Government subsidies and incentives—feed-in-tariffs, tax credits, tax breaks, loan guarantees and renewable energy credits—all have combined to fuel the development of the solar industry. Compared to conventional fossil fuel technologies used to generate electricity, the solar electricity sector has only recently grown out of its infancy.
Even with a growth rate of about 40 percent per year over the last decade, and 73 percent in 2010, solar energy still generates less than one percent of the world’s energy demands. Most of the growth has been in Europe.
Recently, the International Energy Agency (IEA) released a report that estimates one-third of the world’s electricity generation will come from solar energy systems by 2060. In the last year, the U.S. and Asian markets have become the most vibrant markets for installed capacity. As the expanded capacity for solar-generated electricity continues to grow; the value chain of the industry also evolves as solar energy moves toward grid parity with coal.
The eco-system of the solar power value chain constitutes multiple components, between producing components and installing solar systems.
Most companies involved in the solar sector operate upstream-- away from end-customers. The upstream segments of the industry include the following sub-sectors:
·Wafer and ingots manufacturing
·Crystalline and thin film modules
·Mounting and tracking hardware
As the major players in the solar sector continue to spend resources in research and development, solar modules and other technologies have become more efficient. Simultaneously, prices continue to plummet and margins for these companies shrink even smaller.
Many upstream solar energy enterprises have turned their attention to downstream business opportunities along the value chain—particularly in the development segment. Companies are increasingly integrating their organizations by buying development companies or forging strong partnerships with companies that already firmly entrench in downstream activities.
Solar Energy Consulting
Many small and large solar projects require some degree of advance work in the form of solar consultation. The solar consultation segment constitutes customers ranging from residential and business clients to utilities and clients. Consultants may offer their services concerning the installation of a single technology or a comprehensive range of consulting services.
For residential and small commercial clients, the consultant may actually be an experienced installer, builder or distributor who provides their expertise and guidance on siting, sizing and suitability of rooftop photovoltaic systems. The service typically revolves around specific products represented by the consultant.
Some developers may offer the customer a range of services. Consultants on larger projects—schools, utilities, municipal agencies, large commercial properties, tend to specialize in certain consulting services or may operate the consulting segment as a part of other solar energy services. They may offer multi-megawatt rooftop installations or ground-mounted solar farms.
Aspects of Solar Project Development
All solar projects require some degree of planning. The different types of solar projects, which have different risk associated with them. In addition, it requires the structure of deal, companies with different business models and financing instruments appropriate to the development.
As project scales in size, the development aspect becomes more complex. However, regardless of the size, a successful outcome hinges on all of the various components coming together. Small project can come together in a matter of days or weeks. For large solar farms, this process can take a number of years.
·Electricity Usage Assessment - Consultant must determine the examine current usage , electricity usage patterns during peak and off-peak hours and the utility tariff rate
·Site Assessment - The developer must evaluate the proposed sit of the project. A residential evaluating may entail locations on the property for the solar arrays, roof, land parking areas or undeveloped land to site the hosting system.
·Applicable Subsidies & Financial Incentives - Project owners and developers must determine the financial feasibility and attractiveness of projects. Financial incentives and regulatory polices differ across countries and within borders, especially in the U.S. Developers require knowledge and understanding of changing and evolving regulatory environments and how to structure projects to take advantage of available subsides and incentives.
·Solar Opportunity Assessment - The solar opportunity analysis or SOA refers to a comprehensive solar development plan and road map, including a preliminary system design, layout, schematics, system capacity and expected production. Other items engineering, procurement, construction cost, financing options, and ROI.
·Solar Project Financing - Many developers help project owners through the maze of financing solutions available for projects and how to take advantage of those that apply. This may include purchase power agreements, capital purchase or equipment leasing. Many residential, commercial, institutional and other organizations avoid the upfront costs by agreeing to buying electricity, at a fixed-price, from a third-party owner of the equipment.
Some property owners prefer to make a capital purchase of solar system equipment - and have solar equipment mounted on their property--lease or finance, which requires structuring, negotiating or securing a loan. Typically, the developer helps obtain bids from banks or investors, for the clients to receive the best relationship deal to fit their particular needs. The developer may sell tax credit renewable energy credits, rebates or other enticement, which makes the deal attractive to equity investors, who step in where banks are unwilling to step in and accept the risk.
Solar System Installations
The installation segment of the solar industry is local in nature. This gives local communities prime opportunity for economic development and job creation from temporary construction jobs or energy generation positions, which creates permanent full-time employment for nearby residences. This may include positions in sales, installation installer, supervision and quality control.
For small residential and commercial PV installations, local installers and electricians tend to work with established solar firms to earn certification to become certified in the companies’ products and provide pre-engineered solar solutions to the businesses. Small installers tend to have razor-thin profit margin. Large-scale installations tend to have high-margins and the companies operate nationally and internationally.
System Monitoring & Maintenance
Once the installer completes the construction phase, the developer ensures the solar system connects to the grid and then turns the solar energy plant over to owners/operators. Usually, a third party operates the plant and provides upkeep for installations under power purchase agreements. Many system owners also sign monitoring and maintenance agreements with third parties. Some project undergoes an independent inspection from a certification company.
As the solar energy industry evolves, and prices continue to plummet, many companies have modified their business models through the acquisition of project development firms or by entering into strategic alliances with major developers. This approach has become a point of survival for many upstream companies— silicon, wafer and module manufacturers, as they position themselves to recover loss margins, cut by falling component prices, and integrate into downstream activities.
Even at this point along the solar value chain, the slice of the pie has become smaller as more companies compete on the demand side.