche Bank estimates. (March 10, 2015)

4 Countries with Regions of Grid Parity Deutsche Bank Securities nc Deutsche Bank s 2015 solar outlook: accelerating investment and cost competitiveness. Accessed March 12, 2015.

5 Context for nnovative Rooftop PV Business Model Expansion Singapore Thailand High reliance of natural gas for power generation ( 95%) 1 From , retail electricity rose by 5.1% (CAGR) 2 Average daily solar insolation: 4.55 kwh/m 2 /day Current solar power capacity: MW High reliance of natural gas for power generation ( 70%) Between , retail electricity rate rose by 3% (CAGR) Average daily solar insolation: 5.01 kwh/m 2 /day Current solar power capacity: 1,300 MW (end of 2014) Source: 1. EMA Singapore Energy Statistics 2014, Table REC Study on the Profitability of Commercial Self-Consumption Solar nstallations in Singapore, /Study_Self-Consumption_Singapore_Web_ pdf?epslanguage=en

6 LCOE Solar Power in Thailand Approaching Grid Parity Scale THB/kWh USD/kWh Utility-Scale (>1 MW) Commercial (10 kw-1mw) Residential (<1 kw) Even when the numbers make sense, rooftop solar businesses do not automatically take off. The right market conditions require policy push. 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

7 Existing Financing Options & Business Models for Rooftop Solar Systems Self Financing Cash Purchase Bank Loans Utility and Public Financing Utility Loans (On-Bill Financing) Property Assessed Clean Energy (PACE) Crowdfunding Crowdfunded Loan Crowdfunded Leasing Solar Service Models Other Models Solar Leasing Solar Power Purchase Agreements (PPA) Solar Shares Roof Rental Community Solar, Etc.

8 Self Financing: Loan Structure Utility Sale of electricity PPA Bank Key Success Factor Credit Risk Management Loan Paid P + nstallation + Maintenance Residential/ Commercial EPC nvestment Cost

9 PACE Financing Municipality Key Success Factor Lower interest rate/longer Loan Term Supportive Municipality Offered in 31 U.S. states and Washington D.C. Utility Loan Paid P + with Property Tax Sale of Electricity or Self-Consumption nstallation + Maintenance Residential / Commercial EPC nvestment Cost

10 Utility Financing: On-Bill Financing Utility Loan Paid P + through Utility bill Key Success Factor Lower risk of non-payment Supportive Utility Sale of Electricity or Self-Consumption nstallation + Maintenance Residential / Commercial EPC nvestment Cost Offered by SCE, SMUD, Palo Alto Municipal Utility, and SDG&E in California; Hawaiian Electric Co

11 Crowdfunding Loan Structure Utility Repayment P+ Fund Sale of electricity PPA Developer Company Key Success Factor Strong Platform Compliance to Legal Framework Loan Paid P + nstallation + Maintenance Residential /Commercial EPC nvestment Cost

12 What is crowdfunding? -Use of online communities to raise money from individuals to fund a project, initiative, or business. -nvestors/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. 12

13 The Solar Mosaic model -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. 13

14 Solar Service Models: Leasing Structure nvestors Utility Repayment P+ Fund Sale of electricity Or Self-Consumption Leasing Company (Lessor) nstallation + Maintenance EPC nvestment Cost Lease Lease Payment Residential / Commercial (Lessee) Key Success Factor Net Savings > Lease Fee Tax ncentives Financially strong leasing companies

15 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 nterest rates vary; The lease term is 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) What is Solar Leasing? Government s fund (e.g., Connecticut Clean Energy Fund)

16 Solar Service Models: PPA Structure nvestors Repayment P+ Fund nstallation + Maintenance Solar PPA Company EPC nvestment Cost Electrical supply PPA payment Residential/ Commercial Key Success Factor LCOE of Solar < Price of Electricity System O&M Enabling Legal Framework

17 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.

18 Community Shared Solar Community Solar Array Key Success Factor Cooperation with utility Virtual net-metering regulation Purchase of panels Electrical supply On-Bill Credit Utility

19 What is Community Shared Solar? There are variations in the structures, still being studied by US DOE. n 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 markups. Customers under master-sub metering scheme in Singapore can benefit from this business model.

20 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 nvest O&M service Financing 5. Roles of policymakers/regulators

21 Key Policy Considerations (1) 1. Are government incentives necessary? Can the business models emerge and expand on their own? n 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 nvestment Tax Credit (equivalent to 30% of the installed cost, available to system owners) Existing incentives in Thailand: Board of nvestment (BO) 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.

