Designing for Value in Large-Scale PV Systems: Page 2 of 4
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Before embarking on the design of a solar power plant in a competitive bidding situation, the designer must ask two fundamental questions:
- Is this customer the long-term owner of the plant, or will the customer sell the asset as soon as it is commissioned?
- What metrics will this customer use to compare bids?
Know your customer. Developers looking to flip the project soon after it is built are like homebuilders who buy IKEA cabinets. They are looking to make a good first impression based on providing decent quality at minimal cost. Although these customers do have quality expectations, durability and craftsmanship are not their highest priorities because they will own the asset for only a few years. Long-term owners, however, tend to invest in cherrywood cabinets and high-quality hardware that will stand up to years of use. This approach costs more up front, but provides greater value over time.
From a system design perspective, the type of customer should inform the equipment selection process. Long-term owners are more willing to pay for features that improve durability and performance. On a module, these features might include a lower long-term degradation rate; a junction box with a more robust ingress protection rating, such as IP67 (waterproof) versus IP65 (water resistant); and higher wind- and snow-load ratings that reduce module flexing and microcracks in the cells. For inverters, a long-term owner may choose to purchase an uptime guarantee and an extended O&M service plan, and may require an established, big-balance-sheet brand with low default or bankruptcy risk. Absent a large population of projects in operation for 25 years, the present value of more durable, longer-lasting equipment is difficult to quantify. In general, 25 years is a long time to withstand exposure to the elements, and cheap stuff will fail.
Know the PPA. Key project design decisions flow down from the structure of the PPA. In many regions, particularly in the desert Southwest, utilities apply different multipliers to the base PPA rate based on the time of day and year a generating asset is delivering energy to the grid. For example, the payment allocation factors in Table 1 are based on a TOD schedule from Southern California Edison (SCE) for weekdays, excepting holidays. (Note that SCE may be amending these TOD factors for future projects.) Generally, the daily and seasonal production profiles of solar assets correlate well with the rise and fall of market demand for electricity, so TOD rate structures benefit both utilities, which need to meet consumer peak demands, and the solar industry, which provides a solution well suited to meeting peak demands.
While some customers still compare bids based on cost per watt installed, most now focus more on value-based metrics like cost per kilowatt-hour or levelized cost of energy (LCOE). Sophisticated customers use investment models that analyze internal rate of return (IRR) and net present value (NPV) of cash flows. As described in “Value-Based Design Metrics”, the advantage of these investment models over LCOE is that they consider revenue.
The design optimization process is like solving a puzzle in which the design team tries to maximize revenue from the PPA while controlling costs. This means that designing a high-value utility-scale power plant is rarely about maximizing production efficiency (kWh/kWp) or even total energy production alone. It is not difficult to imagine a solar power plant designed by brilliant engineers that achieves incredible efficiencies and maximizes energy yield—think smart trackers, oversized copper wiring, super-efficient modules and wide row spacing—but loses money for investors because it ignores cost considerations and the time value of energy.
Once utility-scale PV system designers understand customer expectations and metrics, they have three key design levers to maximize the economic performance of a PV project: dc-to-ac sizing ratio, tracker versus fixed-tilt mounting, and row spacing and tilt angle. While the result of adjusting an individual design lever may be minor—perhaps increasing the system production by a fraction of a percent—when taken together, these minor enhancements often have a compounding impact and can make all the difference in a competitive bidding process. Fractions of a percent matter, especially over the life of a 20-year PPA.
Sizing ratio. Five years ago, when a 1 MW system was considered huge and PV modules were priced at $3.60 per watt, systems were routinely designed with dc-to-ac ratios in the 1.1 to 1.2 range, meaning 1.1 to 1.2 MWp of dc nameplate capacity feeding into 1 MW of inverter ac nameplate capacity. The California Solar Initiative incentive program prescribed a low ratio for system design. With modules accounting for 50% or more of a project’s construction costs, capturing every possible kilowatt-hour of generation from those modules made sense. Therefore, engineers designed systems that avoided any kind of shading or power limiting that would rob the system of production efficiency.