How would you sum up the most pressing challenges facing PV developers in the U.S. solar market right now for existing firms and those considering entering the U.S. PV space?
The U.S. PV industry is transitioning from the Treasury Grant 1603 process to a tax credit incentive, which means investors must secure different funding partners, such as companies with tax equity appetite. Also, Department of Energy (DOE) grants have slowed. It appears that good financing of project portfolios is readily available for residential applications, but is more cumbersome and slow for commercial and utility-scale projects. Similarly, the grid applications process and numerous layers of approvals required for projects burdens the industry with inefficiencies. These overheads constantly drag on industry growth.
Making solar power affordable begins with developing power plants that have a competitive LCOE. Where do you see the next steps in lowering the LCOE?
Now that PV panel costs have come down, all the balance of system (BOS) installed costs get more attention and aggregation of small improvements add up, such as reduced labor hours, wiring materials and design, connections, nuts and bolts, reusable design building blocks, labor skill level segmentation. Soft overhead costs of permitting and financing will also come down as the industry matures. Lastly, better analysis and understanding of operations and maintenance lifecycle cost and performance optimization will drive down LCOE.
BOS costs are dropping continuously, but cannot keep up with falling module prices. What kind of cost development can we expect there? How significant is BOS in terms of LCOE?
PV panel price declines are expected to flatten, and inverter costs are coming down, but the trend will also flatten somewhat as inverters have an increasing role in PV project functionality (e.g. utility interactive features). Mechanical systems costs are likely to drop, but the biggest savings opportunity is to reduce the overhead of the industry selling, permitting and finance cycles.
Did the financial crisis and the therefore difficult credit market lead to higher bankability standards for the U.S. solar industry?
The financial crisis impacted government sentiment and capacity to support incentive programs for example DOE grants and state incentives. The expiration of 1603 grants impacts the market now, but fortunately new funding sources are emerging. So sources of funds and project finance models are shifting. Bankability hurdles for performance and reliability seem to be increasing as the industry matures and has insights from project performance history.
One of the main obstacles regarding bankability from a process point of view is that there is no standard set of deliverables a PV manufacturer has to fulfill to be considered bankable. On the contrary, each bank and financial institution sets its own terms and rules. What do you recommend manufacturers and developers to do against this background? What are the main issues a manufacturer or developer should provide for?
Fundamentally, bankability is defined by increasing predictability of cash-flows and reducing risks in financial modeling. So, high confidence in supplier performance for the entire project life-cycle is essential. Bankability can be thought of in two parts: (i) Technology performance in terms of specifications, quality and reliability; and (ii) Company viability and strength in terms of scale, balance sheet, diversity, transparency and ability to honor warranty terms. Independent validation is ideal generally and mandatory to new participants.
As an ever larger number of PV manufacturers enter the market, bankability is what separates the wheat from the chaff. On the other hand, an increasing number of manufacturers overcome the bankability hurdle, and bankability is becoming an international standard. Where do you see the future also with regards to competitive advantages?
Its 1908 for the auto industry. The PV industry is still young so many opportunities are readily available for advantage; design optimization such as central vs. string inverter solutions, commercial solutions such as performance guarantees, services bundling, supply chain optimization, utility interactive controls, partnerships. There is plenty of opportunity for creative folks.
Power outages and power quality problems are said to cost the U.S. market some US$100 billion a year. How can the solar market help to solve this problem?
We need to continuously improve the contribution and control of solar assets as a valuable utility resource and not just a path to Renewable Portfolio Standard (RPS) compliance. Solar wont solve every problem, but should have a strong role in a smarter more efficient grid.
Efficiency claims of inverters do not always relate to the actual performance. How can inverters be tested in real life as opposed to lab situations?
Better monitoring solutions in terms of site specific monitoring optimization, granularity and analysis can help reveal actual inverter performance. Also, standards of comparison should evolve to address higher DC:AC ratios when inverters more often run near capacity. Efficiencies are getting high enough that other variables become more critical such as uptime.
Utilities need to be able to interact with power plants according to both regulation and preference. As the U.S. transmission authorities promulgate new grid connection laws relating to PV the standards for PV data and communications will likely be simplified. How is this going to influence the PV market?
There is opportunity today for improved and unified standards that will improve efficiency of the industry. Things are evolving quickly and there are working groups and committees seeking to build consensus in various areas. Equally, innovation and awareness of what is feasible is increasing.
Useful Data Management goes hand in hand with this development. How can the use of data be maximized?
Selecting the right level of monitoring to match the needs of each project is necessary; panel, string, zone or inverter only monitoring for example. Then, analytics for service timing can be tuned for each project resulting in the optimal balance between service costs and maximum project performance.
Ed Heacox is principal and co-founder of Envect Inc, an embedded consulting firm helping clients secure market traction in the Americas renewables industry. Prior to Envect, Ed was Vice President of inverters at Advanced Energy building the business from $1M to over $200M from 2008-2011. Eds career spanned over 20 years in the power conversion industry with GE, Emerson and Celestica. He holds a Masters Degree in Management from Stanford and BSME from University of Arizona.
He will also act as program advisor for the 4th PV Power Plants Conference USA 2012. The event is scheduled to take place on November 28 and 29, 2012, in Phoenix, Arizona. The event provides an overview of the current state of system costs, quality, procurement, materials as well as financial and legal aspects in the US solar market. More information can be found here.
Edited by Becky Beetz.
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