The tricky nature of design and construction overlap in solar projects

Design

Solar PV facilities have ever increasing pressure on construction timelines.  In theory they are fairly simple design and construct projects, and one of the major benefits of these facilities is that they can come online in a relatively short space of time, and start generating revenue quickly.

So standard processes and procedures used within the engineering sector may be put under increasing pressure, in order to realise an early commercial operation date.

In an ideal world, the facility design is carried out upfront.  Site investigations are conducted, studies are done, calculations are calculated and all of these feed into the design process.  Design docs are developed, and bundled up into neat and ordered packages, which are handed over to the owner for review and comment.  Once everyone has had their turn to check that the design is in good order, and fully compliant with standards and specs, equipment is procured, and construction management documentation, such as work method statements, are developed.  Controlled.  Organised.  And compliant.

The reality of these projects is vastly different.  Certain things are known from contract negotiation – which modules, mounting system and inverters will be used, what is the overall facility capacity, where are the roads going to be located.  Designs will also be nicked from previous projects, to save time and cost, altered and amended based on local conditions.  Everyone will be watching the procurement of long-lead items with a keen eye along with any other activity under the project’s critical path.

So it’s likely that the design will be put together in clumps and blobs.  Loosely bundled documents, with vague references to geotechnical reports and flood studies, will come through in a piecemeal fashion.  Often before it’s been reviewed internally by the contractor.  There is enormous pressure on the Owner to carry out their reviews and issue comments with no delay, as everyone’s watching the clock.  But this way of submitting documentation is onerous on an owner’s engineer.  It’s difficult to plan and allocate resources when you’re not sure when documents are going to come through.  It can be hard to keep the same people on the job, which means more time spent by your engineers getting up to speed with the contract specs.  And it can mean multiple iterations of your log of comments.  It chaotic, pressured and not a whole lot of fun.

So some things that are important:

  • When documents come through, the contractor should highlight any specific aspects of the design which may have an impact on the overall project schedule.  For instance, tracker system design, which needs to be reviewed against local standards may be important as equipment needs to be ordered.
  • The document register becomes an incredibly important tool.  It should be tracking what the latest version of the document is, what the changes were in this revision, when it was issued and what the current status is (issued for review, approval, construction etc)
  • Document control in general becomes incredibly important.
  • The document management system should be easy to use.  If you need to go into the system to download small bundles of documents frequently, then it needs to be easy to navigate and docs need to be easy to download.  Access should be easy to secure, so that people on the design review team can search for documents themselves.
  • Transmittals should include a list of documents included, along with the location of the document on the document management system, or direct links to the documents.
  • Construction documentation, such as inspection and test plans and work method statements, should be developed in parallel, so that when the design is agreed, the ITPs and WMSs are ready, and there is no delay to construction.
  • For very time constrained reviews, it may be appropriate to focus solely on the observations of non-compliance with either local standards or the contract specs.  Design preferences may need to be dropped.  This is for the owner to decide.  They are paying for the product and it is ultimately their decision as to whether they are going for a gold standard project, or a project that finishes on time.
  • The contract should transfer all design risk to the contractor.  If the owner comes across any non-compliance at any point, the contractor should be required to fix it.  Increased pressure on the design phase should not relieve the contractor of their obligations to deliver a compliant project.
  • The contractor should be fully in control of construction quality.  So that the owner can see that the facility is being built to spec, and that accelerated works have not resulted in a poor quality product.

It’s difficult.  There are competing pressures, multiple activities taking place at the same time, and all parties may have limited resources at their disposal.

What could possibly go wrong on a Solar PV project during construction? – Part 3

This post is the last (for now at least) in a three part series looking at some of the things that can go wrong during the construction of a solar PV facility. Part 1 of this topic looked at design, programme, labour and environmental conditions that could impact construction.  Part 2 focused on the importance of effective onsite management, including quality control, equipment management, housekeeping and safety.

External conditions/events

“The best laid plans of mice and men often go awry.”  No matter how carefully planned out a project is, progress will always be at the mercy of external events, outside the control of project teams.  Some events are possible to predict, and contingency plans, or mitigating plans can be created.  Other events come out of the blue, are totally unforeseen.

