Who’s Who in the Solar Industry?

I have been lucky enough to have been involved in the UK solar sector since 2012 on my journey from the black of fossil fuels to the clean & green of renewables and have developed a picture in my mind’s eye as to who’s who in the industry. I’m not talking about individuals here, but rather what type of organisations & stakeholders are involved in the whole solar industry value chain.

It’s also surprising how many times I speak to specific companies who are involved in this value chain, but they are not completely aware of the full extent of moving parts when it comes to solar farm development, construction, operations and beyond.

With this in mind I thought I’d write an article in layman’s terms to describe the key roles in this process, what they do, and how they inter-relate to others in the value chain.

So, who’s first?

DEVELOPERS

A solar developer is an organisation who essentially searches for land which is suitable to receive a solar farm (topography, geotech, ecological and so on), has a possible grid connection nearby (typically 11kV or 33kV), is not an area of outstanding beauty or of archaeological interest, and is owned by a land owner who is interested in hosting a solar farm on their land.

Developers generally have an arrangement in place with a solar fund which either funds or subsidises the upfront development costs, and an agreement in place as to what point the developer will sell on the project (shovel ready, post construction to name two examples).

The main elements which developers are dealing with is as previously mentioned finding suitable sites, but once these are found they need to conduct a range of surveys and pre-design activities which involve specialist consultants and technical advisors (TA’s) to enable them to submit a planning application to the local authority. They may have multiple sites going through planning at any one time. They also have to submit a connection application to the district network operator (DNO), which depending upon the geographic location of the site could be one of six operators. Once they have planning consent & a connection agreement in place, the last piece of the puzzle to become shovel ready is to formulate a lease agreement with the landowner.

LANDOWNERS

Historically, the majority of landowners have been farmers, and in the UK at least many farmers have been very willing to diversify their agricultural business into renewables and benefit from it financially.

As previously mentioned, developers arrange lease agreements with the landowners, essentially meaning that the solar asset itself does not belong to the landowner, and there is a type of rent paid to the landowner for the use of the field in question.

This essentially is a price per acre or hectare per year, which the project owner will pay the landowner for use of their land (typically through a special purchase vehicle - SPV). I have come across prices ranging from £500 to £1,000 per acre per year. So, a 5MWp site, which is traditionally approximately 25 acres would provide a revenue to the landowner of between £12,500 - £25,000, which is a pretty good deal when compared to any agricultural crop yield comparison.

The other sweetener that you find a lot in these arrangements is that the farmer will be tied into the ongoing grounds maintenance of the site either through the operations & maintenance contractor, or direct from the asset owner. This typically includes grass management, hedge trimming and tree maintenance. The other possibility which has become very popular for ecological, land use justification and economic reasons is to have sheep on the site and manage them to graze the grass levels.

DNO’s

A district network operator is responsible for the distribution network within their regional area of responsibility. The DNO’s manage, balance, maintain & operate these networks in conjunction with National Grid who are responsible for the higher rated transmission network. There are solar projects out there that are connected directly to grid, but these are few and far between, so let’s focus on the DNO in this case.

In the UK there are six district network operators (DNO’s):

•     Western Power Distribution
•     Scottish & Southern Energy
•     UK Power Networks
•     Scottish Power Energy Networks
•     Northern Power Grid
•     Electricity North West

All are responsible for managing new power generation projects on their turf. Generally, for new build solar projects, which require new connections and in some cases infrastructure upgrades, DNO’s are always involved. A DNO would receive a connection application from a developer which would request an export capacity and import capacity and provide details of the nature of the power generation asset. The DNO then is obliged to provide a connection offer which usually consists of two parts.

Firstly ‘Non-Contestable’ works, which are the works that the DNO will need to do themselves and involves direct contact, isolation or interaction with the network itself, so that’s why they insist on themselves doing it and therefore is non-contestable.

