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Ground-mounted PV installations – New opportunities for investors

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In a nutshell:

Since the enactment of the regulation on auctions for ground-mounted PV installations (FFAV) in 2015, all ground-mounted PV installations with an installed capacity of at least 100 kWp had been required to take part in auctions in order to be able to receive funding at fixed rates over a period of 20 years under EEG. Now, EEG 2017 has opened up new opportunities. PV installations with an installed capacity of up to 750 kWp are now exempt from the obligation to take part in auctions. This article gives the reader an insight into the arising opportunities and discusses the special aspects.

The regulation on auctions for ground-mounted PV installations (FFAV)

In April 2015, the first auction round for ground-mounted PV installations was held as mandated by the regulation on auctions for ground-mounted PV installations (FFAV). Since September 2015, the participation in the auction procedure had been obligatory for all ground-mounted PV installations with an installed capacity of at least 100 kWp. Power plant operators who were awarded incentives as part of the auction procedure have been required to feed all of the produced electricity into the public grid. This has made it impossible to operate power plants based on the prosumer concept.

 

Changes after EEG 2017

EEG 2017 introduces changes to the incentive scheme for the majority of renewable energy sources by making the level of funding dependent on the outcome of competitive auctions. However, this applies only to power plants with an installed capacity of over 750 kWp. In consequence, PV power plants with an installed capacity of up to 750 kWp are exempted from the obligation to participate in auctions and can receive funding without participating in any auction. In this case, part of the produced electricity can be used for the producer’s own consumption purposes. PV power plants with an installed capacity of at least 100 kWp continue to be covered by the obligation of direct marketing. In this case, the level of funding for ground-mounted PV installations is 8.91 cent/kWh 1 irrespective of the exact installed capacity (see §48 (1) EEG 2017). In the case of the so-called roof-top PV installations, the level of funding is tiered depending on the size of the installation (see §48 (2) EEG 2017).


The classification of areas for eligible ground-mounted PV installations arises from §48 (1) No. 3 c) and includes e.g.:

 

  • areas along motorways or railway tracks from which the power plant is situated up to 110 away, measured from the external edge of the surfaced road;
  • areas which – at the date of the resolution on the preparation or modification of the development plan – were already impervious;
  • conversion areas formerly used for commercial, traffic, residential housing or military purposes.

 

Business models

By excluding PV installations with an installed capacity of up to 750 kWp from the auction procedure, the focus is placed (again) on certain business models which can be also economically attractive to investors:


These business models can include the ”classic” models where PV installations feed all of the produced electricity into the grid, and the so-called ”prosumer” models. While in the case of the classic models all of the produced electricity is fed into the public grid in return for an EEG incentive, the prosumer models are based on (proportionate) consumption of the produced electricity directly at the place where it is generated. Consumption based on the prosumer model is characterised by the fact that, in the light of EEG, the prosumer is treated as the operator of the power plant and as the consumer of the produced electricity at the same time.


While pure feed-in facilities are relatively easy to handle, the lease of PV power plants with a view to generating electricity for one’s own consumption purposes is a more complex issue, but comes with higher rates of return.


If a consumer wants to satisfy part of their electricity demand with electricity generated from PV power plants, but is afraid of the investment costs of a PV power plant, leasing such a power plant from an investor will be a good solution. Such situation is not uncommon because, in the long term, many companies do not want to commit their capital to one venture that is not within the scope of their core business activity. In the case of leasing, the investor acts as the lessor of the PV power plant and the company seeking to use it for its own consumption purposes is the lessee. Then, the parties sign a lease agreement, usually for a term of 20 years, with a fixed monthly lease fee. The rate of instalments  is determined based on the profitability calculation. Because of leasing, the lessee is treated at the same time as the power plant operator and the end consumer under EEG, so the lessee becomes the prosumer (§ 3 No. 19 EEG 2017). The advantage is that self-generated and -consumed electricity is subject to a lower EEG levy in 2017 as the levy is 40 percent (§ 61 (1) EEG 2017). From the viewpoint of the investor, the PV power plant is pre-financed and then refinanced through lease payments, which are a form of interest paid on equity capital, as in the case of capital investment. The amount of electricity that the company cannot consume itself is fed into the public grid, which is handled by a direct marketer (except for small-scale power plants). Decisive for the profitability of these concepts is the lessee’s substituted price of supply of electricity and a maximum rate of consumption for the lessee’s own purposes.


In order to achieve this, the scale of the power plant must be tailored to the level of consumption by the power off-taker (the lessee). The portion of electricity to be fed into the grid should be as low as possible for economic reasons because the incentives paid for this volume of electricity do not cover the cost of energy, depending on the power plant configuration. To achieve a high rate of consumption for the operator's own purposes, it is advisable to orientate the panels to the east-west direction so as to limit the typical peak output of a power plant facing south at noon and enable a steady output throughout the day. It is also possible to lease several modules of a power plant to various consumers. If more than one off-taker is planned to operate the PV power plant, decentralized solar inverters should be applied to “split” the use of the whole power plant. The size of the individual component plants should be again tailored to the volumes of consumption (load profiles) of the relevant off-takers.

 

Conclusion

Business models outside the auction regime continue to be financially attractive. Participating in the auction procedure involves high project development costs particularly because bidders must provide financial guarantees (bid bonds). Furthermore, the profitability of the project can be finally determined only after successful participation in the auction procedure because the level of funding will be known only at that point. The pilot auction procedure for ground-mounted PV installations has also shown that the auctions are highly competitive. In consequence, the rates of incentives offered at the auction rounds have continued to fall. If a bidder is not awarded a contract for their project during an auction round, they must wait until the next auction round and the project is frozen for many months. Outside the auction regime, the level of funding is not determined on competitive terms, but solely depends on the time of commissioning of a power plant. In this context, we recommend taking action early on, because also the level of funding is subject to reductions preventing too fast expansion of a power plant [the so-called ‘expansion-linked degression’].


Rödl & Partner will be happy to assist you with all project measures – from preparing the first profitability calculation to drafting lease agreements.


1 Funding in January 2017. If a power plant was put into operation later, degression [reduction in the rate of incentives] should be taken into account.

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