The contractor should be responsible for completing the project to the extent that they are able to control, or perhaps even influence, what is taking place.  But contracts will have ‘force majeure’ clauses included, to address what happens if something happens which is totally outside of the contractor’s control.

Regardless of who is responsible, works need to get back on track, and repair works or accelerated catch-up works may be required.

Weather conditions, like floods, heavy winds, lightning and hail, can lead to facility and equipment damage.  Material or equipment supply chain hold ups or shortages may occur (by way of example, a project that I worked on had their steel supplier’s factory burn down).  Permission to connect to the electrical grid can be delayed, through no fault of the contractor or employer.  Third party works may need to take place (for instance transmission lines, substations or access roads).  Third party inspections and/or approvals may be required.

Storm water management/drainage

This is closely linked to external events – as heavy rain is clearly a weather event.  And it is linked to the appropriateness of the design (which is discussed in Part 1.  But it’s important enough to merit its own mention.  Solar facilities are covered with impermeable, smooth, titled panels.  They act like a roof, without a gutter.  Rain runs off them easily, and, over time, this leaves little grooves in the ground beneath the bottom edge.  This water accumulates and then runs downhill.  Depending on the ground type (permeability), the facility slope and the amount of rain received, stormwater management can become an issue.  Moving water can erode away at ground, roads and earth surrounding the mounting structure base.  This is clearly an issue over the life of the plant, but the management of stormwater can also be a problem during construction if water rushes into trenches, washes away civil works, or affects other aspects of work.

It’s therefore important that the contractor is aware of rainfall patterns, and considers how stormwater will behave onsite.  Plans should be in place to manage the water, and drainage designs should consider protecting the facility both during construction, and over its operational life.

Access road degradation

For any equipment, people or materials to reach the site, it is naturally important that the facility can be accessed.  There is typically a portion of road, of varying length, linking public roads to the facility’s boundary.  It’s important that the responsibility for building and maintaining this road is clearly defined.  But regardless of who is responsible, this road will take quite a beating over the course of construction.  Trucks carrying modules, mounting structures, inverters, switchgear, concrete, and other components and materials will be travelling backwards and forwards for months.

If the road isn’t built properly, it will end up being heavily corrugated and can turn into a swamp with heavy rains.  This then affects the delivery of components and materials, and the accessibility of the site for people working there.  Because it’s outside of the site boundary, it can be overlooked, but can result in a logistical nightmare if it’s not built properly.

Connection quality

A problem for a number of projects in South Africa was in the power quality at the point of export.  Different countries have different connection requirements, which will be set out in the relevant codes, regulations and standards.  Equipment may be brought in from other countries, and designs carried out by foreign engineering professionals.  This can result in the facility not complying with the specified requirements.  Design adjustments, equipment tweaking or reprogramming and/or possible additional equipment may be required, and these may end up delaying the project.

It’s therefore clearly important that the designers are aware of local conditions and requirements, and design the facility appropriately.  Sufficient time for testing is also required, in case there are hiccups along the way.

Ground risk

The contract should define whether or not the contractor is liable for any sneaky surprises that may be lurking underground.  They will be develop their design according to the conditions that they have observed onsite.  The mounting structures, electrical equipment housing units and cable routing designs will all have been selected and developed accordingly.  If the actual conditions are different from than what was expected it can have an impact on the suitability of the design.  It’s therefore incredibly important that a thorough geotechnical assessment is carried out.

What could possibly go wrong on a Solar PV project during construction? – Part 2

Solar PV facilities should be fairly easy to build; the technology is not overly complicated, and the installation process should be a series of lego-like assembly.  So why does so much go wrong?  Part 1 of this topic looked at design, programme, labour and environmental conditions that could impact construction.  This post will look at the importance of effective onsite management.

Quality inspections / quality control

What should be included in the contractor’s contract is that all works are to be done to an acceptable level of quality, and that the contractor should be implementing a comprehensive quality assurance plan.  But PV facilities are made up of millions of components being installed, in addition to vast stretches of trenching being dug and filled, and other civil works taking place.  LV, MV and HV electrical works are on the go, and multiple teams are all working simultaneously, often within the same zone.  If the contractor doesn’t have their proverbial ducks in a row, construction works can be done sloppily, and without due care.

