Photovoltaic investments outside
Germany?
Looking into the southern EU states
by Rainer Weng
23
April 2007
The renewable energy law that came into effect
in Germany in 2004 was followed by a true boom in photovoltaics.
Other European
states and countries worldwide took this law that promotes
the generation of electricity from solar energy as an example
and
passed similar laws. These countries too are now undergoing
developments that can be compared with the quick growth of
solar
power systems
in Germany since 2004. In Germany, decreasing feed-in tariffs
for solar power that is supplied to the network have led
to many investors considering investments in photovoltaics
in other
EU
states to maintain their good returns from solar power
systems. Some foreign feed-in tariffs are now higher than those
of
the German renewable energy law. In addition, the significantly
higher number of sunshine hours in mediterranean countries
are
being
expected to lead to higher yields.
Solar power plants under the Spanish sun: PV project
Beneixama; Photovoltaic modules in Almendricos solar park. Photos:
City Solar AG (left); Sunways AG (right)
Attractive feed-in tariffs in the south of Europe
Current
solar power remuneration in France, the solar energy supporting law “Conto
Energia” that was adopted in February 2007 at the Conference
of States and Regions in Italy, as well as the utilisation of renewable
energy law that came into effect on 25.08.2006 in Greece provide compensation
for electricity generated from photovoltaic plants, some of which are
higher than German feed-in tariffs according to the German renewable
energy law. In Spain, the Ministry of Industry, Tourism and Trade presented
the probably final draft of the new feed-in law on 26 March 2007. This
law provides a feed-intariff of 44 eurocents/kWh for the first 25 years
of operation for photovoltaic plants of a nominal output of 100 kW
that
feed electricity into the network. For large-scale PV plants remuneration
of 42 cents/kWh is planned. The tariffs are linked to the inflation
index.
By taking a 100 kW solar power plant in France, Italy, Spain
and Greece respectively as an example, this Solar Report investigates
the conditions
for financial investments in these countries and shows that on the
grounds of favourable framework conditions good returns can be achieved.
Developments
in Germany rise
interest in solar power alternatives abroad
At the
beginning of 2004 the German demand for photovoltaic systems grew with
unprecedented
dynamics.
The reason for this development were the new regulations of the renewable
energy law that guaranteed remuneration for solar power systems on roofs
of up to 57,40 cents/kWh of solar power fed into the network for a period
of 20 years. Trust in German legislation and the expected double-digit
returns led to an explosion in the demand.
Photo: solar power system on the roof of an
agricultural business in Allgäu. Source: Solarserver.de (rh)
A considerable number of the solar modules produced worldwide were
sold on the German market that reacted swiftly: demand significantly
exceeded
supply which rapidly led to a steep increase in prices. Whereas high-quality
solar power systems could be purchased for 3,800 euro per kilowatt of
installed peak performance (kWp) at the beginning of 2004, even less
convincing systems
had to be acquired for 5,000 euro/kWp at the end of 2004. Investors’ margins
shrunk from very high levels to still acceptable profit margins.
Increasing
prices and decreasing feed-in tariffs slowed down investors in Germany
The
annual decrease of solar power feed-in tariffs (degression) of 5 %
(and 6.5 % for open-space systems from 2006) prescribed by the renewable
energy
law, together with the high price levels led to decreasing returns.
In November 2006 the solar power magazine PHOTON still advised those
interested
in solar power plants to wait with their purchase because of the high
prices for photovoltaic systems. And those who now purchase their turn-key
system
in 2007 should not be paying more than 3 900 euro, because the feed-in
tariffs for new systems would then be 5 % lower. "In some instances
the prices still need to drop by 30 % in order for solar systems to yield
good returns again for the operator,” says Photon Chief Editor
Anne Kreutzmann. In the meantime a regulated market has started developing
again
that shows balanced price levels determined by supply and demand. Since
the beginning of 2007 solar power systems can again be purchased at prices
equivalent to those of mid 2004. The degression of feed-in tariffs, however,
does no longer allow for large financial investments and requires thorough
testing of site factors (sun radiation) in order to run profitable systems.
