European solar asset owners are grappling with the prospect of longer-lived projects after a 2019 ruling upped the definition of the useful life of plants to 35 years. The figure represents a big increase over the traditionally accepted lifespan of 25 years, which is based on standard PV panel warranty periods.
The legal precedent appeared in a ruling against Spain by the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) last September, following a lawsuit brought by solar investors OperaFund Eco-Invest and Schwab Holding over retroactive feed-in tariff cuts.
In the fight to reduce its liability, Spain’s legal team had argued that solar plants had a 30-year lifespan. ICSID found otherwise, accepting expert testimony that said the plaintiff’s plants “could have carried on working for a minimum of 35 years.”
Buried in a 308-page ruling, the legal rubber-stamping of a minimum 35-year lifespan attracted little fanfare. In part, that’s because the solar industry is already assuming its plants will last well over 25 years, said Álvaro Payán Rodríguez, general manager at Seville-based ATA Renewables, who acted as an expert witness in the ICSID case.
“The fact that plants last longer than 25 years is something that everyone knows,” he said. “You will have to replace certain components, such as inverters, and invest some money, but you can extend the lifespan by five, 10 or 15 years.”
Massaging the economics of solar
In the U.S., the National Renewable Energy Laboratory lists photovoltaic plants as having a useful life of 25 to 40 years.
And in Europe, analysts believe developers have only been able to win tenders at ultra-low prices because plants will continue to deliver power on a merchant basis for many years after original contracts for difference or power-purchase agreements (PPAs) run out.
Being able to play with an extra decade or two of production is handy for asset owners, said Luca Pedretti, chief operations officer and co-founder of Pexapark, a Swiss PPA software management firm. “Just mathematically, LCOE [levelized cost of energy] will go down,” he said.
“In the official financial model, I guess you will not see yet 35 [years], but I think that’s a common trick. They have a base case and they know they can massage it. If you can play this game for another five to 10 years, it is, of course, better.”
But banking on a minimum 35-year plant lifespan also carries some risk. “There is minimal long-term operational data of projects with current technology,” said Kurt Bastian, senior consultant at the technical advisory firm K2 Management.
“There is uncertainty associated with extrapolating long-term performance. For example, the reduced thickness of silicon is a key driver in the reduction of module price we have seen in recent years, and the long-term degradation impact of this increasingly brittle material is unknown.”
The danger of optimism
In the absence of lifelong performance data, Bastian worries some asset owners may be overly optimistic about the capabilities of their plants.
Most modules are expected to see a degradation rate of 0.7 percent a year over their 25-year warranty period, for example, but many developers take the view that actual rates could be as low as 0.25 percent, albeit “with very limited evidence of this being achievable in the near term,” Bastian said.
Assuming these low degradation rates could be sustained well beyond the warranty period is potentially asking for trouble. And beyond technical concerns, there are also question marks over whether revenue from merchant sales will end up meeting asset owners’ expectations.
Experience in the wind industry suggests otherwise. In Germany, for example, an oversupply of wind generation is already stressing the grid and leading to negative pricing, hardly a recipe for merchant riches.
Against this backdrop, asset owners will likely either have to invest in battery storage to play the energy markets or find ways to operate their plants as cheaply as possible.
The processes of solar operations and maintenance are already highly optimized and may not offer a great deal of scope for further savings. But Vassilis Papaeconomou, managing director of asset management systems developer Alectris, said there could still be room for IT cost reduction.
At present, Papaeconomou said, solar asset management and operations and maintenance teams rely on a range of IT systems that are costly to integrate and do not always work well together.
He advocates the use of single integrated systems that would not only work more efficiently but could also be used as a long-term store of plant operations data, which would help smooth due diligence efforts when plants are sold.
“A trend I would expect to see is the digitalization of technology,” he said. “We’re still in the Stone Age.”