Step one is to ensure that before an activity begins the contractor makes sure that everyone has the right information.  Documentation control is incredibly important.  Have drawings and method statements been reviewed?  Is the document register updated?  Do all sub-contractors have the right plans?  Does everyone know what they’re supposed to do and how they’re supposed to do it?

If this important control is not in place, and people are working to the wrong plans or designs, trenches can go in the wrong place, concrete pours may need to be redone, modules may need to be removed and replaced, and so on.  An entire site can spiral into chaos if people don’t know what they’re meant to be doing.

But let’s assume that people have the right information.  There should then be detailed inspections and checks by the contractor’s quality team to make sure that the works delivered match the design.  Have cables been securely fastened?  Are bolts tightened?  Have all components been installed in accordance with the original equipment manufacturers’ requirements?  Are the pyranometers facing the right direction?

All of these tiny checks add up to two big important questions – is the facility safe to operate and can it operate as intended?

There should be a whole room full of files containing evidence of inspections.  Well, not quite, but the evidence should be there.  If the contractor isn’t recording their inspections and test results, it’s very difficult to be confident that they’re really in control of the facility’s overall quality.

If the employer is dissatisfied with the facility presented to them it can impact on whether milestone payments are made to the contractor, or whether the contractor can achieve practical completion (or whatever completion milestone is defined in the contract.)

This impacts on the project’s completion date, and if quality issues are not identified and then resolved, it can affect the facility’s operational efficiency and safety.  Not good.

Storage and handling of equipment

Some components, of the millions of components being used, will have requirements relating to the handling of equipment that could impact their warranties or how they perform in operation.  The importance of complying with these requirements cannot be overstated.

Equipment should be transported correctly, unloaded and then stored correctly.  It should be packaged suitably, and then, when the time comes to install it, it should be installed properly.  The facility design should ensure that the operational or environmental conditions will be within a range considered acceptable by the manufacturer.

If the contractor isn’t aware of these requirements, they won’t handle the equipment correctly and they run the risk of voiding warranties and affecting facility operation.  They also run the risk of damaging equipment so that replacements need to be ordered.  Some of the components on a PV site, especially made-to-order items, can have a very long lead time.

This can throw the project schedule off course.

General housekeeping

The condition of the site in general can be a good indicator of the contractor’s overall control of onsite activities.  Rubbish and litter lying around, concrete splatters, broken glass and piles of sand and rocks all provide an indication that small, but important, controls are not in place.  Inadequate housekeeping can also raise flags for the environmental officer or manager, who should be monitoring construction activities in accordance with the relevant environmental authorisation and/or environmental management plan.  Non-compliance with the EMP can result in onsite activities being stopped until the issue is corrected.

Safety

The contractor’s level of control of onsite activities will also have an impact on the safety of all persons working there.  There are multiple ways in which someone could really hurt themselves, or others.

  • PV modules sitting in the sun will be live.  Any person fiddling with the module, or with connectors, who may not know what they are doing could really injure themselves.
  • The same risk exists with other electrical equipment being used throughout the facility.
  • Heavy drilling and trenching machines may be operating and these naturally have the potential to injure someone quite seriously.
  • Anyone working near loud machinery should be wearing ear protection.
  • Fire is a concern on any PV facility.  Electrical fires or bush fires (particularly in drier climates) can occur.
  • Then there is a risk of other accidents happening.  People dropping equipment or material, or falling in holes, or misusing a tool, or even sunburn or heatstroke.

Injury or even death is a real risk, and it is up to the contractor to ensure that

  • safety considerations are emphasised during toolbox talks,
  • emergency procedures are in place and emergency equipment (like fire extinguishers) are available,
  • access controls are in place to prevent unauthorised persons from entering electrically active zones and
  • all workers are adequately trained before carrying out any activities.

There should be an appointed health and safety control officer, who is tasked with developing and implementing H&S procedures.  Any incidents or non-compliances should be taken seriously, and it’s important that safety is instilled within the site culture from the start of construction activities.

What could possibly go wrong on a Solar PV project during construction?

I gave a talk on EPC contracts at the All-Energy conference in Melbourne earlier this month.  The other speakers talked on the role of the lender’s independent engineer, the commercial & industrial solar PV sector and the transition from fossil fuels to renewables from an environmental management perspective.