The following graphic presentation shows the development of feed-in tariffs:
[Wording of graph: Degression of feed-in tariffs as per renewable energy
law; Open-space; Roof systems up to 30 kWp; Partial roof systems 30 kWp – 100
kWp; Roof systems from 100 kWp]
Comparison of possible solar power returns
in different EU states
With
feed-in tariffs on the decrease, many ask themselves whether an investment
in solar power in Germany is still worthwhile or whether it is wiser
to turn to other EU states. The conditions in these countries of interest
are compared below.
A standardised 100 kWp system serves as a basis
for this comparison of countries. Electricity yields and investment
costs are
considered to be variable, all other costs were taken to be constant
in the respective countries:
On the side of financing, 20 % equity
capital were assumed; 80 % loan capital are calculated with a
bank loan in the form of a credit to be repaid in instalments over
a period
of 20
years with one year grace period. Interest rates were assumed
to be 4.5 % for the first 10 years and 5.0 % for a further 10 years.
Insurances,
maintenance contracts and laybacks for repairs were set at
15 EUR/kWp
and annum.
Fixed costs were taken to amount to 300 EUR counter
fees and 500 EUR administration costs.
It was assumed that
running costs are subject to an inflation rate of 1.5 %.
The
annual decrease of returns on the grounds of decreasing module performance
(degradation) was taken to be 0.4 %.
A model
plant is to be commissioned
in September
2007.
These parameters certainly only constitute rough estimates
that will
have to be adapted to the various countries. However, for an
initial comparison, it is crucial that the external parameters be constant.
In order to maintain
a certain degree of transparency in the jungle of figures,
the main
focus point was the overall capital return, i.e. the return
of one system before
financing and taxation.
Germany as a basis, a brief overview
In
Germany a 100 kWp system will generate feed-in tariffs of 37,96
ct for open-space
systems and 47,54 ct for roof systems if the solar system
is connected
to the network in 2007. Depending on the return potential
of the location and fair investment costs, overall capital returns
of between 5 and 8
% can be attained.
Fig. 2 Overall capital returns of PV systems in Germany (as per feed-in
tariffs stipulated by renewable energy law 2007); Overall capital return
of roof system (900 kWh/kWp); Overall capital return of roof system (100
kWh/kWp); Overall capital return of open-space system (1000 kWh/kWp)
If only 20 % equity capital are assumed and if the remainder is financed
as described above, the loan capital interest rates that lie below the
overall capital return allow equity capital returns of between 10 and
15 %. Particularly in low-yield locations, however, not everybody considers
these returns to be lucrative. Thus a look into other countries as the
future photovoltaics market is sensible.
Parameters for PV activities
in
other states
Photovoltaics investors that are looking to become active
outside Germany’s borders often consider the south. More hours
of sunshine obviously promise higher returns per installed unit in
the southern
EU states. And that the sun of the south is strong, will be confirmed
by most Germans that spent their holidays there. Besides the advantages
of
high electricity outputs and good feed-in tariffs, a few aspects
need to be considered critically:
Obtaining the official
approval for solar power plants in foreign locations is not always
easy and especially
time-consuming; authorities often have other opinions than investors.
Financing
schemes outside the EU are viewed more critically by German banks;
financing applications lodged with local banks often fail
because of higher interest
rates.
For maintenance and servicing a reliable partner
in the respective country is essential, particularly, if
you act “only” in
the capacity of foreign investor.
Legal requirements
regarding taxes, insurances, liability etc. are not always
known to clients
that are willing to invest.
The quality of modules,
assembly and/or all other components and assembly parts should
be of particularly
high
standard in “foreign” plants.
If these parameters
are met by the specifications and objectives of the investor,
projects
can be
implemented
according to his requests, provided your own profitability
goals are achieved and a suitable financing plan can be found for the
plant. It
is essential
to present a convincing project-specific feasibility study.
Below
the returns for identical model plants in different locations
in France,
Italy, Spain
and Greece are calculated. Interest in calculations of solar
power plants is growing: besides requests from old EU member
states,
an increased
demand for feasibility studies is noted from new EU members,
such as Bulgaria.
Investors who do not have the possibility of conducting in-depth
studies of the situation in the respective countries should,
however, rather
concentrate on markets in which reference projects have already
been implemented by
German investors.
