q-cells na white paper 2011

PREDICTABILITY: THE NEXT STEP FOR POWER PLANT OWNERS TO GUARANTEE A POSITIVE RETURN ON THEIR SOLAR ENERGY INVESTMENTBoris Schubert, Charly Bray, Adam Han, Gaurab Hazarika

INDUSTRY MODULE AND SYSTEM WARRANTIES

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OPERATION YEAR

1 Ben Sills and Christopher Martin, “U.S. utilities to Double Solar Investment Annually,” Bloomberg, November 30, 2010.

INTRODUCTION

Anyone involved in specifying the requirements for a utility-scale photovoltaic (PV) power plant knows how tenuous the realization of those requirements are. The historical data to predict performance is light. Expected returns are presumptive. Warrantees are inconsis-tent. Assigning responsibility, should things not live up to expectation, is elusive at best.

What would this high-end solar market give to have guaranteed plant performance that is linear and predictable? What would they give to have the risks of designing, building and operating a solar plant removed from their shoulders? What would they give to have a part-ner of international renown and decades of field-proven experience make this happen?

Predictable, linear and guaranteed plant performance is standard practice at Q-Cells.

BUILDING MOMENTUM IN A MATURING MARKET

Building a path to market maturity is a step-by-step process. Every market must adapt as it graduates through a series of changes until it can deliver sustainable results for its stakeholders. The market for utility-owned and utility-scale solar projects is no different. In fact, it is currently sitting at a tipping point that can impact its momentum all the way to the top.

Every maturing market starts at the bottom of the stairs with a simple interest – an inter-est among investors, innovators, customers, governments, etc. to pursue a common goal. Over time, that interest reaches the second step with a strong belief of potential success and thus, confidence spreads. Momentum builds. At some point, experimentation and field tests give way to business models. This is when the market must start delivering as promised – the actual must meet or exceed the expected. For that to happen, the market must advance and show predictability, reproducibility and scalability. Only then can a market truly deliver the sustainable results found at the top of market maturity.

When it comes to PV energy, the U.S. is an emerging giant. In the U.S., the electric utility-owned and utility-scale projects are expected to fuel much of solar energy growth. Most utility-scale power plants are larger than 10 megawatts (MW) and those that are actually utility-owned can range from small multi-hundred kilowatt to multi-megawatt systems.

These two segments (utility-scale and utility-owned) offer huge potential to the solar mar-ket. They are forecasted to double annual solar energy capacity through 2015. According to Greentech Media analyst Shayle Kann, “installations of so-called utility-scale solar projects will reach about 3,000 MW annually, worth $8 billion, in five years from 58 MW in 2009.”1 Greentech Media also states that lower solar module prices will bring the po-tential value of solar power investments to a broader range of investors, including utility companies, institutional investors, family offices, municipalities and public services.

There is a catch in this forecast and it has to do with predictability. Without accurately predicting (and ultimately reproducing and scaling) the value or return of such large-scale solar investments, the market momentum will slow or even cease. Although PV compo-nent costs may be coming down, unless the solar market can ascend to the third step of market maturity, the concern remains: can an investment in a large-scale solar power generation project deliver a predictable and valuable return over the lifetime of a plant?

PREDICTABILITY – IT’S A MATTER OF METRICS

In many fields, whether it is financial services, energy or real estate, determining predict-ability boils down to knowing what to measure. In the early days of PV, simple metrics such as the static capex-focused $/kWp indicator were used to measure a project’s value or potential. Unfortunately, these and other simplified metrics were not focused on life-time costs versus lifetime returns. As a result, they painted an inaccurate and short-term portrait that miss-set expectations and all too often set projects up for failure.

Over the past few years, the PV industry has turned to levelized cost of electricity (LCOE) as a standard performance indicator for power generation investment assessments. As LCOE is often stated, it measures the net present value of total life cycle costs of the project divided by the quantity of energy produced over the system life. LCOE creates a broad assessment of the cost it takes to produce a lifetime of power.

To get the LCOE right, it is imperative that all lifetime component costs and total lifetime energy output is properly calculated. The initial cost of developing the project, the return for the investor and the cost of building the project are the most important cost compo-nents in this assessment. Ongoing costs to ensure that the system generates the output as expected should be included as well.

