Over the next four years, 5.7 GW of utility-scale solar PV projects is expected to be built in the U.S. and another 1.3 GW in Canada for a total of 7 GW. Both amounts represent a significantly larger volume than what has been installed to date and is expected to be the dominating type of solar installation for that period of time. Yet, 7 GW only represent a fraction of the total capacity of large-scale solar PV projects initiated and under development in the same period, illustrating that solar project development still is a high-risk undertaking.
The reasons so few projects materialize are many; ranging from inexperience at the hand of the developer, to site specific problems, technical issues, regulatory problems and permitting issues — all affect the financial and technical viability of a project. In the end, failure to develop projects at some point in the development process comes at considerable cost for the project developer as well as the solar industry as a whole.
The risks affecting solar projects appear throughout the entire project lifetime, but vary greatly in character. Here are some examples:
The immediate impact of the presence of any of these risk factors is uncertainty around the revenue and profitability projections for the project and thus the financial viability of the project.
Many of the risks mentioned above can be managed through financial instruments and insurance products. For example, weather risks can be mitigated through weather futures and technology risks can be offset through warranties. However, for a relatively young industry such as solar, a lack of engineering studies for actuarial purposes often means that financial risk management products are badly re-purposed from other fields and prohibitively priced.
Advances in Risk Management
As with any new industry, the pace of innovation in utility-scale solar is high. Thankfully that also applies to the field of risk management for utility-scale solar projects. As the industry evolves, data around best practices have started to emerge — a number of which will be addressed by some of the industry’s leading minds during the Markets & Finance track of Solar Power-Gen 2012 (Long Beach, CA – February 14-16):
I hope that you will join us for this and the other interesting sessions at the Solar Power-Gen conference in Long Beach, February 14-16.