France: possible solar power harvest of 1
100 kWh/kWp in top spots
Compensation for solar power is guaranteed
for 20 years
and amounts to 30 cents/kWh or 40 cents/kWh in French regions
abroad. When
systems are integrated into buildings, compensation increases
to 55 cents/kWh. Feed-in of over 1 500 peak-load hours
(1 800 for
regions abroad) per
annum are rewarded with further compensation of up to 5
cents.
Basic compensation
of 30 cents is of little interest when considering current
building costs of solar power plants that amount to over 4 000
EUR/kWp. However, systems
integrated into existing buildings promise acceptable
returns. The costs of integrating a system into a building are generally
higher
than for
classical roof systems, but a compensation of 55 cents/kWh
is
definitely lucrative.
A slightly lower degree of efficiency should be anticipated
because heat build-ups can easily result. Our exemplary calculations
showed two types
of returns: in top locations a solar harvest of 1 100
kWh
per installed kilowatt of peak performance per annum, and in other
locations
expected yields that correspond to those in Germany (900 kWh/kWp).Overall
capital returns (French plants indicated in blue in graphic presentation
below) of over 10 % seem to be realistic in good
locations.
150 kWp SunTechnics solar power plant at the bus terminal
Clermont-Ferrand (Auvergne; France) with solar modules installed on the
roof and as
sun façade. Photo: Conergy AG
Even in less favourable locations, higher loan financing shares can still
lead to 15-25 % equity capital interest yields if an overall capital return
of over 8 % can be attained. On the grounds of property regulations, however,
systems integrated into existing buildings are generally not possible for
investors from abroad. Conventional roof systems or open-space systems
are more readily separable from immovable property and are thus the preferred
investment object of foreign PV investors.
Overall capital returns of roof-integrated systems in Italy and France;
Overall capital return France (900 kWh/kWp); Overall capital return France
(1100 kWh/kWp); Overall capital return Italy (900 kWh/kWp); Overall capital
return Italy (1100 kWh/kWp)
Italy: relatively low compensation for open-space plants
compensated by high number of sunshine hours
For plants integrated into
buildings, similar parameters can be assumed as in France. However,
the returns are lower because of feed-in tariffs of 44 - 49 ct/kWh where
55
ct/kWh are being paid in France. Fully integrated systems of up to
20 kWp receive an incentive of 49 eurocents per kilowatt-hour. For solar
power
from fully integrated systems with an output of over 20 kWp, 44 eurocents
per kWh are paid. Open-space plants of over 20 kWp will in future receive
the lowest incentive of 36 eurocents. Feed-in tariffs are guaranteed
for 20 years in Italy. In 2009 the Ministry for Economic Development
and the
Environment will reconsider the tariffs.
Assembly of solar modules of a solar power
plant in southern Tyrol. With a peak performance of 520 kWp this is one
of the largest photovoltaic systems in the emerging Italian solar market.
Photo: juwi solar GmbH
In spite of relatively low compensation, open-space plants can be interesting
if the right location is selected and the high number of hours of sunshine
compensates the lower feed-in tariffs. However, it seems difficult to exceed
overall capital returns of over 7 %.
Fig. 4: Investments in Italian open-space plants. Returns at a feed-in
tariff of 36 ct/kWh.[Wording of table: Building costs; Electricity output
of 1 100 kWh/kWp; Overall capital return; Investment; 20 % equity; Return
on equity; Reflux before tax; Surplus after deduction of equity; for remainder,
see above wording]
For foreign investors other countries thus appear more lucrative.
Particularly regarding open-space plants, Spanish and Greek solar power
plants were
superior to Italian plants in terms of their feasibility.
Spain: feed-in
tariffs coupled with the inflation rate promise extra profits
For solar
power from PV systems with an output of 100 kWp approx. 44.0 cents/kWh
are paid, for systems of between 100 kWp and 10 MW approx. 41.7 cents/kWh,
and for systems from 10 MW only about 23.0 cents/kWh. The new set
of legislation that is to replace current remuneration according to the "Real Decreto
436/2004" has been extensively discussed and is currently being implemented.
