Contributed By: Alex Shoer, CEO, Seeder Energy
The horizon for corporate adoption of renewable energy becomes more expansive with every passing year. Emerging markets for renewable energy, such as China, are opening with attractive options and a promising outlook for corporates looking to address their global energy usage with clean power. The driving force behind the growth of renewable energy opportunities in China is the rapidly dropping costs of renewable power and the pace of corporate commitments.
Solar power presents an increasingly attractive prospect for commercial and industrial (C&I) energy buyers with operations in China. Between 2011 and 2015, the global average price of solar PV modules dropped between 75-80 percent, with steady declines predicted to continue. As could be predicted, between 2011 and 2017, installed solar PV in China skyrocketed from just 2.3 GW to 130 GW. China also announced an updated 5-year plan for climate and energy, which includes an ambitious goal of increasing non-fossil fuels to 15% of total energy consumption in the country by 2020. These factors, combined with the growing number of multinational corporations publicly committing to clean power (over 130 companies have joined the RE100, 374 companies are taking action via the Science-based Targets initiative (SBTi), and others) make China an exciting platform for corporate renewable growth.
Opportunities for Onsite Solar in China
Onsite solar is the primary opportunity for corporates to focus on in China. A steep drop in costs has resulted in greatly improved returns, making PPAs for onsite generation an attractive option for C&Is. In addition, the Chinese government offers a subsidy for onsite solar generation of ¥.37/kWh (about $.06/kWh). In 2018, this subsidy decreased for the first time, and is expected to continue to decrease in the coming years. As a result, companies considering taking advantage of the current opportunity for solar in China are recommended to act quickly. Once a project is complete, and accepted into the government registry, the subsidy rate is locked in for 20 years. To capture the greatest value, companies should aim to get projects completed before the rate drops again (likely to happen in 2019).
Installing solar onsite via a PPA requires zero upfront capital expenditure and—due to the low price of solar in China—onsite installations offer significant opportunity for energy cost savings and progress on environmental performance. Public pressure on corporates to address global carbon footprints is more intense than ever before and supply chain scrutiny is becoming just as important. The impact of this pressure is more than just reputational; In 2017, China shut down tens of thousands of factories due to environmental penalties. For multinational corporations with operations in China and/or supply chains that operate there, cleaning up energy supply is no longer an option; it is a must.
Though the opportunity is immediate, it is worth answering a few questions first to see if an onsite PPA is appropriate for your organization.
- Are your facilities owned, or leased? If your facilities are leased, a 3rd party PPA is more difficult. Though this does not necessarily kill a deal, working with landlord approvals can create more barriers to adoption, and it can be a complicated task to get landlords to buy-in to putting solar panels on the roof. In the case that facilities are leased, a self-investment strategy will reap the highest value as project returns can be as high as 15-20 percent.
- What is the age of the facility and the quality of the roof structure? Many facilities in China have outdated roof structure or minimal load bearing capacity (solar typically requires at least 15kg/sq meter) which could jeopardize the quality of an onsite solar installation. Knowing the age of the roof is very important, as is whether it’s a steel or concrete roof as the latter has a much higher load bearing capacity.
- How big is your rooftop? Rooftops smaller than 2000 square meters are more difficult to get PPA providers interested in because smaller projects require a similar time investment, but result in lower returns. A self-investment strategy is a viable alternative to a PPA in this scenario.
- What is your annual electricity load/capacity to utilize renewable energy? In addition to the size of the rooftop, knowing how much electricity your facilities consume can help with right-sizing a solar installation. For example, a warehouse facility may have ample roof space for solar panels, but low electricity consumption. This can be challenging because the electricity generated by the panels may be sold to the grid instead of consumed, resulting in lower payback.
- How much do you pay for electricity? Electricity price determines the financial return of the project and impacts the viability of whether a developer is willing to offer a PPA. Knowing your current electricity rates will help you understand the potential returns of an onsite solar investment.
In addition to answering these questions, several tools exist that allow C&I buyers the get a gauge for whether onsite solar is a good fit, and develop a business case for exploring this strategy. Seeder Energy, an advisor for solar in China and partner of Schneider Electric, has developed a solar calculator which companies use to get a rough estimate of possible opportunities by simply entering the size of a facility’s rooftop. Upon entering the roof dimensions, the calculator approximates the size of the solar system, how much electricity it would produce annually, the amount of savings expected depending on the chosen financing structure, as well as the installation’s annual carbon-reduction potential.
In addition to using the solar calculator, corporates exploring this opportunity often find value in doing a feasibility study to gather all the necessary information to make a decision. A project feasibility study and site analysis provides the options, costs, risks and benefits of onsite solar deployment. There are many nuances to these projects that can become a barrier if not addressed early in the process. To make the best decision, companies use feasibility studies to provide sound financial data and comparisons of a variety of options.
A professionally-executed feasibility study dives into variables that range from the solar system potential to the rooftop loading capabilities to the financials and weather data. This gives companies a better idea of what options are available before acting. Engaging a trusted, experienced advisor helps to overcome any challenges uncovered during the feasibility study and negotiate with local counterparties. Understanding the market norms, policies and pricing ensures that risks are covered and that the best deal is achieved.
Through a feasibility study performed by Seeder Energy, an American Fortune 500 company with four factories in China identified their two best site locations for onsite solar, where best to use a PPA, and determined that the two sites were not suitable for a PPA and instead opted for self-investment. In the feasibility study they received detailed financials based on several scenarios and flagged potential local permitting issues on one site which helped them make an informed decision. The study also provided the company with expected pricing and terms. Access to this information significantly accelerated the vendor selection and negotiation processes since they already knew the optimal price and terms for their given projects.