SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Economic and financial feasibilityof PV projectsMonika BIERIResearch Associate

Solar Energy Research Institute of Singapore (SERIS)National University of Singapore (NUS)

SERIS INDUSTRY DAY on “PV Quality and Asset ManagementNUS, University Hall14 August 2017

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Agenda

1. Country and market risk assessments (macro level)

2. Solar economics studies

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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1. Country and market risk assessment (macro level)

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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What factors banks/lenders consider:Top-down decision-making

Country level

Sector level

Sponsor level

Project level

Political and macro-economic situation

Enforceability of contracts

Supply/demand Regulation Competition Future

development Stakeholder

analysis

Track record Financial

health Reputation Technical

experience Capacity

Design, technology

Procurement Competitiveness Tariff, demand Environmental,

social aspects Off-takers credit

quality

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Country level: cost of financingExample: WACC calculation across different cities, 60% debt ratio

RFR = risk-free rates, MRP = market risk premium, b = beta, CoE = Cost of Equity, DP = debt premium, CoD = Cost of Debt, TR = tax rate, WACC = weighted average cost of capital, IF = inflation rate

Cambodia: high country riskGermany, Switzerland, Japan:low risk-free rates

India: high inflation rateUS: high tax rate Thailand: favourablefinancing

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Sector level – remuneration frameworkSupportive policies and level playing field important

Data source: IEA PVPS Trends 2016 in Photovoltaic Applications, *IEA 2015 data (WEO2016)

An end to fossil fuel subsidies (USD 325bn*) would make renewable energy subsidies (USD150bn*) obsolete

Global market incentives and enablers:

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Example: Singapore’s policy approachWhile there are no direct subsidies, there is indirect support…

governmentprivate sector

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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No FiT: what future electricity prices?Scenario analysis important to understand underlying key drivers

Oil price scenarios*

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Reserve margin scenarios

wholesale electricity price scenarios

grid price scenarios

What is the cost of the primary fuel (gas) of the marginal power plant?

* As per Brent oil forward price curve of 27 June 2017

What is the supply/demand outlook for the sector? Will the update of renewables change the merit order of the market?

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Wholesale electricity price scenarios*Uniform Singapore Energy Price (USEP)

The addition of bulky new gas power plants to prevent the reserve margin to fall below 30% (25% for the maximum scenario) causes the spikes in the energy price.

*As per 27-Jun-2017 Brent forward price curve, Spot Brent oil price: 46.7 USD/barrel

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Identify and analysis key stakeholders and the amount of competitionOther aspects of market analysis

Electricity generation mix and how it will evolve in the future Regulation versus liberalisation, implication on power price, consumer

choice, political component etc. Legacy issues being solved in the future (e.g. halt of vesting regimes,

re-negotiation of supply or IPP contracts etc.)

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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2. Solar economics studies

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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System size: 1 MWp, System price: ~920 USD/kWp

Total investment: USD ~920k (of which equity ~370k) 60% debt finance, 3% over risk-free rate, 10 years at 5.5% 8.9% equity cost, 17% tax rate, 6.3% discount rate 80% performance ratio, average irradiance of ~1,632 kWh/m2 (P50) First year energy yield: ~1,306 kWh/kWp

1.0% degradation rate p.a., 25 years operational life 0.3% insurance cost p.a. (in % of total investment cost) Cost inflation 2.7% p.a. Annual operating and maintenance expense: 7.1 USD/kWp

Inverter warranty extension cost at 20%, 45% and 60% of prevailing inverter price factored in every 5th year, respectively (increasing with the average age of the inverters)

LCOE = 7.6 USD cents per kWh (pre-tax)

Example: 1MWp industrial roof in SGP

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Sensitivity analysis (individual ranges)Most critical LCOE parameters are discount rate and durability

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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How does that compare to other cities?Main input parameters into the LCOE calculation

Singapore compares well in terms of system price (competitive EPC landscape) and discount rate (base on 60% debt-financing)

Due to cloudy skies in the afternoon, does not has enjoy as much as irradiance as in India and other surrounding cities, however is still considerable more than in Germany and Switzerland

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Singapore ranks third After Delhi (1.) and Bangkok (2.)