The second element is the ‘Contestable’ works which an offer is provided by the DNO (usually being sub-contracted to a preferred & approved independent connection provider (ICP)). However, as this is the contestable element, project developers are free to engage with their own preferred ICP or indeed go out to market in a competitive arena.

With full respect to the DNO’s as they do a critical job, they are historically inflexible, slow to respond and in many cases (because of the way they operate) have caused project delays and in extreme cases have caused projects to miss subsidy deadlines. However, the majority of them do have a range of events & initiatives to attempt to improve their communication, performance and streamline their processes.

ICP’s

Independent Connection Providers or ICP’s as they are known are historically electrical or power engineering companies who through a process of approvals and authorisations can officially classify themselves as an ICP and be able to provide connection services and solutions to the DNO or in association with a DNO connection project.

In most cases for a solar project, they are engaged by the project developer/owner to conduct the contestable element of the DNO connection offer (usually cheaper than the DNO as would be expected). In physical terms this is generally the design and construction of the onsite sub-station (including transformers, switch gear, relays and protection equipment). Depending upon the site they often conduct the site-to-DNO sub-station cabling as well, which in some cases could be multiple kilometres away from the site.

My personal experiences with ICP’s was on the whole negative during the UK solar boom. Some individuals within the sector shone through as experts and really delivered, but generally it was riddled with over stretched, poorly organised & communicated projects, which again caused delays and missed subsidy deadlines.

In previous roles where we had experienced this chaos first-hand, we always recommended that the main principle contractor (EPC) should invest in a DNO / ICP coordinator role. Someone who was an HV / Connections expert who could keep both DNO & ICP on the straight and narrow, push them to stick to their programs, make sure they don’t forget to order parts etc. In the 2-3 projects we did this, there were no issues and time & money was saved.

EPC’s

The acronym ‘EPC’ stands for Engineering, Procurement & Construction, and is a term used as the title of the main or principal contractor who builds the solar asset. As the name suggests they traditionally are responsible for the engineering of the asset, the procurement of all of the different components and the construction of the system itself.

Typically, either the developer or the solar fund who has purchased the project from the developer will be looking for an EPC to build their farm(s). These types of company are usually quite large, have a strong balance sheet and can bank-role at least the front half of any given project. There may be a partnership in place meaning that a specific EPC will build out all of a portfolio, or indeed there may be numerous competitive tenders where the EPC will need to compete on cost, design, health & safety management, historic performance and program.

EPC prices have tumbled over the last few years (the biggest impact being the price of solar modules) meaning that solar is now the cheapest levelised cost of energy in terms of technology in the world. Solar farms are being built now in the range of £50-£60/MWh which continues to fall, and the pressure is on EPC’s to efficiently build these assets quickly and without fuss, and ensure they last the 25 years design life.

Pure-play EPC’s typically roam the planet looking for emerging solar markets. In Europe this started in Spain, Italy & Germany, then migrated over to the UK between 2011-2016, and is now on to multiple other markets around the world such as Australia, Chile, Argentina and India to name a few. These new emerging markets develop predominantly because of government support through subsidies which lead to boom markets where every man and his dog piles in, and solar asset deployment booms.

These boom-&-bust cycles are repetitive and keep happening. Governments subsidise solar, solar is deployed in excess (or at least far beyond government predictions), government realise the they can no longer afford to support the subsidies and remove them, and construction dries up. This happened here in the UK and several other more mature regions around the world. However, with the unprecedented international adoption of solar in full flow, this has brought tumbling module prices and we are now staring down the barrel of a subsidy-free wave of new builds. Certainly, in the UK this is already underway with several hundred MW’s of projects under development & construction in this fiscal year already (2019/2020).

However, developers & EPC’s are having to work harder than ever before to make their margins and to provide financially viable projects. Developments in technology such as bi-facial modules, the progression of design and adoption of trackers to optimise the output profile of a given site. The adoption of energy storage technologies to balance the grid and export at high points of demand. And finally, the implementation of lessons learnt from the first solar boom in terms of construction quality assurance and risk reduction methods. All of these elements will catapult solar even faster and further throughout the world which is a win-win in my eyes.