One of the questions that was asked of us all right at the end was to do with large scale solar PV installations.  If solar PV facilities are effectively like large assemblies of lego pieces, what could possibly go wrong during construction?

It’s true, they should be fairly straight forward to construct, so why is it that some facilities are completed so much later than planned?

Design suitability

Solar PV facilities aren’t complicated to design for, but if the design is inappropriate, there are a myriad of issues that can result.  For example:

  • Overcomplicated mounting structures can be difficult to assemble, and may not handle slopes or undulations in the ground very well
  • Lightning may be more frequent and more severe than the electrical design allowed for
  • Geological conditions may make trenching and piling activities more difficult than expected
  • Electrical equipment selection may not comply with grid connection/code requirements

Programme of works – sequencing of activities

Constructing a PV facility means tracking and controlling the movement of millions of components, and managing the activity of hundreds of workers.  If the programme of works, or project schedule, is not well thought out, logical and comprehensive, the project risks onsite activities descending into chaos.

The project schedule should result in the efficient flow of components and equipment; be that the delivery of goods and machinery to site, the order and layout of any storage or laydown areas, and the timing of movement of components from storage to installation zones.

Installation activities should also be carried out efficiently, and in the right order.  Modules cannot be installed by the module installation teams if the mounting structure assembly teams have not completed their works.  If the mounting assembly teams are not working efficiently, the module installation teams will be sitting on their hands.  Modules (or other sensitive equipment) should not be installed if there are heavy duty civil works still to be done (like trenching) in the nearby areas.

Trenching activities can only be done if the trenching machines are available.  The availability of machinery becomes very important in sticking with the project programme.  And if there are lots of projects going on at the same time, in fairly remote areas, the availability of such equipment is not necessarily a given.

Labour management

Where is your contractor from?  Are they originally a foreign organisation who ran out of work in their home country so came to your shores seeking more opportunity?  And if so, have they hired local people to work on your project?

Each country, and indeed each region within each country, has its own labour environment, bringing its own set of issues and challenges.  If the contractor doesn’t have local capacity, they may not have a good understanding of what these issues and challenges are, or how to overcome disputes if they arise.

Strikes, go-slows or the downing of tools has an enormous impact on project execution, and the contractor needs to know how to find a resolution to labour issues as soon as possible.

Also, there may be expectations as to local working conditions, or assumptions around working practices that may not necessarily be written anywhere, but which the contractor may be expected to know.  The contractor could very well go through nasty culture shock on site, and throwing hands up in the air and stomping away from the workforce won’t really get things done.

Local knowledge and capacity is critical.

Compliance with environmental authorisations/management plan

Depending on the size of the facility, there is likely to be some form of environmental permit or authorisation, which is the result of an environmental impact assessment.  This permit may outline constraints that apply to the project (such as no-go areas around wetlands or areas of heritage significance) and it will likely require the project to have an environmental management plan that is implemented as the project progresses.

Compliance with the permit and the associated EMP is very important.  Non-compliance may result in delays, or perhaps even the withdrawal of granted permits.

Any new site findings can throw a real spanner in the project works.  Unearthing a burial site, for instance, can close down an entire section of a facility.

Watch this space – Part 2 coming soon.

Victoria’s new renewables policy, and why it could learn from South Africa

Original article posted on reneweconomy.com.au.

The Victorian government recently announced a policy to decisively increase the amount of renewable generation in Victoria. The rationale for this policy is that existing federal policies are failing to provide investment certainty in the expansion of renewable production capacity.

The government estimates that meeting its policy will require up to 5,400 MW of new renewable generation to be built over the next nine years. This is equivalent to about 60 per cent of Victoria’s peak demand on the power grid.

Bald_hills_6
Bald Hills wind farm, Victoria, Australia

Assuming an all-in capital outlay per MW of $2.5 million, meeting this policy could require $13.5 billion of new money. Some significant investment in transmission infrastructure is also likely to be needed. After residential rooftop solar, this will be, by far, the largest investment in new generation capacity in Australia since the creation of the National Electricity Market.

Last month a consultation paper from the Department of Environment, Land, Water and Planning sought responses on various issues (identity of the counter-party, specification of the payment instrument, technology selection, treatment of other subsidies, contract duration and auction design). The Department is currently focusing on the preparation of enabling legislation with a view to conducting its first tender next year.

