How we’re developing solar farms without subsidies

Peer Piske

By Dr Peer Piske, Director of Business Development, EMEA, Solarcentury

We recently announced our decision to expand into Italy, our 11th international market. Just as we’ve seen elsewhere across Europe, solar in Italy no longer requires subsidies, making the country an increasingly attractive choice for investors.

The solar industry stands on the cusp of a genuine step-change, as the long-awaited era of subsidy-free solar becomes the new reality.

Subsidy-free solar has long been the predicted gateway for mass deployment, but it has a major impact on the approach to development of projects. New economic realities change both the risk profile for investors and the selection and design of projects, with large utility-scale solar farms becoming the new norm.

In the UK this transition is only just getting started, but in other markets such as Spain, subsidy-free solar has already become a reality. The 300MWp and 200MWp developments which Solarcentury is preparing to build in Spain serve as a model for how a new focus on markets less reliant on Government subsidies has fundamentally changed our approach to development.

First, the financial risk profile for investors is completely different. The last couple of years has seen many debt and equity providers on a rapid learning curve to determine what risk they will and won’t accept in this new model.

For example, investors need to determine their approach to managing the risk of increasingly more solar coming onto the grid over the years and the effect this substantial increase in kWh will have on spot pricing (solar profile risk).

Equity investors are now fully up to speed and the banks have determined their risk appetites; which often varies from bank to bank and country to country. It’s important to talk up front to all parties with a financial interest to ensure a complete overview of PPA, debt and IRR expectations.

Second, the selection and design of projects is changing and impacting the way developers assess opportunities. Without the buffer of a Government-backed income stream the model becomes more sensitive, and projects need to be managed significantly more carefully in terms of capex and opex.

Size is everything to achieve the necessary economies of scale, and ongoing costs such as rental for the land and O&M could severely damage the IRR if not managed precisely. This impacts decision-making, and as a result Solarcentury now excludes many more projects from development than in previous years.

To achieve the accuracy required to model and predict the systems requires the collective expertise of all disciplines from the very start of a project. The engineers, procurement team, project managers, asset managers and the data management team all provide considerable input into the planning, and without such a multi-disciplinary approach, it’s hard to imagine how a pure-play developer could achieve the level of precision required to model and plan developments with such tight parameters.

As an example of how this collaboration has paid dividends, two years ago Solarcentury’s procurement team started working with our supply chain on their roadmap of products, determining which products we should be building with in 2019/20. As a result of this, our engineering team has designed the Talayuela and La Cabrera solar farms using products that didn’t exist at the time of designing – increasing efficiency and providing a highly accurate view of how the systems will perform. This is essential for long-term investment planning.

The other key stakeholder in subsidy-free solar is the off-taker, or power purchaser. In this arena the market is also changing rapidly with both utilities and corporates showing an interest in participating in PPAs and with a high degree of engagement and sophistication. Utility PPAs are more popular in Iberia whereas in northern Europe, where there is more industrialisation, corporate PPAs are the more common route.

This new approach we have  developed in Spain is paying dividends, and provides a roadmap for subsidy-free solar development in the next key markets: UK, Italy and Germany. We’ve learned, and continue to learn, how to operate in this new world where the key to our success is up-front engagement; engagement with investors, off-takers and with the end-to-end team at Solarcentury.