It has taken considerable effort during the years of technological innovation to remove the obstacles to bankability.

By CSP Today staff writer 

Several factors are increasing the economic viability of CSP projects, including reform of the electricity sector and the development of global carbon markets for pollution-free power generation.

The average electricity cost of CSP plants depends on both the available solar resource and development costs of investment, financing and operation. The economic feasibility of a project is determined by both the available solar resource at the site and then by power sale conditions. Companies need to ensure that their proposal is feasible and robust, and have to effectively calculate the risks and possible mitigations of a CSP project.

According to Concentrating Solar Power Outlook 2009 report (released by Greenpeace International, the European Solar Thermal Electricity Association (ESTELA) and IEA SolarPACES), more CSP systems to the grid can help keep the costs of electricity stable, and avoid drastic price rises.

Dr Günter Schneider, managing director, Enolcon GmbH, who has been working for 20 years in the field of energy management and power plant technology, says there must be a key driving force for a CSP project.

“If the ‘foundation’ of a project is set in a reliable way, then the technical issues and frame conditions must be clarified, eg is the site providing good conditions (DNI data, flat, temperature, soil, less dust, no storms, grid connection available, grid load etc.)?” Dr Schneider said.

In search of bankability

He refers to the ‘bankability’ or ‘financeability’ of such projects as one of the crucial factors.

To meet this requirement, besides a professional feasibility study and a convincing Basic Engineering with Power Purchase Agreements (PPA), it is important to have the partners on board taking responsibility for their performance and supplies like solar field, power block,or even an EPC partner taking full responsibility for overall performance.

The financial model must be consistent with the data and costs, eg investment costs, O&M costs, energy yield etc.

“Of course, the financial structure and conditions must be in line with the reality and show attractive reliable figures for return on investment capital (ROIC) and internal rate of return (IRR) on equity which even in the worst case scenario are in an acceptable range,” Dr Schneider said. He added that other financial criteria such as debt service cover ratio (DSCR) must be considered as well.

Last but not least the project owner must be capable of developing and managing such a project. In case such expertise is not there, it can be outsourced.

Demonstration, demonstration, demonstration

Various emerging technologies have reached a certain development stage, but their technology does not yet have the status of ‘proven technology’.

One of the biggest hurdles to get a project financed is to show the lenders and investors that the technology is ready for such commercial application and capable of performing in an acceptable way in the long term.

“At the moment, I see the only successful way to reach the ‘proven technology’ level is to build a demonstration plant,” Dr Schneider said.

In such an initiative, the key elements are implemented and operated already in commercial size (eg a collector with the same length and parameters as planned for commercial applications).

Then lenders can do a due diligence directly, getting confirmation of what has been promised.

“One actual successful example is the 1.4MWel CSP power plant of Novatec Biosol AG in Spain based on Linear Fresnel technology with direct steam generation. The Kimberlina-Project of Ausra is another good example,” said Dr Schneider.

As per the estimates, funding for such demonstration plants can “exceed a two-digit million euro figure”.

“Before investors finance this step they want to be sure that this technology has ‘high potential’. I recommend screening the market and comparing technologies before taking this step. It is advisable to use independent expertise support from third parties,” added Dr Schneider.

Expertise in every field

There are several aspects of a project, which need to be handled carefully.

These include integrated project delivery, contracting models, the design process, site selection, piping, and equipment selection.

Without a strong coordinated project management and development, a project will struggle.

“When it comes to the financial arranging and the due diligence (by lenders) a project might fail. By then normally the developer has already spent a vast amount from his own pocket and is then suffering,” said Dr Schneider.

Considering this, he strongly recommends either setting up a team of experienced managers and experts with track records or asking for support from independent experienced experts. Such expertise should cover not only technical aspects but also managerial, commercial and strategic aspects.

Stay focused and see it through

Going by his experience, Dr Schneider says the developer must stay focused. He mentioned that there are times when developers, after starting projects, lose track. Generally, the focus shifts towards starting other projects. Plus there is a tendency to consider other advances in technology, promised by a product developer.

Then the developer starts to run short of financing. “As a next reflex they [developers] put together a nice information memorandum to sell the project much earlier than originally planned. Often also this step comes too late and other developers have been faster with their project,” said Dr Schneider.

“Therefore, I strongly recommend having a thorough check, with a pre-feasibility study covering the frame conditions and defining the critical factors which must be evaluated during the feasibility study and the Basic Engineering,” he added.

In project development, there should be clear milestones for go/no-go decisions based on transparent criteria.

“It is equally important to keep track of the execution of project development where still enough ‘normal’ challenges are there to be overcome,” said Dr. Schneider.

State support on the way?

In a market like the US, the American Recovery and Reinvestment Act provides for Department of Energy (DOE) loan guarantees and upfront payments of investment tax credits associated with solar electric generation projects. The DOE and Department of Treasury are in the process of writing the regulations envisioned by the Act. Solar power developers expect the provisions to affect the financeability of projects, though it is still unclear what the ultimate impact will be as financial institutions re-establish their positions given these new rules.

Read more: Project developer, PPA, American Recovery and Reinvestment Act

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