South Africa’s Renewable Energy IPP Procurement Program (REIPPPP) is an interesting point of reference, of comparable scale, to the Victorian policy. Though there are many differences, many of the important issues are similar and much can be learned from the South African experience. At the least, a quick look at their program we might give a sense of what lies in store for Victoria.

Under the REIPPPP program 6,327MW (of which 3,357 MW of wind in 34 projects, 2,292 of PV in 45 projects, 600 MW of concentrated solar in 7 projects and several much smaller biomass and small hydro projects) have been awarded PPAs. Total capital outlays of around $19bn are expected, to complete these projects. As a result of this, since 2012, South Africa has ranked among the top ten countries globally in terms of renewable energy independent power producer investment.

In the first tender in November 2011, 28 projects offering 1,416 MW in total were selected. In the second round in May 2013, 19 projects offering 1,040 MW were selected. A third round in August 2013 selected 15 projects for 1,321 MW. A fourth round in August 2014 selected 26 projects for 2,207 MW. A fifth round is expected to commence shortly.

The bidders offer prices for 20 year Power Purchase Agreements with Eskom, the government owned national power monopoly. Two additional agreements with the Government underwrite Eskom default risks, provided step-in rights to lenders in the case of default and ensure contractual obligations for delivery of up to 17 economic and social development obligations. Community ownership (at not less than 2.5% of the total project cost) is mandatory and the developer have to come up with ways, such as community trusts, to comply with this. Contract evaluation is based 70% on price and 30% on socio-economic factors.

The contracts are not negotiable and bidders are required to submit bank letters to the effect that financing is locked-in. This effectively outsources due diligence to the lenders. The lenders in turned passed this on to developers but in a way that ensured the duty of care was to lenders.

The 64 successful projects in the first three rounds involved over a 100 different shareholder entities, 46 of these in more than one project. Banks, insurers, development banks, international utilities and direct foreign investors have all participated in the program. The most common financing structure has been project finance, although about a third of the projects in the third round used corporate finance.

The majority of debt funding has been from commercial banks with the balance from development banks, pension and insurance funds. Eighty-six percent of debt has been raised from within South Africa on 15-17 year loans (from Commercial Date of Operation). Debt risk premia in bank loans have been around 450 basis points on top of the South African equivalent to Australia’s 90 day bank bill swap rate.

Forty-nine Engineering, Procurement and Construction (EPC) contractors have been involved in the 64 projects during the first three rounds, the majority in more than one project either as the primary or secondary contractor.

Prominent EPC contractors with three or more projects include Vestas (Danish), Acciona (Spanish), Consolidated Power Projects (South African), Group Five Construction (South African), Juwi Renewable Energies (German), Murray and Roberts (South African), Abengoa (Spanish), ACS Cobra (Spanish), Iberdrola Engineering and Construction (Spanish), Nordex Energy (Germany), Scatec (Norwegian), Suzlon (India), and Temi Energia (Italian). Many of these EPC contractors have set up subsidiary companies in South Africa.

The main suppliers of wind turbines and PV equipment include Vestas, Siemens, Nordex, ABB, Guodian, Suzlon, Siemens, SMA Solar Tech, BYD Shanghai, Hanwha Solar, 3 Sun, AEG and ABB. A local wind tower manufacturing facility and at least five PV panel assembly plants have been established in South Africa.

Over the period of the four bidding rounds, offered prices per MWh halved for wind and concentrated solar and declined by 75% for solar PV. Global technology development, local economies of scale, improving investor confidence and lower transaction costs explain this stunning progress.

As the volume of renewable capacity has increased, transmission connection has been become an increasing concern. Bidders are responsible for connection to the nearest major substation, but augmentation of the shared network is lagging behind and this has become a particular issue for the most recently awarded projects.

The World Bank suggests the most important lesson to transfer from the REIPPPP is the benefits of a well-designed and transparent procurement process. They say that the Department of Energy recognised that it had little capacity to run a sophisticated multibillion-dollar competitive bidding process for renewable energy.

As a consequence, it sought the assistance of the National Treasury’s Public-Private Partnership (PPP) Unit to manage the process. A small team of technical staff from DOE and the PPP Unit established a project office which functioned effectively outside of the formal departmental structure of national government. It was led by a senior manager from the National Treasury PPP Unit and other legal and technical experts were brought on board to form a tightknit team.