LCOE =Σ Nn=1( )

(YEAR 1 EXPECTED KWH) * (1 – ANNUAL DEGRADATION)(n–1)

(1 + DR)n

INITIAL COSTS + Σ Nn=1( )ONGOING COSTS

(1 + DR)n

DR = DISCOUNT RATE

While LCOE is straight forward and the model presents a more complete picture of a solar plant’s operational capability than previous models, it still measures the sum of the parts rather than the whole. This difference might seem academic, but only summing the parts allows assumed variables and unknowns that fail to live up to their assumptions to multi-ply in effect on other parts of the system.

THE PERFORMANCE GAP

At the core of any model that offers predictability lies the need to have the actual results be as close to the expected results. The realized should be in line with the idealized.

In the past, the LCOE model helped fine-tune the assumptions feeding the LCOE that was expected from PV power plants. In real life, however, this leads to a Performance Gap be-tween the LCOE that is expected and the LCOE that is actually achieved.

EXPECTED LCOE

ACTUAL LCOEPERFORMANCE GAP

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TIME

Typical cost components prior to the project becoming commercial (Initial Costs) are:

• Development costs• Investor return• Cost of building the system,

or Engineering, Procurement and Construction (EPC) − Modules − Balance of system − Labor

• Land cost if applicable• Other costs

Typical components of the annual ongoing (Ongoing Costs) are:

• Regular annual Operations & Maintenance (O&M)

• Major maintenance• Taxes – property taxes and any other

related taxes• Lease cost if applicable• Annual insurance• Any carried interests if applicable• Other costs

This Performance Gap exists because of uncertainty in the planning phase caused by er-roneous assumptions from limited data and lack of operational insight by utilities and investors.

To identify an expected LCOE, numerous assumptions have to be made, e.g.:• irradiation• installation time line, commercial operation date• actual system capacity• capex (e.g. modules, balance of system)• yield• module degradation• annual costs• average system uptime

If not managed carefully and communicated transparently, these assumptions can lead to a significant gap between expected and actual LCOE which, over time, can expand to the point of a system failing to deliver against its business plan.

The Performance Gap generates uncertainty during the critical financial assessment phase of PV investments. The result jeopardizes acceptance of the power plant and can ulti-mately compromise acceptance of utility-owned and utility-scale generation as a whole.

So how does one close the gap? Wrap LCOE in a quality-based model that represents not only the system-wide effectiveness of the power plant over time, but also can act as a lifetime guarantee to mitigate risks to the power plant owner. In other words, tie the sum of the parts together to fully represent the whole and you end up with predictability.

PERFORMANCE RATIO – AN INDICATOR OF TOTAL PV POWER PLANT PREDICTABLE PERFORMANCE

Simply put, a power plant Performance Ratio measures the system’s efficiency in convert-ing solar irradiation into electricity.

Because the Performance Ratio looks at the whole rather than the sum of the parts, this indicator provides a straightforward basis for assessment. By measuring Performance Ratio, power plant owners and operators can immediately and fully predict the perfor-mance of the plant over its lifetime, accurately assessing the value of the plant. If a guarantee can be issued against that value, the aspiration gap of the expected versus actual LCOE disappears.

LOOKING UNDER THE HOOD OF THE PERFORMANCE RATIO

Performance Ratio (PR) is a dimensionless quantity used to describe the amount of avail-able sunlight converted to AC electrical energy, generally measured at the revenue meter for the power plant. It is calculated by dividing the final PV system yield (also known as the Specific Energy of the system) by the Reference Yield.

Specific Energy is determined by taking the total energy yield of the system in kWh and dividing it by the nameplate DC power in kW. This allows the designer or analyst to scale yield to any desired system size.

The Specific Energy indicates how much energy per unit of power a given PV system is capable of producing. Specific Energy is useful in comparing different technologies or design configurations from one another or comparing the expected production between different geographical locations. System designers frequently use Specific Energy com-parisons in software simulations of systems to optimize their design and make choices between technologies and between different sites.

