Financiers from Google to Berkshire Hathaway are reporting 15 percent returns on solid solar project investments. First movers in solar finance have been reaping the benefits of solar’s reliable recurring revenue, low and predictable maintenance needs, and attractive lifetime payback periods.
So why are the vast majority of institutional investors still on the sidelines?
Some large-scale investors such as Goldman Sachs, Bank of America, Merrill Lynch, and U.S. Bancorp have started investing in solar funds. While these investments have been significant relative to the solar industry of the past, they are still limited. As financial institutions are starting to invest in solar, and as many industry observers are reporting that the clean energy revolution is imminent, what factors are keeping major funds away and capital costs high?
One major factor is limited access to the data needed to assess risk. Investment analysts have a lot of questions about solar projects, and often the data needed to answer their questions exists in small, siloed, proprietary databases. As the long-term owners of projects and fleets, investors face risks that most industry suppliers and contractors do not. The fiduciary responsibilities that these firms have to their clients mean that they are unable to reap solar's long-term returns without having a strong, defensible understanding of the risks.
This applies to questions about components, projects and fleets, such as:
- How do manufacturers of modules, electronics, and racking really rank in terms of quality and bankability?
- How will a project or system behave over five, ten, fifteen, and twenty years?
- How does actual performance compare with the calculated model?
- What are the O&M needs and ROI for systems and fleets?
- How does a fleet’s performance compare to that of other fleets?
- How can one compare investments in distributed assets?
- How can one ensure quality control over such a distributed base?
Frankly, our industry dropped the ball when the issue of potential induced degradation (PID) emerged a few years ago and sapped the profitability of a number of projects. The risk that an unknown threat, such as yield loss from PID, can undercut a long-term investment is difficult to justify when there are so many component permutations and combinations with relatively limited history. Fortunately, large volumes of data do exist -- indeed, terabytes of data are gathered on a daily basis. The problem is that no single aggregator has access to all that data, nor is it distilled into a format that makes it readily usable information.
By making solar data easier to aggregate and share through a common API and other data standards, the industry could pool its wealth of data and arm solar developers with more information to address investor questions and concerns. Organizations like PV 2.0 are helping to increase transparency by leveraging big data within the solar industry.
Unlocking solar data and aggregating all the blocks of information from different sources are smart moves for a rapidly evolving industry. Putting together these tiles of information and zooming out reveals a larger mosaic, showing potential problems that would not have been noticed when examining the individual pieces.
This was in large part the lost opportunity with PID. The data about yield degradation, deployment conditions, manufacturing practices and other key factors was not shared. Although the industry eventually figured out ways to solve PID issues, we could have discovered the solutions faster, and at lower cost, if standards and processes to share the data were established.
These are complex technical issues about which the data needed to capture insight exists across the solar industry, yet it is not being compiled. Opening up solar data will make it easier for financiers to invest in solar, while also lowering the cost of capital across the industry, improving quality and maximizing long-term energy harvest.
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James Bickford is a five-year veteran of Tigo Energy. At Tigo, Bickford has served in executive roles including Director of Asia Pacific, based in Shanghai. He is currently Director of Global OEM channels.