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How to Invest Safely: Top Tips For Solar Power Investments
- Solar power has become a leading player in the renewable energy sector due to the fact that PV module production costs have dropped by 80%, enabled by manufacturing economies of scale and end-market demand.
- Understanding the legal framework in any given solar project’s market is essential for creating a robust strategy. Without it, the solar project you’re interested in may not progress or could even drag out for years with no clear direction.
- The solar array will need to be constantly optimised to ensure it is performing at its best. Solar panel optimisation includes both location planning and the optimal tilt angle of the solar units.
- A comprehensive feasibility study should be completed to highlight the costs for the solar PV module and the balance-of-system (BOS). This study should also include scenario modelling so that investors are aware of key indicators that may influence financial decisions. These insights will help to mitigate risks.
- Solar innovation is an integral part of making solar investments worthwhile and plays a vital role in energy production and reducing operating expenditure (OPEX). Improved efficiency due to solar module innovation has reduced OPEX by up to 50% and improved energy yield.
In the mission to phase out fossil-fuel based power, solar has become a key renewable source with energy that is abundantly available. Moreover, it became a leading player in the renewable energy mix post-2009 due to an 80% drop in the cost of PV module production, enabled by manufacturing economies of scale and end-market demand.
The International Renewable Energy Agency (IRENA) completed a study that revealed the increased competition and ongoing innovation to improve the solar balance-of-systems (BOS) performance. It suggested that even healthier economies of scale could result in a 70% reduction in the global weighted average installation cost. In 2019, solar power represented the second-largest absolute generation growth of all renewable sources. This has resulted in solar energy now being in the spotlight and it’s considered a serious investment option.
Investment in solar power is likely to increase over the coming years as more people take advantage of its outstanding scalability. This can range from residential solar installations to the utility-scale solar array. However, taking hold of this opportunity requires the knowledge to carefully balance the costs, profitability, and incentives while keeping within the boundaries of the existing central grid. Below, we’ll go through some of the essential tips worth considering when investing in a commercial solar array.
Tip 1: Understand The Legal Framework Of The Solar Project
Devoid of a robust strategy that considers legal feasibility in a systematic method during the feasibility phase, the solar project may not progress or could even drag out for years with no clear direction.
The last few years have shown that legal frameworks are one of the most significant hurdles for new solar power developments. They have become a key concern for potential solar investors. Model contracts and best-practice standards are lacking in many markets, leading to unpredictability. This can make it very hard to accurately assess the timescales for project delivery, forecast the solar return on investment, predict permitting timelines, and manage potential risks. Devoid of a robust strategy that considers legal feasibility in a systematic method during the feasibility phase, the solar project may not progress or could even drag out for years with no clear direction.
Having an understanding of the crucial link between the legality and success of a solar power farm requires more than simply completing a checklist of the environmental regulations, necessary permits, and construction requirements. A thorough assessment of the country-specific legal frameworks should consider:
- Restrictions and permit acquisition time-frames
- Market predictability data that outlines the market participants and their role in the grid
- Impacts of incumbents and potential escalating concerns that the integrated solar project could have on the existing grid
- The condition of the existing grid and the commitment that the government or operator has to anticipate the required reinforcements
- Legal and financing frameworks that are in place to encourage affordable options for solar power implementation
- Details of the political climate (which may have a major role in market attractiveness for renewable energy investments in the particular region)
- Interfaces between various government agencies and the impact each of them may have on the timeline for granting the required permits and other documentation
- Restrictions on land use and the local community’s opinion of the solar project
- Policies concerning curtailment and long-term incentives for solar power production
- The inclusion of a transparent roadmap identifying the regulatory framework that encompasses the complete lifecycle of the solar project – from pre-planning to decommissioning
Tip 2: Plan For Continuous Solar Farm Optimisation
While photovoltaics (PV) can use all the incident solar radiation (i.e. the radiant energy that reaches the panels), solar plant optimisation is needed to maximise results.
The electricity generated by a solar array is intermittent, which can cause fluctuating power output and unpredictability. In addition, environmental impacts play an essential role in the energy output of solar cells. These variables can include factors such as temperature and atmospheric pressure, along with the solar angle and radiation. While photovoltaics (PV) can use all the incident solar radiation (i.e. the radiant energy that reaches the panels), solar plant optimisation is needed to maximise results.
Solar plant optimisation starts with strategic positioning to find a location that is most suitable for the array. Key features include:
- An optimum, cost-effective point to be connected to the grid
- Favourable latitude and longitude to take maximum advantage of the sun’s trajectory
- Land that has no ecosystem or archaeological restrictions
- A flat surface without any sinks and trees
- Land that has unfavourable soil conditions
- Earthquake-free zones
- Flood-free zones
- Land that has minor shading effects (or preferably none)
Solar array optimisation is also coupled with the optimal tilt angle of the solar units to support the goal of maximising sun exposure. The direction of the tilt will depend on whether the solar plant site is situated in the southern or northern hemisphere.
Once a suitable location has been detected, the next step will be to collate reliable historical resource data for the proposed site. Solar energy differs spatially and temporally, which means it is essential to understand how the data may vary in time and the quality of its spatial resolution. The validity of the data should be assessed, as essential investment decisions will be made based on these details. This includes any decisions that impact the generator modelling, feasibility studies, and financial risk assessments.
To get an accurate energy yield projection for a solar project, the losses within the PV balance-of-system (BOS) should also be considered. Through time-step simulation and scenario-based modelling, it is possible to get an accurate solar energy output forecast. It considers the energy that will be lost due to location-specific factors such as shading, varying irradiance, and other environmental impacts.
