On a sunny afternoon in Milan, at Solar Asset Management Europe’s sixth conference, I was moderating a panel about turning underperforming solar power plants into high-performing assets (who wouldn’t want that?!), and it got me thinking. I know what you’re wondering: “But James, shouldn’t you always be thinking, especially when you’re on stage?” These kinds of panels almost run themselves, don’t they?
Here’s what’s on my mind: I have been hearing a lot about repowering lately!
We’ve hit that interesting point in the solar energy industry where there are a significant number of plants that are over 10 years old.
Ten years into the life of a solar site, a lot of things change This is when most of your equipment is out of warranty (with the exception of panels and then again…) and you’ve probably hit the halfway point of your power purchase agreement. Your panels are definitely not producing at their peak anymore, and they’re probably only warranted to 80% of their nameplate anyways. Your inverters, and most of the other equipment in your facility, are starting to need repairs and components. It’s starting to feel like this just might be the right time to replace a few things; by “repowering.”
So the next obvious question: is it worth it to turn underperforming solar power plants into high-performing assets?
I know what you’re thinking, why did we need a panel to discuss the topic? The answer is simple, take out your trusty financial model, put in the new price per watt of panels, reset the panel degradation to start fresh, and run the net present value (NPV) for additional revenue against the cost of the panels, and if it meets your rate of return threshold, “Go for it!”.
Not so fast!
As the panel quickly pointed out, the discussion on what repowering actually is has changed significantly in recent years. We’re now talking about more than just replacing panels. There are coatings you can use, gravels to increase albedo, re-wiring, combiner box replacement, and even a complete inverter swap outs. All of these have their own costs, risks, and rewards. So how do you decide what repowering technique(s) to use, and when?
To answer that question, first we have to ask; WHY are you repowering?
Historically, we only thought of repowering when something broke. But that’s only managing downside risk. What about upside? What we really need to think about is increasing the value of a solar site.
Here’s what you should be focusing on to increase value;
- More generation
- Less maintenance and cheaper operating costs
- Extending the life of the facility so more years of generation
- Reducing downtime
- Reducing risk
By increasing asset value, you make investors happy, and happy investors tend to lend more of their money. More assets managed/owned means more cashflow, and (hopefully) more profit.
But before you get excited and run off with a great financial model demonstrating that “if we replace everything, we are going to make tons of money”. Make sure you understand the costs and the risks associated.
Basically, what do you need to know before injecting aging solar farms with new (money and) life? At what point should you just let the PPA ride out, then abandon ship or invest in new sites? And as you might be wondering, why on earth wouldn’t you extend the life of a site?
1) It’s cash upfront. In order for you to gain that extra return, you might have to invest significant amounts.. Do you have that money available and will investing it produce enough value? Could you better deploy that capital elsewhere?
2) Will it work? Compatibility is a huge problem. Technology changes, the conventions of building plants change, and compatibility across products change. Trying to duct-tape incompatible solutions together will result in more headaches (and losses) than it’s worth.
3) It might actually increase risks. Nano coating for solar panels (to reduce glare and make the panels more efficient) is a great idea. But could it void your warranty on the panels? Are you getting a gain in generation, only to face a huge loss in potential value when you try to sell the plant?
4) It might not be allowed under the PPA. Especially in certain European markets, your agreement might be tied to the specific equipment specifications and serial numbers that you used to build the plant. You would need to open up that PPA and change its structure (if that’s even an option) to repower.
5) You might need to re-engineer. The nature of the technology, even if it’s compatible, might not exactly line up. Buying brand new panels for a site is easy: you just copy-paste the panels onto your racks, and boom! You’re done.
Keeping 2/3 of the old panels and mixing 1/3 new panels on the same string might mess with your voltage and—keeping this as non-technical as possible—screw up your balance. So, you’re forced into a re-engineering exercise. If you’ve never come across this concept before (lucky you), know this: the logistics of trying to jigsaw-puzzle old, working panels together to form a complete string, while keeping new panels on strings of their own, could cost hundreds of thousands of dollars more than just replacing all of your panels.
6) Consider the downtime—I don’t mean cottage time with your kids. Consider the generating-no-power, losing-money time. In order to change a facility, you have to shut it off…how much will that cost your bottom line? (Don’t you wish you could pause your PPA?)
7) Measuring the ROI is more complex than you might think. How do you prove site improvements are actually caused by your changes? How do you track if the repowering was worth it? It’s hard to accurately gauge what would happen if you’d replaced your equipment, and what would happen if you didn’t.
8) The PPA might not allow you to extend the site’s life. Certain markets and contracts, like some in Germany or Ontario, are built with a 20-year PPA. At the end of the 20 years, all nuts and bolts and piers need to come out of the ground. You have to remediate your site and return it to its original state. With other PPAs, all that happens at the end of 20 years is that the contract is finished—but you may sell on the market and can keep producing power. In that case, it might not be a bad idea to extend the life of the plant! Maybe you can even get another contract at an above market price.
But the absolute worst thing you could do is not have access to this information, start the repowering process, and be stuck with a $100,000 in unanticipated costs, or maybe even a permit violation, for not realizing you had to file a permit.
Aging solar farms are like aging houses—in some cases, it’s not worth trying to save a plant. You might want to add light fixtures to a room only to find out your wiring needs to be completely re-done. You might want to finish the basement only to find out your foundation’s cracked. You can paint a house that’s falling down…but it might not be a smart way to spend money.
And yet by repowering a solar site, you may be able to add value to your facility. It might well be worth it. So, you should hire an asset manager who’s thinking about these solutions—considering how to improve, how to look at your whole fleet, and how to get you better returns on your investments.
After all, great asset managers are the people that help your site perform better—their work to reduce costs and improve cash flow. They focus on more than scheduled tasks and fixing daily problems. To remain competitive in maturing markets, they need to look at improvement opportunities—making more money. This means paying close attention to the costs of the returns.
We work to help you use PowerHub, so that your team can successfully focus on adding value, but we can’t do it for you. What PowerHub can do is help you get all the information you need into one place so you can see all the moving pieces and focus on what matters. This is your team’s time and effort are they focusing on the right questions and the right place?