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Energy Production Warranty Is Changing the Client-Provider Dynamics. Is It Reasonable To Expect a Predictable Output From Your Solar Farm?

26 March 2024

There is one number that every investor in solar energy is chasing: The Levelized Cost of Energy (LCOE) of their solar farm.

Before installing their panels, investors want to see energy production estimates as close to reality as possible. This is how you can see the real value of the investment. 

Here is the issue: service providers are not meeting them halfway. Green energy providers are hedging their promises as much as they can afford, while giving ballpark numbers that hook investors in.

The Need for Predictability. Why Are Energy Production Warranties Becoming a Big Selling Point in Contracts?

Energy production warranties imply that your engineers will prospect your area and come up with realistic projections on the output. If the output is less than, the installer is required to compensate investors for the losses. This is the predictability part of your green energy contract. A lot of companies are leaving it out.

This client-provider relationship is facing a big challenge. Clients need predictability, but the market is not ready (and confident enough) to sign on it.

  • Even with government incentives, investors need to rely on a certain output to make their projects profitable. Companies tell them “We’ll cross that bridge when we get there.” 
  • When engineers are hedging their bets, the industry is expecting investors to take all the risk. The larger the complex, the bigger the risk. Ideally, green energy is supposed to be one of the safest investments. Yet, talk to a non-committed general contractor and it starts to feel like your best strategy is “fingers crossed”. 
  • Solar power is a big part of the competition between the EU, the United States, and China. Institutions are becoming increasingly motivated to support and incentivize investors. At the same time, they have their own targets to reach. Governments increasingly encourage market certainty.

The Larger Industry Issue. What Is the Bigger Promise Behind an Energy Production Warranty?

Energy production warranties force providers of solar installations to bet real money on the quality of their installations and maintenance services. In a fairly new industry, with plenty of inexperienced players, service providers would much rather not make a firm commitment.

  • Going for the lowest price in renewable energy can be a race to the bottom. No, cheap is often not a genuine green approach. In fact, you can only really label it as green after a certain threshold is reached. 
  • Every project in every industry comes with some risks. Professionals know the risks better than prospective customers do. Service providers are supposed to understand the risk and build safety nets, instead of passing that risk exclusively to clients.
  • It feels reasonable to expect that solar panels will rely on essentially unpredictable weather. The market came to accept a higher degree of uncertainty from the green energy sector. The fact of the matter is your team of engineers is supposed to calculate and mitigate the uncertainty, not pray for sunshine.

Energy production warranties require a great deal of confidence in the work of your engineers. You need to rely on your execution and maintenance team, and on your suppliers. It also requires an entire structure of safety nets, contingency plans, and continuous self-improvement. When a team is new or is trying to lowball the market, a production warranty is probably not the best strategy. 

Becoming a Prosumer. The Bigger Picture of Investing in Green Energy, Over 30 Years

Dor Marian founded Wiren over 10 years ago and explains what it takes to offer production warranties:

Normally, a company that offers production warranties looks at the client as an investor in the production of regenerative energy. Treating them as investors, you acknowledge that they need to see the economic efficiency of their installation first and foremost. An investor is not buying a solar plant, he buys a flow of energy generating a stream of cash and savings.

“An investor is not going to normally look at the initial figure, at the purchasing price. Instead, they look at what it brings them in the long run. For this type of approach, you have the concept of levelized cost of energy, meaning the average cost you get for your installation throughout its lifespan,” Dor explained. “It’s a simple artifice. You add the initial investment, everything that we call CAPEX, together with the operating costs and maintenance, OPEX, and divide it to the energy your installation produces. This means that half of your rentability is not the cost of your solar panels, it’s the volume of energy they provide.”

From Dusk Till Dawn. A Well-Maintained Solar Power Plant Is in Fact a Continuous Commitment

The last thing a service provider wants is to access insurance that could lead to default. So the first element is to improve. 

“If your installation wasn’t properly sized, we expand it, we change the position of the panels. We don’t only take on the responsibility of penalties, we take on the task of bringing your project up to standards,” Dor explains. “We have a monitoring and maintenance department that analyzes production data of our systems. We take field data multiple times a day. If an error occurs, our engineers get a real-time ticket and full report on your issues. We send a maintenance team to your location to remedy the problem. Our goal is a reaction time, with remedy, of less than eight hours.”

Not only that, but the installers monitor production weekly, monthly, quarterly, and yearly, to make sure the system is within projected parameters. The company takes full responsibility for the energy promised. 

“We do good initial work, we monitor and maintain our installations and we have a solid insurance if all else fails. We are looking at a long-term relationship, based on the contractual agreement that your systems are going to produce as much energy as we initially pitched to you. At the end of the day, we make sure to deliver on the numbers that actually matter,” says Dor. “This is a continuous commitment”

Specialized Engineers. The Expertise to Prospect, Project, and Implement a Photovoltaic System

Installing a solar farm is supposed to be a big, segmented process. In a company like Wiren, one European contractor that grants energy production warranties, each stage is handled by a specialized team of engineers. They have all been deep in the industry for over 15 years.

Prospecting. This is never a cookie-cutter approach. Each landscape is unique and has special requirements. Prospecting is done by specialized bidding engineers who will take into account the particularities of each project. 

Projection. The team of engineers must figure out how much energy you can harness, and plan the layout for maximum efficiency. By contrast, many market players take a former project and adapt it to broadly fit the requirements of the new client. Even in best-case scenarios, this means a reduction in efficiency.

Implementation. This is where the rubber meets the road. Building a solar complex is not an average DIY home improvement project. It requires a team of engineers, not just the versatile construction workers many companies rely on.

In Closing

Going green is supposed to have the best possible effects on your community, on the environment, and it’s supposed to grant a return on investment. 

The reality of the matter is that a lot of the teams out there are jack-of-all-trades. “Install 100ha of solar panels, and you get your bathroom tiling laid down for free” seems to be the great promise of many contractors. In a high-stakes industry like green energy, both companies and clients should be more ambitious than that.


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