Evaluating Specific Energy is also very useful for a financial analyst looking to evaluate expected rates of return between different system designs and/or geographical sites. Com-paring Specific Energy projections allows quick evaluation of energy generation potential.

Though very useful while planning a system, the limitations of Specific Energy are re-vealed when measuring how a system performs under real-world conditions. Since the amount of sunlight varies from year to year, changes in Specific Energy may merely reflect changes in weather as opposed to system degradation.

Therefore, to get a fully holistic picture of a system’s quality factor to evaluate whether a power plant is performing as expected, it is necessary to normalize the Specific Energy to the actual weather. Sunlight is the main driver for PV system performance and PR uses the amount of sunlight irradiation as the only term for normalization. Temperature differ-ences are not taken into account by a PR evaluation since there is typically not enough effect on system performance over an extended period.

The denominator term of PR is Reference Yield, which is calculated by the total in-plane irradiance divided by the reference irradiance. Total in-plane irradiance is taken on the basis of time for the evaluation (usually monthly or yearly) and is expressed in kWh/m2. This value is dependent on the angle and orientation of the PV system. The in-plane ir-radiance for a tracker, for example, would be higher than a fixed-tilt system. The in-plane irradiance, then, is both system-design dependent as well as weather dependent.

The reference irradiance usually is the irradiance at the reference condition. The refer-ence condition is almost always the Standard Test Condition (1000 W/m2) in the case of flat-plate PV.

SYSTEM-WIDE PREDICTABILITY DRIVES SYSTEM-WIDE GUARANTEES…EXCEPT FOR THE SUN

No one can guarantee exactly how much sunlight will be available for power production in a given month or year. The PR analysis allows the owner and/or operator of the system to know how well their system is operating just by measuring energy delivered at the me-ter and plane of array irradiance at the solar project site. It is important to note that PR is most useful at evaluating system performance on longer periods of time and is typi-cally intended to be used on a monthly or yearly basis.

PR is quickly becoming the preferred qualitative metric because it presents a very easy way to measure how well the actual yield of a system compares to its expected yield. Once a system design is established and the performance model has been substantiated, sys-tem owners can quickly know how well their system is performing relative to its expected output. The Performance Gap is no longer a surprise and predictability is achieved.

TURNING A PERFORMANCE RATIO INTO A PERFORMANCE GUARANTEE THAT OVER-DELIVERS ON COMPONENT GUARANTEES

Because a PR can evaluate the effectiveness of the system’s “whole” rather than the sum of the parts, a system-wide guarantee driven by a PR is better in every way than any com-bination of component guarantees. However, this system must be managed by a solar player with the breadth and depth of knowledge to deliver the data needed to offer true performance guarantees of a whole system. Only players with integrated systems experi-ence can wrap or bundle their offerings based on the real-world experience of product performance. With a project-level perspective, an experienced integrated system developer possesses a thorough knowledge of field-tested system performance down to the level of the module and even the cell. In other words, a car can come with a single 200,000 mile warrantee because it is specified, designed, built, tested and maintained by people who know the vehicle inside and out and consider it a single operational entity rather than a collection of parts.

In order to constantly deliver predictable, high-performing PV power plants, integrators need to develop a multi-leveled PR framework that covers the total timeline from pre-construction to installation to end of useable life – from Design, to Build, to Run:

PROVEN INSTALLATION METHODOLOGIES

TECHNICAL DEVELOPMENT SERVICES

FIXED-PRICED OPERATIONS AND MAINTENANCE

BUILDDESIGN RUN

Implemented as a package, this framework gives owners a worry- and risk-free solution to large-scale PV power plants. This is critically beneficial to those who are involved in the RFP process or overall system deployment of utility-scale projects. By engaging PV provid-ers who are focused on integrated solutions, utilities not only benefit from necessary ex-perience at the Build and Run stage but automatically benefit from up-front design exper-tise as an integral part of the solutions package.

