For consumers investing in solar technology either through a residential, commercial or utility scale solar project, accessing a solar manufacturer's bankability can be a valuable tool in determining the performance, reliability and durability of its systems.
Bankability speaks to the confidence lenders and other investors have in a solar panel manufacturer. It can represent how systems perform over time, live up to their return on investment and adapt to environmental challenges. However, there are specific challenges in determining bankability in solar, so it's important to understand how the age of the industry and the variations in performance rubrics affect solar bankability, as well as the specifics of what this metric is measuring.
The difference from traditional power systems
Electrical plants powered by coal, oil and natural gas have a key financial advantage over renewable energy sources like wind and solar: the age of their industry. Because power plants have been fueled by fossil fuels for generations, there is ample evidence to show the reliability of these power sources. For investors and lenders, this makes backing a conventional electrical project seem less risky than projects using relatively new technologies like solar panels.
"Financial institutions rely on performance data to assess the funding risk of a project."
As Solar Industry magazine reported, financial institutions rely on performance data to assess the financial risk of a project. This data not only includes the design standards, installation, and operations and maintenance procedures of the proposed electrical project, but it also historical performance figures for similar projects.
Since photovoltaic solar systems have not been around as long as other, traditional power sources, it is more difficult for lenders and investors to gauge their financial risk based on historical data. For this reason, several different organizations have worked to develop quantifiable performance assessment metrics that will help to gauge a solar manufacturer's bankability and increase lender confidence in PV systems.
Solar Access to Public Capital
In order to increase the volume of performance data, the National Renewable Energy Laboratory created the Solar Access to Public Capital program. The initiative is designed to encourage market investment in solar by providing consistent and quantifiable tools for assessing PV systems. While the NREL has not issued a definitive standard for gauging bankability, through Solar Access to Public Capital, it is increasing the amount of data available to lenders.
The SAPC project is a partnership of more than 440 organizations and individuals, including solar developers, investment banks, rating agencies and independent engineers. The projects provides best practice recommendations for installation, and operation and maintenance of PV systems. Additionally, SAPC works to increase transparency for consumers and improve investor confidence through its open database of performance and reliability information developed with SunSpec Alliance, a solar industry trade group.
As Solar Industry Magazine noted, SunSpec Alliance is working to solidify assessment metrics across the industry that would take into account the performance of solar assets across different technologies and locations. These metrics would allow solar panel owners to assess key questions that relate to bankability, including the system's performance potential, by measuring:
- How the system performs compared to how it was anticipated to perform at this point in its lifetime
- If the system is performing at its full capacity based on its design, location and baseline performance
- How the system performs compared to other similar systems
- How the system performs over different assessment periods
As more data is collected and standardized over time, the SunSpec metrics will become a more useful tool for comparing performance across different manufacturers.
BNEF tier ranking system
In addition to the NREL and SunSpec effort, the bankability tier 1 rating from Bloomberg New Energy Finance is used for assessing a manufacturer's bankability. According to BNEF, the system was developed after "Tier 1" became a common marketing term that was often used without any defining rubric. BNEF created the system in order to standardize tier ratings. The system does not include a secondary or tertiary tier.
"The tier system speaks to the brand recognition and established performance of the manufacturer."
The BNEF system is based on defining bankability as whether projects using the solar products are likely to be offered non-recourse debt financing by banks. As banks are often reluctant to disclose their financial criteria, the BNEF tiers are determined by tracking completed projects of over 1.5MW of capacity worldwide through a database maintained by BNEF. Additionally, BNEF only provides the tier 1 rating to manufacturers that own their production facilities and sell under their own label. This requirement is a recognition of the research and development that is prioritized by manufacturers that sell under their own brand. These products often push the boundaries of innovation and efficiency to set their products apart from competitors.
Being a Tier 1 manufacturer, like Trina Solar, means having five different projects financed through non-recourse funding by five different banks in the past two years. Tier 1 manufacturers must also be transparent and provide the location, capacity, developer and lender for the project. Tier 1 manufacturers are required to be financially solvent and will lose their ranking if they file for bankruptcy or any form of insolvency protection, or default on bond payments. This speaks to the manufacturer's longevity and ability to service its products and honor its warranties.
As a Tier 1 manufacturer, Trina Solar has the brand recognition and established performance to demonstrate to lenders a reduced risk of failure and higher odds for a greater return on investment. Additionally, BNEF's database reveals Trina panels were used in more debt-financed projects than any other manufacturer's.
In addition to the tier system, BNEF conducts a global survey that evaluates manufacturers' bankability by polling the opinions of key solar industry stakeholders, including banks, engineers, technical consultants and independent power producers. Participants are asked whether they consider a manufacturer to be bankable based on their own internal criteria, such as product quality and the manufacturer's financial strength.
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