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Excerpt of a presentation from the EAI Solar PV Developer – EPC Meet, Chennai, Jan 22, 2013

Risk Evaluation of Solar PV Grid Farm – Samir Dash – Head, Project Engineering and Project Execution, Moser Baer Solar Limited

Mr. Samir Dash, Head of Project Engineering and Project Execution at Moser Baer Solar, gave an in-depth look at the evaluation of risks associated with Solar PV Grid Farms to the audience at the Solar Developer-EPC meet. During his presentation he discussed issues faced by developers, warranties provided to them,  and mitigation strategies.

Mr. Samir Dash began his speech by first speaking of Moser Baer’s achievements in India. Highlights were

  • India’s largest manufacturer and fabricator of Crystalline Silicon
  • India’s only manufacturer of Thin Film
  • Have commissioned 225 MW of PV farms in India that are larger than 1 MW
  • First in India to commission a 30 MW project

Risk

Mr. Samir Dash first looked at risk itself, and the need to provide for the same. All risks need to be accurately identified and have a mitigation plan. Risk provision also has to be appropriate – if the risk provision is pessimistic it will make the project uncompetitive while an optimistic risk projection would result in the plant performing below expectations. Risks are present in every stage of the project cycle

  • Project development
  • Land selection
  • Technology selection
  • Contracting
  • Warranties
  • Regulatory and political
  • Proper hand over
  • Operations & Maintenance

Project Development

Some of the risk mitigation steps suggested by him at the project development stage were

  • Long term contract for power offtake (critical for financers and developers)
  • Due-diligence of beneficiary – Ability to pay is vital
  • Secure bankable PPA – Payment security (LC, Escrow, Counter guarantee)
  • Secure financial closure before zero date of project
  • Obtain connectivity permission for transmission connectivity
  • Proper solar radiation assessment through Meteonorm/Ground measurement data and Probability of Exceedance (P50, P70,P90) analysis by experts which is tied to financial forecasts

Land Selection

Risk in choice of site can be mitigated through

  • Close proximity to utility substation (projects suffer delay in obtaining transmission lines, as well as energy losses with increase in transmission line length)
  • Preference for government land especially for projects more than 10 MW (private land often requires Non Agricultural certification leading to delays in fund disbursements and project commencement)
  • Expert opinion on nature of soil (corrosiveness, rockiness) which would help in ascertaining cost of foundations
  • Studying land contour(shape, flood level, drainage) to reduce project cost and execution time

Technology selection

Some of the suggested steps for technology risk mitigation were

  • Choose proven technology in Indian conditions
    • Choose Tier 1 make PV modules and Inverters
    • Present trend – While Thin-Film modules were previously preferred due to greater power output (by 7%) in Indian conditions, Crystalline Silicon now has the edge due to pricing
    • Central Inverters are preferred due to lower cost/watt in megawatt scale projects
    • Fixed tilt – Projects utilising Crystalline Silicon modules are using Fixed tilt mounting as a simpler arrangement
  • Choose leading EPC players on turnkey basis
    • This has a significant impact, from proper project documentation to choice of equipment
    • Enforce stringent  Project Qualification Requirement (PQR) for eligibility to mitigate execution capability risk
  •  Obtain EPC engineering review by 3rd party reputed engineering consultant to provide assurances to various stakeholders such as investors/bankers

Contracting

The risks in the contracts can be reduced through

  • Well defined contracts with clear scope
  • Turnkey contracts
  • Division of contracts (import, domestic, service, civil) for tax optimisation
  • Currency fluctuation hedging by developer (rather than EPC/contractor) to reduce project cost
  • Suitable Liquidated Damages (LD) on completion as well as on performance with clearly defined parameters

Warranties

There are risks associated with the performance of each component which can be mitigated through warranties

  • Overall System – 1 year defect liability period (DLP) from the EPC for workmanship (wear beyond normal weathering, defects, material flaws)
  • Equipment warranties received from OEMs should be transferred to client
    • Solar Modules (OEM standard)
      • 10 year workmanship warranty
      • 25 year linear power warranty (80% output)
      •  Inverters
        • 5 year manufacturer warranty with an optional extension to 12 years
  • Performance Ratio warranties
    • Plant warranties can based on different parameters
      • Absolute Generation – This might be preferred by the developer’s financer but it amounts to the EPC being held responsible for solar radiation. In such cases the EPC might offer a guarantee based on P90 analysis
      • Availability – This is has the drawback of impact being different depending on whether the plant is unavailable during peak or off peak hours
      • Performance Ratio – Due to the above reasons, performance ratio with weather correction and instrument error tolerance is now the accepted basis for deciding warranties
      • Duration – During first year of plant operation (DLP) and renewable thereafter with a valid O&M contract
      • Starting date – From PAT or within 3 months which ever earlier
      • Minimum PR – 5% below simulated PR i.e. 71% to account for instrument error tolerance
      • Degradation – As per PV manufacturer (1%)
      • Compensation – Either addition of modules to make up for the deficit in output or the present value of 25 year loss in generation at the feed-in tariff
      • The warranty will include exclusions for
        • Grid outage
        • Poor grid quality
        • Force majeure conditions
        • Down time due to theft/vandalism
        • More than one string of modules performing below manufacturer warranty
        • Inverter malfunction due to defects that are covered under OEM scope

Regulatory and political

Government regulations and political climate represent a risk to PV farms than can result in

  • Change in government policies, additional taxes (such as anti-dumping duties)
  • Payment defaults
  • Restrictions on ownership
  • Political instability
  • Threats to expensive solar power from the present financial condition of state electricity boards
  • Right of Way for transmission lines
  • Local political trouble (asking for employment and contract)

Proper handover

A proper handover mitigates several of the risks associated with solar PV plants. Mr. Samir Dash presented a chart with steps to be followed in the handover. These included milestones that could be linked to payments

  • Mechanical completion test
  • Performance test after inverter commissioning and trial operation
  • Performance test after operating for two years (to check for panel and other component degradation)

Operations & Maintenance

The steps suggested for mitigating the operating and maintenance risk were

  • Recommended and mandatory spares inventory (particularly for the inverter)
  • Central monitoring of plant and regular monitoring of plant (at string level using SCADA)
  • SLA with Inverter OEM for attending to defects
  • Regular 3rd party test for nominal power output of PV modules to check for panel degradation
  • Deploy 3rd generation preventive and predictive maintenance plan
  • Proper cleaning and quality of water – ground water is usually used for cleaning the panels. Its chemical composition, suspended solids, etc., should be analysed and manufacturer recommendation for use of water should be obtained
  • Provide for inverter replacement at end of 12th year

Mr. Samir Dash concluding his address by discussing the outlook for solar power in India, and sharing details and photos of projects involving Moser Baer with the audience.

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