Compensation according to this draft legislation lies significantly above
current German tariffs for open-space plants and, in addition, the “Sun
of Spain” allows far higher electricity outputs per kWp than in
Germany. Frequently calculations of plants show a solar power output
of over 1 300
kWh/kWp.
SunTechnics façade in Cadiz, Spain; Inverter of the Solar Park
Almendricos (Murcia region). Photos: SunTechnics GmbH; Sunways AG.
A great competitive advantage in Spain is the coupling of the feed-in
tariffs to
an index, i.e. compensation can generally be expected to increase from
year to year. Whereas so far the electricity reference price was the
basis, compensation will in future be coupled to the inflation rate.
The effect
of this coupling on returns can be seen from the comparison of two
plants (one with 1 100 kWh/kWp and the other with 1 300 kWh/kWp); a price
increase
of 1.5 % and no inflation were assumed in the calculations.
[Overall capital returns from PV plants in Spain; effects of coupling
remuneration to inflation; Overall capital return (1.5 % inflation 1100
kWh/kWp); Overall capital return (no inflation 1100 kWh/kWp); Overall capital
return (1.5 % inflation 1300 kWh/kWp); Overall capital return (no inflation
1300 kWh/kWp)
The result is impressive and the advantages resulting from this coupling
become obvious: the inflation approach simply translates into additional
profit. With compound interest, this amounts to significant sums. The
result is an increase of 2 % in overall capital returns. 1.5 % higher
remuneration
is reflected in the following figures:
- per kWp per annum approx. 70 – 80
EUR more profit:
- for 100 kW this amounts to an additional profit
of 7 000 EUR, excluding compound interest!
Greece: peek remuneration
for solar
power from the islands
The Greek renewable energy law that now
also promises better remuneration for solar power in Greece, was passed
by
the Greek
Parliament on 07.06.2006 and came into effect on 25.08.2006.
It contains the following tariff system for PV plant operators that have
entered
into a feed-in contract with a Greek network operator. The legislator
draws
a distinction between investments on continental Greece and on
Greek islands:
Solar power plants in Athens. Source: SCHOTT AG
When considering possible returns, particularly the Greek islands are
of interest (50 ct/kWh for plants up to 100 kW; large-scale plants 45 ct/kWh),
but also in continental Greece feed-in tariffs of 45 ct/kWh for plants
up to 100 kW are very lucrative (large-scale plants 40 ct/kWh). Investments
in the 100 kW plant of our example yield the following results:
Overall capital returns of PV plants in Greece; Differences between investments
in continental Greece (45 c) and on Greek islands (50 c); Overall capital
return Continental Greece (1100 kWh/kWp); Overall capital return Islands
(1100 kWh/kWp); Overall capital return Continental Greece (1300 kWh/kWp);
Overall capital return Islands (1300 kWh/kWp)
The returns speak for themselves. If plants “only” have an
output of 1 100 kWh/kWp, returns of about 8 % can already be achieved.
In the event of 80 % loan capital, this correlates with an equity capital
interest of over 15 %. Calculations done for good locations that achieve
an output of 1 300 kWh/kWp show that overall capital returns of over 10
% can be obtained. This means an equity capital interest of about 20 – 25
%.
Conclusion: individual calculations crucial
Country-specific regulations,
such as coupling solar power remuneration to the inflation rate,
can be sensible parameters to effectively promote photovoltaics. Such
an
approach
could also serve as an example for the imminent revision of the renewable
energy law in Germany. By spreading the remuneration across all electricity
consumers, a plant that has been installed would cost consumers not
a single cent more even when compensating inflation, because network
contributions
as well as the actual electricity price are also subject to continuous
price increases.
Calculations done for an exemplary plant of 100
kW in the four EU countries selected show that it is possible to achieve
good
returns. Individual calculations that take into consideration the
exact
location, costs, financing and type of plant will lead to a further
optimisation of feasibility. It will become clear that an investment
decision that takes
into consideration the precise situation can mean an additional
few thousand euros in your pocket. However, it must be ensured that the
framework conditions
are suitable – in investments in EU states many factors play a role.
The business-economic selection of a country is one of the central criteria,
but whether or not expectations will be met largely depends on the location,
the official approval, maintenance and quality of the plant.