Singapore would rank 6th in case debt financing is not available

Delhi benefits from its excellent irradiance resource

Bangkok’s low discount rate is thanks to its favourabledebt financing schemes

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Solar PV competitiveness in SingaporeWith latest solar module price declines, solar reached “grid” parity against new gas-fired plants again in 4Q16

Data source: EMA for LCOE of a new gas-fired power plant (allocated vesting price), EMC

“Grid” parity not yet reached with wholesale power prices, which are lower due to overcapacity (1H17 average ~5.9 USD cents/kWh)

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Self-consumption is economic viableNPV profile example of a 1 MWp rooftop system

Assumption: base year 0 = 2016, future prices in line with SERIS’ contestable client price scenarios*

Equity IRR:Most-likely: 18.0%

Project IRR:Most-likely: 12.1%

Discounted payback period can be shortened by four years in case loan maturity is extended to 20 years instead of 10 years.

*As per 27-Jun-2017 Brent forward price curve, Spot Brent oil price: 46.7 USD/barrel

Equity IRR:Most-likely: 23.7%

Project IRR:Most-likely: 12.1%

Equity IRR:Most-likely: 18.0%

Project IRR:Most-likely: 12.1%

Equity IRR:Maximum: 25.9%Most-likely: 18.0%

Project IRR:Maximum: 16.1%Most-likely: 12.1%

Equity IRR:Maximum: 25.9%Most-likely: 18.0%Minimum: 7.8%

Project IRR:Maximum: 16.1%Most-likely: 12.1%Minimum: 6.2%

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Lowest LCOE tendered (USD cts/kWh)

Picture source: Solargis, price sources PV-Tech, as of June 2016

Abu Dhabi 2.42

India 3.80 Mexico 2.70

Chile 2.91

Dubai 2.99

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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How is 2.4 USD cents/kWh possible?

Comment: only for illustrative purpose to show how 2.4 USD cents/kWh is possible by changing certain underlying parameters, *inverter warranty extension and insurance premium reduced

Unique composition of favorable financing cost, high irradiance resource and economies of scale benefits (1.18 GW)

High capturing of irradiance possible via 1-axis tracking system

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Grid parity a challenge in Southeast AsiaBiggest disadvantage for solar are ongoing fossil fuel subsidies in some of the countries

Grid parity reached or in reach: Cambodia, Vietnam, Lao PDR, Philippines, Singapore and Thailand

Government incentives might help to grow solar in countries with no grid parity

Source for implied subsidy estimates: International Energy Consultants (IEC), Regional/Global Comparison of Retail Electricity Tariffs, provided for Meralco

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Environmental Attributes Calculator Country-specific parameters to visualise environmental benefits

Green electricity production (kWh): 23,651,704

Avoided CO2 emissions over the system’s lifetime (tCO2): 9,539

On-line web-tool available on request to issue environmental attributes assessment reports

Example: 1 MWp rooftop system in Singapore, operating 20 years

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Selling voluntary green attributesAdditional revenue stream to fulfil corporates’ sustainability targets

APX forms the central platform where each 1 MWh produced green attributes are tracked via individual serial numbers until retirement

Interested client

TIGRs* Registry (APX)

Renewable generator

virtual off-site commercial PPA

“retirement”account

*Tradable Instruments for Global Renewables, www.tigrs.apx.com**Qualified Reporting Entity

agreed quantity and price per TIGR*(1 TIGR = 1 MWh green attributes)

APX verifies assets

3rd Party Verifier (QRE**)

“asset owner” account

verified MWh

verified generation“QRE” account

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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A number of country-specific factors influence the economic viability of a PV project, especially financing

SummaryWhy fundamental analysis is important

A stakeholder analysis of the sector is required for strategic reasons (i.e. is a level-playing field ensured or is a co-operation with incumbents a better choice?)

Where grid parity is not yet in reach, the regulatory framework and robustness of policy support needs to be carefully analysed

A scenario analysis of future electricity prices is important to understand revenue impact and competitiveness of project

With solar electricity becoming increasingly competitive (hence don’t need government support anymore), “classic” assessments of investments (in PV) will take over and therefore risk mitigation measures will be key, especially country and exchange rate risks

SERIS is a research institute at the National University of Singapore (NUS). SERIS is sponsored by the National University ofSingapore (NUS) and Singapore’s National Research Foundation (NRF) through the Singapore Economic Development Board (EDB).

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Don‘t hesitate to contact us:

monika.bieri@nus.edu.sg

More information at www.seris.sgwww.solar-repository.sg

SERIS.Singapore

Solar Energy Research Institute of Singapore