The EPC will build an asset and then be on the hook for performance and availability for at least the first 2 years which is known as the warranty period. Depending on whether the EPC has their own Operations & Maintenance capabilities or not will dictate whether they manage the asset during this period or sub-contract this requirement down to a pure-play O&M.

O&M’s

O&M contractors or Operations & Maintenance contractors essentially look after the solar assets once they are built. Their scope usually contains a range of regular visual inspections, electrical testing, production & security monitoring, reporting, grounds maintenance and module cleaning. Traditionally, the EPC will be responsible for providing an O&M service for a 2-year warranty period (sometimes longer), and either they will have their own internal O&M team or will sub-contract to a more specialist O&M contractor.

This warranty period is also known as the PAC to FAC period. PAC (Provisional Acceptance Certificate) is a contractual term where the owner of the site will provide a certificate when the site is fully constructed and has successfully undergone a series of performance tests. The process usually involves the production of a punch-list or snag-list which needs to be addressed and signed off to enable the certificate to be obtained. Following that, typically there is a two-year period before FAC (Final Acceptance Certificate) is achieved. This again is the final sign-off of the site both in terms of construction quality and site performance.

In maturing solar O&M markets we have witnessed significant service price reductions and major consolidation. Meaning that rather than a portfolio owner having 10-15 different O&M contractors, once the sites achieve FAC, then they go out to tender to find a smaller number (2-3) of preferred O&M specialists who they want to conduct their O&M. This has happened in the UK over the last 2-3 years and this process has pushed out smaller independent O&M companies, as owners prefer the risk profile of the larger established organisations.

Pricing wise, in the UK at least, during the boom (2011-16) prices started off in the range of £8,000-£12,000 / MWp / year. And now in 2019, prices are in the range of £4,000-£6,000 / MWp / year depending on scope. This is a significant reduction and one that can only really be swallowed by O&M’s if they have scale. For O&M companies to be sustainably profitable at these price ranges they need multiple hundreds of MWp to offer economies of scale gains. However, what comes with scale is complexity, and large portfolio O&M is as much about logistical planning as it is about solar expertise. And with congested roads, raising fuel costs and pressure on response and rectification times, O&M’s endure a continuous struggle to remain compliant.

My fear is that at these prices, there is not a huge amount of room for O&M’s to show the owners what they are made of and are lacking any incentive to do more than they have to, assessing, improving & optimising sites for example. However, advancing technology and approaches are starting to be developed to enable O&M’s to add more value. Services such as mobile lab testing (EL/Flash), high-volume Electroluminescence surveys, IR/UV/IV assessments, optimisation technology, shade analysis assessments and the like, can make O&M’s stand out from the crowd.

SITE OWNERS / FUND MANAGERS

At this point in the UK, we have around 10-11 GW’s of installed capacity of utility scale ground mount solar, spread over approximately 1,400-1,500 solar farms, which are owned by 70-80 different owners. However, three quarters of the installed capacity is owned by the top twenty fund management companies, who have essentially raised funds to finance the building or acquisition of solar assets. Many of these funds have become solar specialists, exclusively owning and operating solar assets in the UK and on an international basis.

In the early days of the solar boom in the UK there were a few funds that worked in an opportunistic way, buying shovel ready sites, funding the development of sites, or only keeping them for a couple of years before selling to make their returns before repeating or moving on to something else. But in many cases, these funds who have accumulated multiple sites are laser focused on providing their investors the returns that they have been promised. The better the performance of the site in terms of yield and production, the more of a cut they get, and certainly in the early years being involved in the sharp end of the work face, solar funds did develop a reputation of being ‘bean-counters’ and completely out of touch with the practicalities of engineering & power generation project delivery.