This was viewed favorably by both the public and private sector as a professional unit with considerable expertise in closing PPP contracts and a reputation as problem solvers and facilitators rather than regulators. The credibility of this team with the bankers, lawyers, and consultants involved in such projects in South Africa generated enthusiastic participation by private sector players.

The World Bank reports that high standards were set and maintained throughout the bidding process, including security arrangements and transparent procurement procedures. Documentation was extensive, high quality, and readily available. Domestic and international advisers were extensively involved in the design and management of the program, in reviewing bids, and in incorporating lessons learned into the program as it progressed through the bid rounds.

To fund the procurement process, in 2011 the National Treasury provided R100 million (around $10m). The World Bank provided a further US$6m and various bi-lateral donor agencies from Denmark, Germany, Spain and the UK contributed funding for technical assistance. This funding saw the program through the first round and part of the second. Subsequent to that, the program relied on bidder registration fees and fees paid by successful IPP project companies.

Successful project companies must pay a project development fee of one percent of total project costs to a Project Development Fund for Renewable Energy projects managed by the Department of Energy. The fund covers current and future costs associated with procurement of renewable energy and oversight of the program. These funding arrangements have helped the program remain off the formal government budget in subsequent bidding rounds.

Coming back home again, the Victorian Government’s policy marks a major departure in the state’s energy policy. Since privatising the industry a little under twenty years ago, the Government has had a watching brief with some intervention around the edges – most significantly in smart meters. The Government is now getting back into the business of electricity production.

Even if it does not intend to own or operate generators, it is the Victorian Government that will under-write what will be a massive investment program. Surely every large new renewable generator developed in Victoria for the next nine years will be part of its program. If the Government legislates its policy as expected, the Victorian Government will become the most important player in the Victoria’s electricity generation sector.

We all, including the Government, have yet to discover how its policy will unfold in practice.

The South African experience can provide some feeling for what goes into the competitive procurement and development of 6,000 MW of renewable capacity. Their apparent success in this endeavor is encouraging. It would be good to learn from this what we can.

Bruce Mountain is an energy economist and Director of consultancy, CME. Vivienne Roberts is an engineer and accountant and was a technical advisor on a number of projects in South Africa.

Securitisation of a portfolio of solar installations – technical due diligence considerations

At the Solar expo and conference held in May, I attended a very interesting talk by Jackson Moore, from DNV-GL.  This looked at the securitisation of a portfolio of solar energy projects, and some of the key items to consider when conducting the technical due diligence on bundles of hundreds, if not thousands, of small scale projects.

Now my experience of technical DD work has been on large scale projects (>5MW) where a lot of focus and energy has been given to reviewing the individual project’s merits and risks, to advise interested parties (often the lenders) on the associated risks and opportunities.  The project details and aspects are interrogated and weighed up individually.  It takes time, and thus has a consulting cost associated with it.  For smaller projects, where the budget or project financial model may not allow for extensive transaction or consulting fees, it doesn’t make sense to drill down into each project’s finer details, and the bundling of projects into a larger portfolio of similar projects makes sense.

Risk profile

For me, and possibly for anyone else who has followed, to any extent, the mortgage-based crash in the US that led to the implosion of the financial system in 2008, the securitisation of debt products triggers a warning bell.  Bundling of small debt packages without conducting adequate inspection of the individual projects increases the risk to the lender, as there is not as much scrutiny on the risk profile of each project.

The aim though is to mitigate this risk through having a broad portfolio of projects.  This portfolio will have projects with varying technologies, geographies, installers, owners and other project make-up that help to prevent an overexposure to any one type of project risk.

The lack of inspections worsens the overall risk profile, but the broad range of projects, and the size of the portfolio, aims to address this.

Mitigating against technical risks

While it isn’t possible, or rather feasible, to inspect all individual projects, there are due diligence tools and techniques that can be used to further improve the portfolio’s risk profile.  The main action to be taken is to scrutinise the individual processes used by project developers in the design, installation, commissioning and operation of these smaller facilities.  Processes to be reviewed include:

  • energy modelling;
  • performance guarantee methodology;
  • supplier selection criteria and qualification processes;
  • testing procedures;
  • vendor list management;
  • design and construction quality assurance procedures; and
  • contract development and review.

