News Article

Favoring a Long-term Vision for Solar Procurement

By Pedro Alcalá | Tue, 03/08/2022 - 17:32

Investment planners of solar projects must find several ways to isolate their strategies from financial pressures that favor short term thinking. Procurement decisions must be made with a long-term vision in mind, one that contemplates the maximum longevity for each project, say solar development industry leaders.  

Karla Cedano, President of the National Solar Energy Association (ANES), contextualized this issue within Mexico’s solar history: “The PV solar industry in Mexico started 40 years ago. Back then, the biggest challenges were technological and scientific. When these barriers were overcome, the business challenge arose. Now, our biggest challenge is financing.” Cedano believes that when balancing the initial costs of a project against its eventual levelized cost of energy (LCOE), those in charge of making procurement decisions must consider that availability of technology was the industry’s central issue in the past. Now that a wider variety of options is available, they should contemplate opting for technologies that are top-of-the-line, despite the seemingly outsized initial expenses they might represent. 

Managing Director of BayWa Solar Projects, Mario Pani, gathered extensive experience in the development of utility scale projects. He agrees with Cedano’s assessment: “When making a technological decision, it is best to look for the highest efficiency and the lowest costs for power generation and operating in the long term.” In Pani’s view, considering the longevity of a solar project is key to accurately assess the capabilities that the procured technology should possess. During his last interview with MBN, Pani’s approach to long-term thinking revealed that additional value could be generated if the future of a project was guaranteed to its investors, or as he put it: “Not many developers can sell the asset as a long-term investment and also support hundreds of millions of dollars in contracts with our guarantees. The final buyer knows that we will handle any risk stemming from the project, and that also increases the value of the project.”

Conditions specific to a project must also be considered to maximize the value of procurement decisions. Luis Olivera, Solar Engineer, Enel Green Power, gave a perceptive example. “It is necessary to consider all environmental aspects to choose the technology that best suits [developers]. This will lead to the best cost-benefit outcome.” Olivera also emphasized that the knowledge which distributors, developers and engineering, procurement and construction firms (EPCs) have regarding current technology must be as extensive as possible if they hope to keep initial costs down while choosing the best possible options. “As solar technologies became better known in the market, this also had an impact on their price. Technological awareness can play a part in making higher-end choices that are easier to budget,” outlined Olivera.

Juan Ávila, CEO, Top Energy highlighted the difference in procurement priorities between utility scale and distributed generation (DG) projects, which are below 0.5MW in the Mexican context: “DG consumers do not make the same cost to benefit trade-off as large PV solar power producers do. DG consumers weigh the short-term investment more heavily.” Avila also stressed that it was essential to integrate technologies like battery storage into a project’s procurement strategy, since a project’s potentially complete independence needed to be measured throughout the process. “All technologies procured should empower the user to become as independent as possible. That includes the creation of a storage system associated with your power generation system.” In Ávila’s view, the added cost of implementing energy backup is worth its significant extra cost, even on the short term. Ávila agreed with Olivera’s point regarding the availability of information, noting that “10 years ago nobody understood the solar sector at all. Approaching financing and leasing entities was a bit of a nightmare and Multiple Purpose Financial Institutions (SOFOMs) were very hard to convince. Nowadays, capital financing resources are more readily available, to the point that they have practically tripled.”

The industry experts agreed that the sector’s chief procurement issues were no longer just technological in nature. Instead, political, regulatory and even educational issues were generating a lot more supply chain and financing-related barriers than the limits of available technology did in the sector’s past. Issues by the COVID-19 pandemic’s dreaded bullwhip effect have drastically increased solar module prices. While the industry leaders were cautious with their predictions regarding how long it would take for solar module prices to drop again, they emphasized that short term profitability was not as relevant as it seemed in the sector, especially given the growing interest in less conventional types of projects like floating solar. Pani concluded that when a project claims to be too profitable in the short term, “it is usually a sign that something is very wrong.”

Pedro Alcalá Pedro Alcalá Senior Journalist & Industry Analyst