DESIGN

During the Design phase, technical development services assist owners and developers to set the stage for success. Up front, estimators and engineers work closely with customer representatives to adjust standardized MW-block products to project-specific require-ments. Example services that are performed at this stage are:

• Yield analysis• Site assessment• Foundation design (maximized use of land, and light environmental footprint as no

concrete foundation is used)• Electrical design including Interconnection• Delivery schedule• Long-term forward pricing (utility-scale project development cycles easily exceed

24 months)• Bankable module design and supply chain• Bankable EPC and O&M agreements including EPC delivery guarantees• Close partnership to best-in-class inverter technology providers• Technical, EPC-related support during PPA negotiations• Close cooperation with owners’ and/or lenders’ engineers

These comprehensive services ensure efficient and non-iterative design during precon-struction/project development which ultimately leads to a quicker financial close.

TECHNICAL DEVELOPMENT SERVICES

BUILD

Proven installation technologies need to contain integrated, interwoven and scalable as-sembly schemes to ensure that the eventual system will operate as a cohesive power plant. This phase should entail:

INTEGRATEDEach delivery team’s tasks need to be clearly divided into several sub-teams with the fol-lowing deliverables/steps:• Civil: site preparation, roads, fencing• Structural: mounting system foundation, mounting system assembly, structural

module assembly• Electrical: trenches & cabling, string cabling & combiner boxes; module connection &

inverter installation, commissioning

PROVEN INSTALLATION METHODOLOGIES

Phase 0

Phase 1

Phase 2

Phase 3

Phase 4

Phase 5

Phase 6

Sub-team O: Civil

Sub-team 1: Structural

Sub-team 2: Electrical

SITE PREPARATION

MOUNTING SYSTEM FOUNDATION

TRENCHES + CABLING

MOUNTING SYSTEM ASSEMBLY

STRING CABLING + COMBINER BOXES

MODULE ASSEMBLY

MODULE CONNECTION + INVERTER INSTALLATION

INTERWOVEN• After civil sub-team prepares the site, electrical and structural sub-team work as one

string on two MW-blocks in parallel• Each deliverable is designed in a way that the sub-team performs each step per block

and week• Therefore, structural and electrical sub-teams always “own” one specific block per

week• After six weeks of installation, the first block is ready for commissioning, after seven

weeks the second block

WEEKS

STRING ONE STRING TWO

Phase 0: Site Preparation

Phase 1: Mounting System Foundation

Phase 2: Trenches + Cabling

Phase 3: Mounting System Assembly

Phase 4: String Cabling + Combiner Boxes

Phase 5: Module Assembly

Phase 6: Module Connection + Inverter Installation

TEAM 1

First MW Block

Second MW Block

TEAM 2

First MW Block

Second MW Block

Sub-team O: Civil



1 2 3 4 5 6 7 8 9 ... 1 2 3 4 5 6 7 8 9 ...

SCALABLE INSTALLATION• For additional speed, number of delivery teams can be scaled up. For example, two

teams deliver 2 MW blocks weekly after week six; four teams can deliver 4 MW blocks weekly

WEEKS

STRING ONE STRING TWO

Phase 0: Site Preparation

Phase 1: Mounting System Foundation

Phase 2: Trenches + Cabling

Phase 3: Mounting System Assembly

Phase 4: String Cabling + Combiner Boxes

Phase 5: Module Assembly

Phase 6: Module Connection + Inverter Installation

TEAM 1

First MW Block

Second MW Block

TEAM 2

First MW Block

Second MW Block

Sub-team O: Civil



1 2 3 4 5 6 7 8 9 ... 1 2 3 4 5 6 7 8 9 ...

RUN

Fixed-priced O&M services provide owners with necessary certainty to financially assess the power plant’s long-term costs. As long as they provide these O&M services with capped fees, integrators are able to provide a total power plant PR guarantee.

O&M services can include:• Monitoring and reporting

− Remote monitoring and annual reporting − Onsite fault intervention − Service hotline

• Site and equipment inspection• Maintenance

− Testing of electrical equipment − Greens maintenance − Module cleaning

• Repairs − Site surveillance and intervention − Insurance

PERFORMANCE RATIO SYSTEM-WIDE GUARANTEES FROM Q-CELLS – BUILDING A BETTER SOLAR MARKET FOR UTILITY-SCALE PROJECTS

When an integrated PV solutions provider like Q-Cells is driving the design, building and running of a utility-scale solar power plant, the whole does perform greater than the sum of the parts. By way of example, while the industry standard warrantee of a typical module is expected to stepwise degrade over time, the exact timing is unknown and therefore any expectations based on that unknown will be equally elusive. Even though Q-Cells modules have a warrantee that exceeds the market standard of 20 years, their unmanaged degra-dation over time is as unspecified as any other.

