© Vivantive

All Rights Reserved

Company registered in Great Britain

Disclaimer

 

VIVANTIVE

Conversations

 

Strategy recommendations for solar industry executives:

A transition from market followers to market makers

July 2016

 

 

Project Financing Capital

 

PV companies, equity investors/owners, and the market regulators share a common objective in reducing the cost of debt capital.The lionís share of project financing capital, typically 70-90% for renewables, is debt.The lower the cost of debt, the lower the tariff the market regulators can set, the higher the IRR-on-equity for equity investors/owners, and ceteris paribas the higher the sales margins the PV companies can charge for their products and services.

 

The cost of debt capital is a function of credit risk: the payment default risks of the scheduled cash flows from the project.On their own, market regulators in developing countries may not have access to cheap debt capital.This forces either higher tariffs for the taxpayers or shaving the profits of PV companies and the equity investors/ asset owners.Itís not in the interest of regulators to discourage equity investors and PV companies, by profit curtailment, as they provide crucial capital for market growth.A coordinated risk management strategy can reduce the cost of debt capital for common gain.

 

There are a variety of methods to fulfil this strategy - a comprehensive menu of risk mitigation measures is available from Vivantive.

 

Local Content

 

Market regulators, seeking technology transfer and industrial employment generation, can prescribe local content preferences: mandatory obligations, penalties, or incentives for local content in the PV system installation.The form that the local content may take is generally flexible.

 

If not careful, the local content requirement can have a counterproductive effect of inhibiting market development and increasing solar electricity costs.The key to avoiding such situations is intelligent selection of how to fulfill the local content requirement.It is not simply a matter of copying what has been done in other markets. The duplication of products requiring a high economies of scale threshold, for cost competitiveness, is particularly risky.The pros and cons of various options have to be assessed according to the particular conditions of the local market - taking into account what sort of technical capabilities are locally available and the type of PV systems best suited to local demand.

 

Please contact us for further discussion about local content assessments and recommendations.