22 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? n 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. n 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

23 Key Policy Considerations (3) 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)

24 Key Policy Considerations (4) 4. Roles of Distribution and Retail Companies n liberalized market, retail companies can be active players in innovative rooftop solar PV businesses n non-liberalized market, distribution companies may: nvest in rooftop solar businesses Provide O&M service Provide Financing (e.g., on-bill financing)

25 Key Policy Considerations (5) 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

26 Thailand s Case Study

27 Renewable Energy in Thailand Wind 0.61% Solar PV 2.26% Biomass 6.37% Hydro 9.67% Lignite & Coal 12.53% Hydro Fuel Oil Diesel Lignite & Coal Natural Gas Geothermal Solar PV Natural Gas 66.52% Wind Cogeneration MSW Biogas Biomass Share of nstalled Capacity by Fuel type, 2013 Source: Department of Alternative Energy Development and Efficiency (DEDE), Ministry of Energy

28 Share of Generation by Fuel in 2013 (MWh) Solar Cell 0.553% Biogas 0.227% MSW 0.094% Wind 0.209% Biomass 2.800% Hydro 3.330% Diesel 0.125% Hydro Fuel Oil Diesel Lignite & Coal Natural Gas Geothermal Lignite & Coal % Solar Cell Wind Cogeneration MSW Biogas Natural Gas % Biomass Black Liquor Waste Gas Total = 168,477, MWh Share of renewables in total share of MWh = 4% (Excluding Hydro) Source: Department of Alternative Energy Development and Efficiency (DEDE), Ministry of Energy

29 3 Phases of Thailand s Solar Policy and Support Schemes Policy nitiation 15-year Plan (REDP) Solar Target: 500 MW by year Plan (AEDP) Solar Target: 2000 MW by 2021 (Draft) 20-year Plan Solar Target:.. MW by st mplementation: 8 Baht/kWh Change of Rates 6.5 Baht/kWh Solar Rooftop Baht/kWh Change of Rates Baht/kWh Adder Scheme Feed-n-Tariff Scheme

30 On-Grid Solar nstallation Capacity, (attributable to the Adder Scheme) MW 1,400 Solar 1,200 1, Solar Source: Analyzed from VSPP, SPP data from EGAT, PEA and MEA

31 On-Grid Solar Power in Different Countries by Scale of nstallations Residential-Scale Commercial- and ndustrial-scale Utility-Scale Thailand (776 MW) 1.26% 98.73% Malaysia (209 MW) 13% 87% USA (14,528 MW) 19% 31% 50% Germany (24,800 MW) 9% 81% 10% taly (507 MW) 97% 2% 1% UK (1,848 MW) 76% 19% 5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Notes: status at various dates---uk (March, 2014); taly (July, 2014), USA (first half, 2014); Malaysia (Jan 2014); Thailand (Dec 2013); Germany (2011)

32 THB/kWh 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 Average Electricity Tariff Source: Electric Power in Thailand Report

33 MW Response to 2013 Rooftop PV Feed-in Tariffs (First Round) Feed-in-Tariff for Rooftop Solar PV (May 2014) Proposed and Approved Status vs. Target 1,481 projects 609 MW TARGET ,437 projects 3,283 projects 26 MW 55 MW Residential (0-10 kw) 193 projects 100 MW Commercial and ndustrial (>10 kw- 1MW) Total Capacity Proposed (MW) Total Capacity Approved (MW)

34 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. nvestment 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

35 Emerging Rooftop Business models in Thailand Roof Rental Prospects: Developers, EPC, Utility Roof type: Warehouse, Shopping malls, Factories Limitations: FiT quota, bureaucracy s unfamiliarity with roof rental contracts Solar PPA Prospects: Developers, EPC, Utility Limitations: legal backing, transparency of tariff structure, prediction of grid parity Solar Leasing Prospects: Financial Leasing Companies, Developers, EPC Limitations: Collateral, Lease term, Lack of secondary markets, Riskaverse players, uncertainties on net-metering regulations

36 Emerging Rooftop Business models in Thailand (cont.) Community Solar Prospects: Co-ops, Developers, EPC, Utility Limitations: Legal interpretation of co-op purposes n Thailand, 99% of the households that joined the feed-in tariff program are from the highincome segment -Dr. Dusit Krea-Ngam, Chairman of TPVA Source:

37 EPC Company COD Model Return: 14.5% of FiT Key Success Factor Strong Co-op Enabling Co-op rules EPC and nvestment Long-term Loan 100 % investment % of FiT Electrical supply FiT Utility Co-op nterest 2% / yr 65.5 % of FiT Co-op Common Fund

38 Bangkok Slums Map, (2013) Estimated 1.2 Million Residents and Rooftops

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