Specialist
Senior executive at Japan River Energy Inc
Agenda
- Contract structuring and tariff regime considerations
- Project capital cost trends and solar project return trajectory
- Grid connection issues and impact on execution risk
Questions
1.
Could you outline the contract dynamics for solar projects in Japan and how contracts between solar projects and power distributors are structured?
2.
What are the key differences between FIT [feed-in tariffs] and PPA [power purchase agreements], given the transition to PPAs due in 2021?
3.
Could you estimate the average tariff rate awarded by the Japanese government on the legacy FIT contracts?
4.
How could the tariff rate regime change with the PPAs coming into effect in 2021?
5.
FIP [feed-in premium] tariffs will reflect the market pricing of power, plus some premium. Could you outline what the market pricing benchmark is based on and how often it is updated?
6.
You mentioned that the one-year contract that underpins the FIP is changed annually. Would any change or increase in developers’ project costs be fed through to pricing in the following year’s contracts?
7.
Has there been an influx of new solar projects trying to finish up before FIT contracts are discontinued?
8.
How do you think Japan’s government might incentivise new solar project investment, given how the contract structure is changing, perhaps to the detriment of solar players?
9.
How might the cost of solar project financing change, given our discussion of how the shorter-term PPAs might create a new reluctance among banks to bankroll new developments, given the lower cash flow visibility? What financing terms are solar players currently receiving, and how could those change?
10.
Could you quote the historical interest rates on loans for the FIT contracts as a benchmark?
11.
How would you split out Japanese solar capacity across plant sizes? Are there many mega projects or smaller ones?
12.
The cost of financing seems to quite low, at least for the FIT projects, with interest rates ranging from less than 1-2%, depending on size. Could you estimate the O&M [operations and maintenance] cost burden for a solar project?
13.
Are there any other plant costs beyond O&M?
14.
How could average operating profits trend as the industry moves towards shorter-term PPAs with variable yearly FIPs? You estimated 80% for the average operating profit on a plant under an FIT contract.
15.
Could you estimate the average PLF [plant load factor] for a Japanese solar plant to be considered efficient?
16.
Renewables projects, such as wind, are notoriously low-efficiency in many countries. What efficiency would you estimate for global solar projects?
17.
Why do you think global solar projects are only achieving 13-15% efficiency?
18.
Have you noticed any panel efficiency improvements in Japanese solar projects?
19.
How would a 1% improvement in panel efficiency impact an overall project’s efficiency?
20.
What is the rough CAPEX or set-up costs per megawatt for setting up a new solar project?
21.
Could you elaborate on cost trends across the main items such as PV [photo-voltaic] panels, inverters, land and the balance of system components? You mentioned price decreases for key components. Which prices are decreasing and by how much? How might prices trend?
22.
What percentage of the total project cost do PV panels contribute?
23.
Would you say suitable land for solar projects is scarce?
24.
What range of project returns or IRRs would you say investors target on FIT solar projects?
25.
Could project IRRs be affected by the PPA transition?
26.
Could you discuss the grid connection process for a Japanese solar project?
27.
At what point in the project build-out does a project owner try to connect to the grid?
28.
How do the project owners manage the uncertainty between the build-out of a project and the grid connection timing?
29.
Which stages of grid connection process usually have a heightened execution risk for the project owner and the EPC companies? You described the process as a headache.
30.
Are there any potential issues around the physical ability of the utility company to connect a project with the grid? Can the state of the grid be inadequate for a timely connection?
31.
Are there any stages where the utility grid can significantly add to the delay or time commitment in the six- month connection process, for example, by rejecting an application?
32.
In areas where additional transmission capacity is required to accommodate a new project, does that flow completely to the project owner? Does the utility company take on some of the cost? There are probably some areas where the grid is congested.
33.
Which areas of Japan are particularly crowded when assessing grid congestion?
34.
Do you think an area’s grid congestion is a major factor in deciding whether or not to build a solar project in a certain location?
35.
How do project owners factor costs when setting up the entire project’s budget? Is the cost for building additional transmission capacity deemed to be part of the civil works? What cost segment would it be inside the JPY 8,000 per kilowatt CAPEX you mentioned?
36.
When thinking about project economics, can outsized issues on grid connection significantly impact the project’s ROI?
