Financing Photovoltaic, PV, Projects

by Andy Goldman on March 11, 2012

As the installation of Photovoltaic systems increases the need for the Financing of the Photovoltaic, PV, projects increases as well. Photovoltaic installations, as other renewable green energy projects, are projects which have long pay back periods and their success depends on many complex parameters which need to be carefully evaluated in order to ensure a win-win agreement for both the project owner and the financier.

In order to ensure that a specific PV project is suitable, from both aspects, investor and financier, certain requirements need to be fulfilled and depending on the country in which PV project will be implemented some criteria or requirements are more important than others.

Legal and Regulatory Framework: No matter in which region of the world you are into, stability is the number one criterion and stability in the renewable green energy world is translated into very stable and reliable legal and Regulatory framework. It is very important and crucial the region in which the PV project would be implemented would have a stable and reliable framework so that it would inspire certainty to the investors. Renewable Green Energy projects depend on a long term investment the business case of which is formulated on long term monthly cash inflows based on the produced electricity. Such projects would fail if the legal and regulatory frameworks change frequently or rely on the good will and wishes of the politicians and law makers in the area.

Feed-in-tariff, FIT: Feed-in-tariffs are contracts that are used by the renewable energy produces to sell the produced electricity to the utility providers. It is important for the feed-in-tariff to be fixed so that the producer will be able to budget for his production and thus income. For the PV technology the feed-in-tariff is higher than other renewable forms of energy, so that it would reflect the higher costs of this technology. This method is mainly used in Europe.

Power Purchase Agreement, PPA: In the USA or in places with the absence of Feed-in-Tariffs, FITs, a Power Purchase Agreement, PPA, is signed between the electricity producer and the power purchaser.  A PPA that is related to Solar is called SPPA and relies in the existence of solar investment tax credit in the area where the project will be implemented.

Project Parties: There is one fundamental criterion for any project to be successful. The parties that would be involved should be experienced and financially sound.  The parties involved in a PV project are sponsors, the contactors and the buyer while in some cases we have the state/country involved in a form of a subsidy or indirect contribution. All the involved parties form a chain which must be strong and remain strong for the duration of the project

Proven Technology: It is very important that the PV project would use a proven PV technology from a known PV producer/manufacturer. This would ensure the reduction of a possible risk due to technology failure while at the same guarantee, to the extent possible, the uninterruptible production of electricity thus in its turn ensuring steady monthly cash flows.

Maintenance Agreement: The financier should ensure that the PV project and covered by a long term full service maintenance agreement. This parameter has two aspects. The first aspect being the financial one, in the sense that the necessary maintenance costs are budgeted and accounted for and the second aspect being the technical aspect. The proper maintenance of the PV cells and system in general ensures their longevity thus the long term efficiency and normal operation of the PV plant. The maintenance agreement should increase performance and availability guarantee, two parameters which help to reduce the risks in such long term projects.

Solar assessments: Before any PV project is financed, it is important for the financier to receive two independent solar assessments from reputable consultants. The project should be financed only of the assessments provided match or have a very slight deviation, usually less than 5% deviation from each other.

PV project financiers should rely on the revenues of the project itself for the repayment of the loan provided. This is the only way that would enable them to safeguard their investment and be able to evaluate the project feasibility safely.  In the past few years large investors have entered the renewable green energy production arena and this in an indication that the market has matured and has reached stability.

About the Author

Andy Goldman

Andy Goldman is a 27-year veteran in the service industry with managerial, strategic, operational and consulting experience. Has managed teams of 5-45 people and has also managed several multidiscipline projects. He has worked in Europe and the USA and holds a BSc and MSc in Electrical Engineering and an MBA with a minor in Finance. For the past 5 years he has been an enthusiast of renewable technologies. Article by Andy Goldman You can connect with Andy Goldman at Google+

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