Insights

What investments, work, operational cost and risks are you willing to accept?

All commercial and industrial companies considering an installation of solar PV will face the question of what’s best – invest or buy as a service? 

“Not only to avoid the capital investment but also to eliminate the headache of managing a system where it will be difficult to ensure you have competence to run long term. Instead of getting stuck with a system not performing as intended we believe more customers will choose solar as a service”, says Niklas Engström, CEO, Bright Sunday.

decrease Cost is often the key driver

For commercial and industrial companies the fundamental driver for installing solar PV is to cut costs. Companies face two key options; either invest in the system or sign up for a service agreement where an investment company makes the investment and sells the energy to the customer during e.g. 8-25 years. By eliminating the investment need and relieving the customer from all technical risks. 

Handling different types of risks

When talking to Niklas he stresses the importance of sound use of capital and risk management. “To start with, any self-investment would require attention from both management and staff and access to attractively priced capital. From a pure financial perspective, a self-investment is only rational in the case the company does not prefer to maximize dividend payouts or have any better investment alternatives, e.g. in core business”. However, this seems not to be the key concern for him: “an often largely overlooked aspect of the decision making process is the assessment of the technical risk. As with any project involving technology there’s always a risk of delays, increased costs or that the system will not deliver the expected output.”

Even though solar PV is a proven technology, very few complex electrical systems work flawlessly at all times. The responsibility for managing operations, maintenance and repairs differ between the options: “in the case of solar as a service this is taken care of by the investor but if the customer chooses a self-investment they will need staff that instantaneously attend to alarms and have the skills to restore the PV system in case of failures. If not they will lose production and not meet the financial targets”, Niklas Engström says. 

Does your solar PV system deliver what is expected?

According to Niklas Engström the elephant in the room, which may not be in the interest of the contractor presenting a solar PV solution for the customer to discuss, is how the customer can be assured the system will deliver the forecasted energy. In the case of solar as a service the investor stands the risk of poor system performance since the customer will only pay for electricity produced but in the case of a self-investment the customer will take the hit. “In order to tell if a system performs well or bad you need to know what the system should have produced provided the weather during a specific period. For this reason you must measure irradiation but also do some pretty advanced calculations. If customers will not be able to get this data, the risk of the investment increases drastically”, Niklas Engström says.

The dilemma Niklas Engström is pointing at is related to self-consumption systems. For utility scale PV systems on-site pyranometers or satellite based services are used to measure irradiation. Based on this data the so-called plant performance ratio can be calculated. For cost reasons these types of solutions are typically not feasible for a single PV system intended for self-consumption. 

According to Niklas Engström the lack of performance analysis capabilities should make most companies very hesitant to self-investments. “As solar irradiation varies significantly, both monthly and yearly, customers will not be able to tell what the system should have produced during for example the first six months after commissioning. Even if the customer has reason to believe the system is not performing as intended it will be impossible to hold the contractor responsible if they don’t have any solid data on the expected production – the contractor can always blame poor performance on for example lack of maintenance, excess soiling or simply bad weather. If that happens the customer is stuck with a bad system.” 

Picture. Bright Sunday is using infrared cameras mounted on drones and handheld in order to early identify defects on new and existing installations.

According to Niklas Engström is a ‘do it all yourself’ approach a dead-end and customers should rule out building their own data, operations and maintenance capability for cost reasons. “Satellite solar radiation data and operations software comes at a very high upfront cost and only makes sense for large power plants or companies owning large portfolios of self-consumption systems”. He adds “most solar PV installers will be able to offer their customers basic maintenance services but not satellite radiation data or best in class operations services – it’s simply not their business”. 

According to Niklas Engström customers are left with two options; either they make the investment and accept a “hope for the best” situation where they will not be able to accurately assess system performance or they play it safe and buy solar as a service via a solar Power Purchase Agreement with a solid partner with a long term focus and financial capabilities.

Read more

Read more about Bright Sunday offerings for new installations.

Read more about selling your existing solar PV systems to Bright Sunday.

For more information contact:

Bright Sunday, sales@brightsunday.com

Niklas Engström, CEO, niklas.engstrom@brightsunday.com