By Wolfgang Lange
The photovoltaics industry is one of the fastest-growing of all markets globally. As part of the renewable energies portfolio, solar power is─along with wind energy─the best-known source of clean energy. Currently, the solar industry is being hyped by governments as being almost single-handedly responsible for easing the coming energy shortage. Indeed, a growing number of private citizens as well as commercial investors are investing in PV power plants. Though several European governments are providing subsidies like feed-in tariffs to both home owners and commercial investors, PV companies themselves are often not receiving any government support.
For PV module suppliers, bankability is the make-or-break chance to successfully install large-scale projects. If they are not considered bankable, some distribution channels will be closed to them, making them less attractive for potential partners as well as installers and commercial investors.
Bankability: The Ticket for Project Business
Bankability is the key element for PV manufacturers to get financing from banks and financial institutions for large projects such as power plants, large commercial installations, and the project business in general. As an ever larger number of PV manufacturers enter the market, bankability is what separates the wheat from the chaff. Even if a PV manufacturer is installing large-scale projects with a partner, financing has to be either underwritten by a financial institution or the company has to finance the installation itself.
Financial backing from a renowned bank is usually considered the more reliable option largely due to the fact that it signals trustworthiness to installers and commercial investors. It also gives PV companies and their partners financial security. However, to achieve this greater degree of financial security, PV manufacturers have to be considered as ‘bankable’─ideally not only by one financial institution, but by a number of banks.
The risk focus of those banks is rightfully on each product brand and that brand’s ability to manufacture a high-quality product, not on the industry as a whole or a specific category, e.g., CIS (Copper, Indium, Selenium) or crystalline silicon. In fact, banks do not hand out bankability ‘certificates’ to PV module suppliers without doing a very detailed due diligence analysis.
No Standard for Bankability
One of the main obstacles regarding bankability from a process point of view is that there is no standard set of deliverables a PV manufacturer has to fulfill to be considered bankable. On the contrary, each bank and financial institution sets its own terms and rules. For example, while one financial institution may focus on ‘hard’ factors like the company or its parent’s financial stability and cash flow, another one may also take into consideration a number of ‘soft’ factors. These can include, but are not limited to, child labor safeguards, anti-discrimination policies or employee benefits in general.
Yet, the technical requirements each bank looks for are roughly the same: a PV manufacturer has to have a viable module technology and performance. Until now, Cadmium Telluride (CdTe) and crystalline silicon modules had been considered more efficient and powerful than CIS modules. Whereas CdTe and crystalline modules are more mature, they are also reaching the end of their potential for efficiency increases. CIS, on the other hand, is a relatively young technology in PV terms and still has ample room for increasing their efficiency in the future. This outlook─and, therefore, growth potential─is also interesting to financial institutions in their business planning reading the solar industry. In addition, certifications by independent institutes like TUV Rheinland or Fraunhofer ISE, are giving banks independent assessments of modules and their respective technology’s viability. This is especially important since solar installations will be producing energy for around 20 years on average.
Production Facilities and Capacity Are Important
Production facilities and capacities also play a major role. The higher the production capacity of, for example, a CIS thin-film company, the larger the economies of scale it can benefit from. Banks, of course, are also interested in issues like cost reduction, profit margins, and the general business plan of a manufacturer. A production facility with gigawatt-scale capacity like Solar Frontier’s Kunitomi plant in Miyazaki, Japan, interests financial institutions because it delivers economies of scale as well as state-of-the-art production lines with a high degree of automation. TUV Rheinland has done very stringent due diligence testing regarding the facility’s production standards during the CIS modules’ certification process as well.
As regards the number of projects a PV manufacturer has to achieve, each bank has different expectations as well. One financial institution might underwrite a trial project and consider it to be bankable if successfully completed. Another bank might only deem a PV module supplier to be bankable if five projects have been installed and connected to the grid, or if projects in different countries or under different conditions (geographical or otherwise) have been successfully completed.
In the end, achieving bankability depends on several factors, some of which differ from bank to bank. With each new financial institution, the strenuous and time-consuming process has to be repeated. The upside of this process is that dubious or untrustworthy suppliers are filtered out and will disappear from the market mid- to long-term─enabling installers, home owners, and commercial investors to select their preferred supplier from a number of trustworthy sources.
Grid Parity Will Stabilize the Market, but Bankability Will Maintain Trust
Although the solar industry continues to grow quickly, it still occupies only a tiny fraction of the overall energy mix at this point. Government subsidies and a general re-think of the energy mix will change this in the future. Hence, the number of large-scale installations, solar energy plants as well as other commercial projects will continue to grow. Needless to say, though, PV companies and their partners will not be able to finance these projects by themselves, but need the backing of not one, but several, banks to fulfill their contractual obligations─ or perish.
Grid parity, which is widely considered to be achieved in approximately two years from now, will be one of the factors that make the solar energy market more predictable and more manageable at the same time. On the way to achieve grid parity, a number of financially unhealthy companies will not survive. Within the next two years, financially stable PV manufacturers with renowned financial institutions backing them and their large-scale projects will be able to benefit from this market consolidation. In the end, banks that finance the right companies─those with financial stability, landmark projects and installation partners, along with advanced production facilities and high capacities─will continue to flourish in the solar industry and will always be considered bankable.
Wolfgang Lange is Managing Director of Solar Frontier Europe (http://www.solar-frontier.com/).
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