Investments in solar energy are still attractive, as in no other form of investment can the idea of sustainability be combined with the pursuit of attractive returns. Potential investors need to be aware of a number of aspects on the way to green investment. Too much can go wrong if important issues are ignored or assessed incorrectly. In what follows I would like to give you a guide on how to avoid any pitfalls in your solar power installations.
Solar energy – what kinds of investors are there?
Let’s first take a look at the two groups of possible investors.
- Domestic investors
A domestic investor is one who has had a PV installation fixed to the roof of their own house in order to reduce their reference current in the future to a value that is as low as possible in kWh and €; up till now they have received this from their energy supplier, In order to optimize this, PV systems are increasingly being installed in combination with battery systems with the aim of increasing self-sufficiency. This group of investors is therefore investing in a technology to make savings in the future, while at the same time doing good for the environment. Conviction and idealism play a role in addition to commercial reasons.
- Commercial investors
In contrast, commercial investors include private individuals, co-operatively organized investors, municipalities and institutional investors. The common goal is primarily return on capital in connection with tax depreciation plans. Not infrequently they invest or participate in larger PV systems and become the owner or co-owner of a PV system on a foreign roof or property, and often even abroad. Procurement of systems technology is not always in the foreground, the return alone is what counts.
But, regardless of their basic motivation, they all have a common wish. They want a secure investment and hope for extremely long, trouble-free operation with, at the same time, maximum yields. And so many providers have advertised using slogans such as “risk-free, maintenance-free, guaranteed for 25 years, tax planning possibilities, using components with a long-term manufacturing guarantee, yields up to 10%” and much more.
Now let’s look at the reality. In fact, a PV system – provided it consists of high-quality components and has been built by quality-conscious planners and installers – is a low-maintenance technology. But this technology is not maintenance-free! During its operational lifetime a PV system is also exposed to many environmental influences over many years. These can have a significant impact on return and security. Statistics show us that many PV systems do not reach their originally planned income and thus do not yield the desired return on investment (ROI). An increasing number of so-called repowering PV systems point to the problem.
Acquiring reliability in the world of new energy
For a better understanding and realistic risk assessment, it is instructive to take a look back at the “World of Old Energy” with its huge power plant installations and enormous concentration of generating plants. We should transfer the experience we have gained from the world of old energy to the new for the benefit of the energy revolution. No energy company has planned its investment in a power plant without a corresponding service component. From this power plant world we know something about huge, interconnected switchboards and control rooms. In these, an army of technicians in multi-shift operation ensures the smooth and safe operation of a power station and its entire distribution networks so as to be always ready for delivery. A corresponding safety network is also imperative for the “World of New Energy”.
What we now see in the era of the energy revolution is a rapid process of transformation from the old, centralized energy world to the new, decentralized structure with renewable energies. This also applies to adjusting investment decisions.
An experienced investor in renewable energy installations now knows exactly what to look for. When they decide to choose a provider or operator, they select a partner in whom they recognize certain quality features. The same applies, of course, to the selection of a responsible service or maintenance company.
Checklist for investment in a new plant
When it comes to new investments the planning of the site and the selection of the system components plays a major role, of course. If the plant is then erected it then comes down to “brass tacks”. Now the quality of the plant operation, the structure, the methods and procedures of the services and the service workflows are the deciding factors in determining stable and profitable plant operation.
Right here a wide range of quality features are to be found. There are all sorts here, from very good service providers to “black sheep”. But how is an investor to recognize this in the run-up to their decision? There are some characteristics and indicators that provide more clarity here. Among other things, the experienced investor asks the following questions and demands answers to them:
- Will the plant operation of the PV systems in which I am investing my money be professionally monitored in order to prevent any loss of earnings?
- Is a stable on-site communication technology planned which immediately detects and reports unintended, abnormal operating conditions?
- How are such event reports dealt with in the event of a specific problems?
- Is there a service control centre in which quick service decisions are possible?
- Is automated fault detection incorporated in the design of the service so as to be able to exclude human factors in response times?
- How fast is the flow of information from the occurrence of an abnormal operating condition to the resolution of the technical problem?
- Are there any references?
Every answer to these questions helps the investor make an investment decision for or against a project, or for or against a service provider.
Please note this when investing in a portfolio
I would like to draw particular attention to the market in existing or old equipment. It is a normal development that a market for second-hand equipment is also emerging from the pool of more than 1.6 million existing installations in the Federal Republic of Germany. After all, Germany is a global pioneer in solar technology. The inventors of renewable energy installations come from Germany, have established standards and are imitated the world over. So, “Made in Germany” is a hallmark of success.
In the meantime there are several providers and marketing platforms for portfolios, and ever-growing associated groups of interested investors. There are different reasons why a PV plant owner disassociates themself from their property even before the end of the previously planned renewable energy installations time window (for example, 20 years).
- The simplest reason is that they would like a reason to withdraw their tied capital from a private family prematurely or they need finances for other goals.
- Very often, however, there is also a commercial constraint behind their offer to sell. The investor may have invested in a PV system in which the planned and the actual returns are significantly different. The financing bank has pointed out these problems and there is stress or even conflict.
Checklist before the acquisition of a portfolio
What must the prospective buyer, the potential new investor, pay attention to when offered such a portfolio? Here are some of the important topics:
- Are the planning documents from the former assigned engineering company for the used PV system on offer complete and accessible? Licensing procedures, blueprints, lease contracts for parks etc.?
- Are there any conflicts connected with the installed system or are these already foreseeable?
- At the time when the installation was planned was a respectable and verifiable profit forecast for the entire operating period generated and understandable?
- Is the documentation of the components used and the electrical system completely available?
- Is the investment income from the operating period thus far verifiably documented?
- Is the engineering, procurement and construction (EPC) company still active in the PV industry, or have there been any bankruptcies here?
- Are the manufacturers of the following components still in existence or have there been any bankruptcies?
- the substructure
- the PV modules
- the inverters
- the communications system
- Was there or is there a plant operator?
- Was there or is there a maintenance service provider?
- How and at what intervals were preventive services carried out on the offered PV system and are these services fully documented?
- Are there ongoing legal disputes with the installer companies or the component manufacturers?
- Are there disputes about module degradation or non-performance guarantees or product warranties?
- Is there a contractual arrangement with regard to direct marketing and has the direct marketing company properly fulfilled its obligations so far?
- Are repowering measures planned and what budget is planned for these?
One could extend this questionnaire with further, perhaps also specifically project-related topics. The fact is, in any case, that the investor should be sensitive about it and – if they do not feel professional enough – they should not shy away from consulting a specialist or expert.
Careful selection avoids surprises
Almost everyone has at some time purchased a used car. Do you remember how carefully you made your choice? How many criteria did you apply? Equally, nothing should be left to chance if you are interested in a used PV system. We all know the proverb ‘Trust is good but control is better.’ I would like to encourage you to use it also when making PV investments!
Are you interested in further articles for solar investors? Sign up for our newsletter and you won’t miss any. If you are looking for a monitoring solution for your current portfolio or a potential investment project, please contact our sales department. Smartblue AG offers all parties – whether they are owners of smaller PV systems, investors, investment funds, energy cooperatives, service systems houses, portfolio managers or operators a uniform and clearly laid out service portal, its Smart Control Service Control Centre. More and more market players are putting their trust in this professional solution for the technical operation of their PV systems.