Let’s look at some of these in more detail.

Energy Modelling

The methodology used in modelling facilities’ performance and anticipated energy output should be a well thought out process.  The methodology should clearly outline how, for example, shading losses will be calculated (using satellite imaging/visual assessment/onsite monitoring etc).  The methodology for determining other technical inputs and assumptions (such as uncertainty values) will also need to be defined and, importantly, the developer should also indicate how they will ensure that their employees are adhering to these processes.  Do they have an internal quality assurance procedure and is this being implemented.

The technical due diligence team would review the procedures and methodologies to comment on their appropriateness, but it is also recommended that a statistically sample of projects is audit and analysed to determine if the methodologies are being followed correctly and if the internal QA procedures are being implemented.

Technical review

Each project will have aspects of it that are unique, and designed according to the relevant local conditions.  However, it is recommended that factors that are likely to be consistent across projects are reviewed for their suitability.  For instance, it would be possible to agree on a short list of Tier 1 module suppliers that may be appointed.  Or an approved list of competent installers, each with an appropriate and demonstrable track record.

This allows for a single review of technical project issues to be applied to a wide range of projects.

Design and construction quality considerations

The main word here is documentation.  As with the energy modelling procedures used, all design, installation, commissioning and operating procedures should have rigorous quality assurance processes in place, to ensure that project activities are carried out according to a suitable standard.  The procedures themselves should be reviewed, but it is very important that the developer is able to provide evidence that the implementation of the procedures has been checked thoroughly.  Documentation such as inspection notes, sign off sheets, certificates or punch lists should be available on each project, and it should be clear that the developer has interrogated these, and is in control of the overall project quality, for each individual project.

This allows the technical DD team to review a sample of the projects, identifying if there appears to be any issue with the developer’s internal quality assurance procedures and processes, or the implementation thereof.

Off-take contracts

There are any number of potential pitfalls when it comes to contracts in energy facilities.  Off-take contracts outline the rights and responsibilities of both the solar facility provider and the customer.  What is most important if projects are to be bundled together, is that these contracts are standardised.  This could either be through standardised Power Purchase Agreements (PPAs) or leasing agreements.  Either way, the terms should be the same across all the projects.  Contracts can therefore be reviewed once, and all projects should have the same type of contract risk associated with them.

In addition, the performance guarantee outlined in the off-take agreements should be relatively low (based, for instance, on a P90 yield assessment or better).  This makes it easier to assess the risk of underperformance, and mitigate against payouts across the project portfolio.

Recommendations for the various parties

In summary, below are some of the recommendations for key stakeholders to improve the overall feasibility and risk profile of their portfolio of projects:

Project developers
  • energy modelling procedures are incredibly important and should be followed carefully
  • all processes and activities are to be documented accurately and thoroughly
  • only projects which are known to have followed the approved processes and procedures should be submitted as part of a portfolio
  • only approved suppliers and vendors should be used
Installers
  • quality of installation is of paramount importance and should be put above anything else
  • the project documentation should be in place and captured accurately
  • if the quality is found to be sub-standard it is likely that the installer will not be included as an approved contractor in subsequent funding rounds
Financier
  • the emphasis should be on process based review, as opposed to individual project reviews
  • a statistical sample of projects should be reviewed to ensure that the processes are being followed and implemented appropriately
  • the increase in risk associated with not carrying out a review of each project should be tempered by the overall portfolio of projects

Note:  I have referred to project developers in this post, but this is interchangeable with project owner or sponsor.  Jackson referred to project sponsors in his talk, but I lean towards the term developers.

Solar PV guidelines and checklists

About a year ago I posted about a “five minute guide” I wrote while still at Arup in Cape Town.  This aims to flag some of the key technical things to consider if you, as a building owner or manager, are considering installing solar PV on your roof.

I came across another resource today; a checklist produced by the Interstate Renewable Energy Council, in the US.  This list aims to provide consumers in America with a series of questions or items to check when going ahead with a solar installation.  The aim is to have informed customers, asking the right questions and entering into a contract with a good basis of understanding.  This will hopefully result in service providers being held to an acceptable standard, and a reduction in the number of complaints being made against industry parties.