But, when Q-Cells is engaged in an end-to-end project where the company has responsi-bility throughout the entire lifecycle, the project can be managed so that the effective performance is not only linear (Predictable and Guaranteed), it surpasses other warran-tees by significant amounts – a triple win for the power plant owner or operator.

FIXED-PRICED OPERATIONS AND MAINTENANCE

80%

75%

85%

90%

95%

100%

MODULE POWER

OPERATION YEAR

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Power plant performance ratio packageStandard module performance warranty

OVERVIEW OF INDUSTRY MODULE AND SYSTEM WARRANTIES

CONCLUSION

PV is prepared to enter prime time in utility-owned and utility-scale generation as new mod-els for setting and evaluating plant performance are utilized. A model such as the Perfor-mance Ratio allows PV solution providers the means and the track record to help utilities and owners achieve a predictable return on investment. It will also help specifiers or others responsible for defining the requirements of these power plants ways of refining operational assurances.

A Performance Ratio guarantee that secures the total performance of a PV power plant is the key to mitigating risks for power plant owners and advancing the PV market. Just as no parts supplier would offer a 200,000 mile warrantee on any individual component as a car manufacturer would for the entire vehicle, only an integrated PV solutions provider of utility-scale solar PV power plants can guarantee and deliver on a system-wide warrantee that covers the entire life cycle of the plant.

Q-Cells has the breadth and depth of knowledge and more than a decade of field-proven experience around the world to deliver predictable and sustainable results. The only thing Q-Cells cannot guarantee is the sun.

REFERENCES

Darling, Seth B., You, Fengqi, Veselka, Thomas, and Alfonso Velosa. “Assumptions and the levelized cost of energy for photovoltaics.” Energy & Environmental Science. February 4, 2011.

“Financial Risk Management Instruments for Renewable Energy Projects.” Summary document. United Nations Environment Programme report. Division of Technology, Industry and Economics. 2004.

“Performance Parameters for Grid-Connected PV Systems.” National Renewable Energy Laboratory report. Prepared for the 31st IEEE Photovoltaics Specialists Conference and Exhibition, Lake Buena Vista, Florida, January 3-7, 2005. Authors: B. Marion, J. Adelstein, and K. Boyle, NREL. H. Hayden, B. Hammond, T. Fletcher, B. Canada, and D. Narang, Arizona Public Service Co. D. Shugar, H. Wenger, A. Kimber, and L. Mitchell, PowerLight Corp. G. Rich and T. Townsend, First Solar.

“Projected Costs of Generating Electricity.” 2010 Edition. Report published jointly by International Energy Agency, Nuclear Energy Agency and Organisation for Economic Co-Operation and Development.

Taylor, Mat and David Williams. “PV Performance Guarantees: Managing Risks & Expectations.” SolarPro Magazine. June/July 2011.

Tidball, Rick, Bluestein, Joel, Rodriguez, Nick, and Stu Knoke. “Cost and Performance Assumptions for Modeling Electricity Generation Technologies.” National Renewable Energy Laboratory report. November 2010.

Williams, Dave. “Large-Scale PV Operations & Maintenance.” SolarPro Magazine. June/July 2010.

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TEL 415 541 9300FAX 415 541 9301

EMAIL [email protected] www.q-cells.com

ABOUT Q-CELLS Q-Cells North America, part of Q-Cells SE, designs, builds and manages financially sustainable solar photovoltaic (PV) solutions. The company brings a decade of global leadership in solar PV to North America, combining best-of-world technology, processes and partnerships to deliver utility-grade solar PV solutions customized for local energy markets. Q-Cells North America offers the full spectrum of PV solutions – from the core technology of cells and modules to power plant development, financing, design, construction, operations and maintenance. With proven capabilities across the solar value chain, Q-Cells North America minimizes uncertainty and risk, and helps cus-tomer achieve a higher return on their investment in solar energy. www.q-cells.com

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