However, I’m pleased to say that over recent years these funds have started to invest heavily in their technical capabilities to ensure they are in an informed position to make reactive and future investment decisions when it comes to their portfolios. A small number of pro-active funds are now starting to invest in gaining deep understanding of their sites utilising developing advanced analytical techniques (including data analytics, AI, computer learning, module testing, electroluminescence, optimisation studies etc.). This forward-looking approach will not only inform them as to where they can make quick gains in terms of performance but will maximise long term returns and add value to their assets if they were to be sold on.

The elephant in the room here, however, is the general standard of the assets in the UK and I’m sure other global markets too. Price & time driven EPC’s were put under pressure to get the assets in the ground and connected by the 31st March year on year, installing throughout the winter months, using in some cases cheap non-compatible or fit for purpose materials and components, installed by sub-standard labour with little to no technical quality control, has resulted in a glut of poorly constructed sites which will never last 25 years. Solar funds need to be get ahead of the curve here and make sure they know the true condition of their sites, and not just the surface indications which are provided by EPC’s and O&M’s.

ASSET MANAGERS

Asset managers are generally organisations who work on behalf of the site owner, they ensure that all of the commercial elements of the solar farm (inc. power sales, subsidy returns, OFGEM communications etc) are being made, and usually have some sort of authority over the O&M contractor on site, making sure that their monthly reports are completed, that they are completing the scope they are being paid for and ensuring the site is performing as it should.

These services are usually office based and often they are London / city-based organisations. However, there are exceptions and the evolving role of an asset management company now offers site-based inspections, data analytics and Artificial Intelligence (AI) diagnostic tools to add greater value to site owners. Their focused has turned to data and gains which can be made to the performance of the solar assets. But as well as this applying even more pressure on EPC’s & O&M’s to ensure they are being driven to do what they should be doing to the letter of their contracts. They are also offering support to asset owners in the form of strategic outcome project management on larger multi-site projects.

TECHNICAL ADVISERS (TA’s)

Technical advisers in the sense of solar asset deployment have been involved at various stages of the value chain. Providing pre-design or technical studies at the development stage of process. Providing technical due diligence into projects, EPC’s, technology selection and portfolios. And also, being the technical lead on mergers and acquisitions. Essentially from the perspective of the client engaging the TA, they are a risk reduction service, and in some cases, they are a necessity in order to secure funding, or a particular deal taking place.

However, like most ‘Consultants’, TA’s historically have had a pretty poor reputation. Like lawyers, they charge you in 6-minute slots, they utilise geography students to regurgitate the same old report templates and are very much office based without practical in-field experience which is needed in these cases to provide an in-depth technical assessment of a project. I say these things with a pitch of salt, but add to this the nature of the beast here, where we all went through this solar boom together, there were huge pressures on multiple parties to get these projects connected and on the bars by the 31st March over successive years, to say things were missed or glossed over is a massive understatement. Having conducted site assessments on over 50 sites over the last 3 years, the condition of these sites in the majority of cases is shocking, and these sites have been singed off by TA’s.

A lot of this still exists, but there is a new breed of TA’s breaking through who are looking to do things differently and add value to the value chain. Without naming names, investing in expertise and in my view employing ‘real engineers’ is a positive step in the right direction. Add to this the appetite for innovation and value-adding services & solutions and you start to change the old reputation of a TA. They too are interesting in advance analytical methods to maximise asset knowledge, explore optimisation opportunities and site improvements, so the future is bright for evolutionary TA’s.

WRAP UP

That’s the way I see it anyway. I would be very interested to hear peoples view on my take on the who’s who in the solar industry. Obviously, this has been written from a UK perspective, but in emerging markets all around the world the same players & roles will emerge.

2DegreesKelvin - Article 001 - July 2019

Author: John Davies CEng (Founder / CEO - 2DegreesKelvin)

www.2degreeskelvin.org