It’s quite a long list, and may be quite complicated for a layman.  It also suggests asking the installer for various bits of documentation; and it’s quite possible that the average homeowner may receive such documentation and not know if it’s adequate.   But it may be quite a good resource for larger consumers to implement, particularly where both PPA and leasing options are available.  You can find the checklist here.

IREC_Checklist

Renewable Energy projects and targets in the Philippines

The Philippines has developed a roadmap or National Renewable Energy Program (NREP) to nearly triple their renewable energy installed capacity from its 2010 value of 5,438MW by 2030.  This will mean an installed capacity of 15,304MW by 2030.  To do this, they will focus on the following 6 steps:

  1. Increase geothermal capacity by 75%
  2. Increase hydropower capacity by 160%
  3. Deliver an addition 277MW of biomass power capacity
  4. Attain wind power grid parity through the commissioning of 2,345MW of additional wind capacity
  5. Mainstream solar through the addition of 284MW of solar capacity, and aim for an aspirational target of 1,528MW
  6. Develop the first ocean energy facility for the country
[SOURCE: NREP Renewable Energy Plans and Programs (2011-2030)]

The Department of Energy releases a summary of awarded projects every two months on their site.  I’ve taken some of this data to make the graphs below.

The four different categories that I’ve pulled out are only for grid connected projects.  There are some projects that have been awarded or that are pending for own-use, but I’ve left these out for the minute.  My reading of the reports that go along with the summary tables are that projects that have been ‘awarded’ still need to demonstrate compliance with various obligations.  Those that are listed as ‘awarded’ and ‘potential’ are not fully compliant with these obligations.  Obligations relate to the work programme, posting of performance bonds and something called “RESHERR,” which I can’t find an explanation for, but am guessing it relates to Health & Safety and Environmental obligations.  This is a total shot-in-the-dark guess.

Projects that have not been ‘awarded’ and are listed as ‘pending’ are still to have their status finalised under the Renewable Energy Law.  It seems that some of these projects awaiting this have been constructed.
Awarded installedAwarded potential
Pending installed
Pending potential

 

 

 

 

 

 

 

 

 

 

 

 

[Source: Department of Energy]

What also interests me is how this looks compared to the same time the previous year.  What jumps out at me from the below is that they seem to have some difficulty converting potential projects to installed projects, even when awarded.  The greatest movement seems to be in hydropower and solar, with wind and biomass projects moving in the wrong direction; possibly from a failure to comply with the above-mentioned obligations.

Change in awarded capacity

[SOURCE: DEPARTMENT OF ENERGY]

The Philippines’ renewable energy feed in tariff

Prior to arriving in the Philippines, I had been hearing about the increase in focus on renewables, as a distributed generation option.  Walking around Manila, you see clear evidence of this, with rooftop solar mounted around the city and various solar businesses dotted around the city.

Manila_Solar

I popped into a solar developer’s office, Del Sol Energy, and we chatted for a bit about an 80MW solar PV facility that they are developing in one of the southern islands.  They’ll be aiming to access the government’s renewable energy feed in tariffs.  The process for accessing the FIT’s is shown in the diagram below:

Php_FIT_process[Source: KPMG “The Energy Report Philippines 2013-2014 edition” It’s A good report covering the basics of the electricity sector]

FIT Rates

Under the National Renewable Energy Programme (NREP) the Department of Energy sets out a target that RE capacity will be over 15,000MW by 2030.  This is a significant increase in current capacity and nearly the entire current electricity grid.

The FIT has been developed as a means to achieve this target.  This guarantees the generator a fixed preferential rate for electricity generated, and is paid for through a FIT allowance payable by all electricity consumers, working out at P0.0406/kWh.  (1PHP = 0.21USD as at the 26th Sep 2015)

The initial feed in tariffs, with the recent proposed reduction in the rate, along with an extension on maximum capacity to be awarded is shown below.

[supsystic-tables id=”2″]

 

As at the end of 2012, 5,600MW of renewable energy projects had been submitted to the DOE and subsequently approved with many more projects in the pipeline.  The DOE’s website seems to be down and it’s making it a bit tricky to find out some of the details on the projects that have been awarded, and official notices relating to the movements in the FIT.  Watch this space; any updates found will be posted.