According to Stefan Müller, COO of Enerparc, the growing interest in European-made solar modules for rooftop systems and solar power plants indicates a willingness to increase investments. In a recent interview pv magazineMüller discusses the market for corporate power purchase agreements (PPAs) and the profitability of German solar tenders.
Stefan Müller: Absolutely yes. We are also welcome to the topic. This is also known in the housing industry. There are many arguments and also marketing campaigns for buying local products. It works very well there because this purchase is also an emotional decision. We now see more and more that classic corporate procurement contracts are concluded with larger companies for whom energy is only part of the whole. It’s more important for them to have a good story. And a good story means that they not only reduce their CO2 footprint, but also that the products come from Europe and Germany.
Has anything changed in recent years?
Yes, but things are a little different for energy suppliers. They would pay maybe a cent more per module, and that would eventually make electricity 0.3 cents more expensive per kilowatt-hour. But that’s not the only point of comparison. I believe that there are people willing to pay higher prices. Especially for business buyers with a strong brand whose products only partially have something to do with energy.
First you have to look at the market. On the one hand, there are power purchase agreements, on the other hand, there are tenders. The latter is apparently the cheapest price. Are the offers still relevant for you?
Of course we still do. These are a good basis for obtaining good seed funding for medium-sized systems. We continue to be active in the market, where we market our electricity directly on the stock exchange. But we are now equally strong with real business players who not only want power purchase agreements, but also want to do development work with us. A good example is our cooperation with Ikea in Australia. Several companies want to do one-stop shop, development work, support during construction, support in product selection and quality assurance, and then hand over the operation to us.
So the companies keep the plants?
That’s a different matter. For example, Ikea has plants. But we treat the premises as if they were our own and take care of them as such. On the other hand, we also have classic energy consumers or listed companies. These are companies that are, so to speak, stuck in their bidding model. These include, for example, large car groups, who always have to make a classic offer if they want to own assets. This is difficult to achieve in this dynamic world of renewable energy sources. If we then develop projects together, we own the system, but we make an energy purchase agreement in advance. Sometimes by cable over the fence, sometimes as a virtual PPA where you sell the produced quantities.
Why does it become too complicated when companies advertise projects?
It’s because of their processes. There are very clear specifications, such as RFI, RFQ, that is, requests for information and quotations, and at the end there must be negotiations. If it says “binding period for nine months”, that is no longer possible for us in the industry. Risk cannot be presented in this way.
When do solar energy prices change quickly?
Yeah. And of course, as a public company, a car company must always take the lowest price. We know that cheap is not always the best quality. And project development usually takes longer, and a nine-to-twelve-month price guarantee is a risk that costs extra money.
This means that there are buyers who look very closely at costs. Is it difficult to use European modules when they are 5 to 20 percent more expensive?
Exactly. But if, for example, we go into energy trading with large companies, that is, if we design a plant, maintain it and sign a PPA, there are different dynamics. Business energy traders or buyers know that the market is very dynamic. They are also open to entering into a short PPA or a 10 or 15 year PPA. The negotiations are interesting.
But they also probably lack the emotional component of paying more for electricity from European modules.
On the other hand, these companies have another component. For example, location plays an important role for them. We recently built a solar panel with Volkswagen in Zwickau at their factory and are now building another. Their principle is very clear: send the factory, because they want to make the solar fields visible to everyone who picks up their electric car there. So there is also an emotional component to it.
Do such players pay more for European mods?
Let me put it this way: there are discussions and there is interest.
Does that mean there is interest?
Yes absolutely. And that beats the one cent per watt that this industry trades at.
What is the extra cost you can imagine?
My gut tells me it could be as much as 10% or 20% more.
Good for European manufacturers. But you’re not building an industry if you target 10-20% overhead from the start.
That’s right. It shouldn’t even be a goal. I think the goal must be that we get very high quality with a small CO2 footprint, high added value, an “always-availability-guarantee” and a long product warranty. Germany is definitely leading the way here. And that’s where customers are already looking, and not just in the housing sector.
What other trends do you see in the market right now?
We have just connected our large solar power plant to storage. There’s an incredible amount going on there. Separate storage systems that are not designed together with wind and solar are now also offered. Why not? The building permit is easier and the network connection easier. I think there is an interesting market developing there. The big question is who is the driver, the investors or the network operators?
Previously, it was a regulatory problem because the network operator was not allowed to serve all business models.
He could write it out, or he could even free up net points if he acted openly. He doesn’t always.
Independent storage already existed in connection with the primary control reserve.
And he was always under incredible pressure. There was massive cannibalization. But when I see young startups active in all business models, it can be exciting. Increasing the flexibility of energy consumers is also very exciting in my opinion. An incredible number of new start-ups are teeming there. Whether it’s a vehicle to the grid or combining energy purchase agreements. The latter is important because smaller companies also want carbon dioxide emissions and need cheap electricity, which cannot enter into a PPA agreement themselves.
Industry needs cheap electricity. Before, it was possible to produce solar electricity for 4 cents per kilowatt hour. With high interest rates, those days are over for now, right?
I don’t want to say it’s completely over now. But we understand that we lived in really good times with low interest rates that were so low that you can’t even imagine it anymore. High interest rates really increase costs. The cost of capital is decisive.
Where are the electricity production costs at the moment?
It also depends on the size. The average of the most recent renewable energy law tenders was about 7 cents. It reflects the situation.
When can costs come down again?
When interest rates fall or when there are other business models. I believe that if you model for 30 or 35 years, which classic business buyers also do, values can change again.
That, in turn, depends on the risk you want to take and whether you can build your finances around it.
Exactly. You cannot get financing for 30 years with a guaranteed interest rate. 10, maybe 15 years at most. That’s actually the difficulty. But I believe that other business models will also develop there. We also talk to very large players who basically do everything with their own capital. They also have a different approach. Some time ago we also sold our America business with the Lego family. So far, they have redeemed all the loans in full. They do everything with their own capital.
They have money left over and don’t even know what to do with it?
Exactly. money is in the market. They also want to make a profit, that’s clear. But they can model it a little differently.