Tip 3: Develop A Robust Feasibility Study
It is essential to consider the energy yield, revenue streams, CAPEX and OPEX costs, and any required loans when assessing the financial feasibility of a solar energy plant.
The PV solar panel installation expenditures are typically divided into two parts: the costs for the solar PV module and the balance-of-system (BOS). The costs connected to the BOS include the control unit, inverter, design, protection devices, electrical wiring, land, construction, labour, software, and hardware (along with any regulatory and financing fees).
BOS expenses and all other costs acquired during the course of the project life cycle are site-specific and correlate to the solar market in a particular country at that specific moment in time. When performing the pre-feasibility study for the solar project, every cost associated with capital expenditure (CAPEX) and operating expenditure (OPEX) should be examined in detail. It is essential to consider the energy yield, revenue streams, CAPEX and OPEX costs, and any required loans when assessing the financial feasibility of a solar energy plant. Other areas such as the grid connection constraints will also need to be considered. For example, additional resources may be required to facilitate the safe uptake of the solar energy that is generated to preserve the grid’s reliability and availability.
So that a comprehensive feasibility study can be developed, financial modelling decisions should be based on scenario modelling. Scenario modelling is when different input parameters are modified to evaluate sensitivities on a long-term basis. The type of data utilised in solar PV financial modelling includes CAPEX, OPEX, estimated annual energy yield, total grid expenses, energy tariffs, and project size.
A sensitivity analysis should also be performed to ascertain the solar project’s profitability and bankability if input parameters change. This measure can also be used to consider the outcomes if the solar array has a bad year. Changes to inputs provide key indicators for investment decisions and help to mitigate risks. For example, inconsistencies in grid costs because of location-specific constraints and uncertainties in the local legal framework can add a degree of volatility to initial projected expenditures and even solar energy yield. If these areas are not correctly assessed during a financial sensitivity analysis, incorrect decisions can be made, resulting in the solar project not going ahead.
Tip 4: Stay Updated On Solar Innovation
Simply put, solar innovation influences the feasibility and bankability of all solar array projects.
Solar energy innovation is one of the most exciting aspects of the renewable energy industry. Technological advancements are an integral part of solar PV and play a vital role in energy production and reducing OPEX. For example, the PhotoVoltaic European Technology and Innovation Platform have performed studies that suggest that improved efficiency due to solar module innovation has reduced OPEX by up to 50% and improved energy yield. Additionally, innovations in solar PV modules and other solar advancements are also responsible for decreasing the global weighted average installation cost by up to 70%. Simply put, solar innovation influences the feasibility and bankability of all solar array projects.
The push for innovation has caused an increase in the number of solar panel manufacturers offering efficient commercial PV systems across the globe. This competition has further driven down the cost of solar systems due to the need to provide competitive prices. But being able to take advantage of this requires a deeper understanding of how solar PV supplier selection can directly influence the overall project cost. Consequently, making the right solar manufacturer decision for the project is vital in the preliminary stages to ensure a return on investment (ROI) that exceeds the project expenses. Other factors to consider when selecting the solar PV system and associated suppliers are applicable benchmarks that determine performance, system availability, product reliability, maintainability, and projected service life.
When performing the site assessment, it is also essential to consider that no two sites are the same. This means that if a particular PV system performs well at a specific location, it does not guarantee the same performance on a separate site. Once again, this is where innovation plays a part. Understanding the solar array’s specific nature will make certain that modules are installed at a particular site that offers the best efficiency, energy yield, and lowest maintenance costs.
Solan Power Investments: The Takeaway
Solar PV projects are set to continue to replace fossil-fuel-based energy from grids across the globe. The improved efficiency rates and lower maintenance costs have become appealing to investors and have become significant drivers for solar energy companies.
Although the ultimate aim is to maximise solar energy output on a site while complying with all the legal and environmental obligations, the various interfaces during the solar project’s lifecycle create different risk points. These must be factored into the feasibility, construction, and financial studies. This will help to improve solar project finesse and further increase bankability and feasibility while reducing installation and operation costs.
Frequently Asked Questions (FAQs)
How are commercial solar projects financed?
In the commercial solar market, there are many different ways a project can be financed. The most common methods include solar power purchase agreements (PPAs), energy services agreements (ESAs), and solar leases. You may also want to keep an eye out for tax equity financing structures (such as sale-leasebacks and partnership flips), loans or cash purchases of the solar system.
Is a solar farm a good investment?
As with all investment types, any solar farm investment should also be made cautiously. There should be a great deal of financial planning before investing. Depending on the type of solar farm investment you’re exploring, the amount needed can vary, and it can go up into the millions. On a positive note, the ROI is often worth the investment as the recurring revenue can pay dividends for many years.
What is the average return on commercial solar investment?
The payback of initial investment can be anywhere between 10 and 12 years, with an approximate lifetime production of almost half a million over 25 years. According to estimates from Landmark Dividend, the average solar farm profit per acre of land is between $21,250 and $42,500. This means that solar arrays spanning across hundreds of acres can potentially see profits in the hundreds of thousands.
What is risk management?
Risk management is a very important part of investing in solar energy. It is the process of identifying, assessing and controlling threats to a solar company’s capital and profits. These or risks could stem from various sources. Here, it’s important to consider financial uncertainties, legal liabilities, strategic management errors, accidents, and even natural disasters.
Are there any risks when investing in solar energy?
Yes, there are risks involved when making an investment of any kind, including solar power. The risks concerning solar projects can occur throughout the entire project lifetime, and they vary considerably in nature. One of the major threats is market risk, which is the risk of cost increases for key input factors (such as labour or modules). It can also refer to a drop in the rates for generated electricity.