The discounted cash flow of solar project power generation has increased by 46% when converting installations from today's standard 25-year life cycle to a 50-year time scale.
Solar modules that have been used for 50 years with little degradation will significantly increase the value of solar power projects. In the example below, we see how the project’s discounted cash flow for electricity generation increases by 46% when the project transitions from today’s standard 25-year life cycle to a 50-year time scale. Compared with standard glass plastic backsheet products, the almost perfect seal provided by the pure glass glass encapsulated solar panel leads to this low degradation value.
We will have solar panels that are guaranteed to be used for 50 years with little degradation. In fact, these panels are now likely to be installed.
In a recent conversation with Meyer Burger CEO Erfurt Gunter, someone mentioned that the company's glass-glass double-sided solar panels showed little degradation in their durability tests. But a number must be selected for the warranty, so the company’s power production warranty stipulates that if its power generation is less than 93.2% of its original capacity after 30 years, Meyer Burger will replace the solar panels.
The U.S. Department of Energy funded a 50-year glass-glass solar panel research in 2018, and recently funded two projects to study inverter failure and the operation and maintenance of the factory as it reaches the half-century mark.
The Towards50 project is led by Dr. Roger French. French has been publishing papers on this research and told the American Photovoltaic Journal that a degradation level of less than 0.2% per year indicates that the possibility of solar panels for 50 years is very real. We will introduce these papers in depth in future articles.
Investors pay the "net present value" of all earnings, subtract all costs, and subtract estimates of digital interest rates from these earnings. One thing to keep in mind is that investors pay for this value the moment they purchase the asset, decades before the arrival of cash.
Therefore, when calculating the discounted cash flow of a solar project, this value can be predicted and sold. In our case, a solar power project generates 1,000,000 kWh of electricity every year, sold at a price of 4 cents per kWh, and the electricity inflation rate is 2%, resulting in a discount of US$677,357 during the first 25 years of the project cash flow.
If the site continues to operate for another 25 years, the discounted electricity revenue of the project value will increase by US$316,357. This means an increase of 46.8% in the first 25 years of the project. After the construction is completed, a large part of this money will be paid to solar developers.
When we try to predict the next few decades in a complex world, investors will debate what discount rate should be used and what fees should be paid for the project’s net present value.
However, electricity inflation clauses that protect investor income can be added to any solar purchase agreement. The clause also protects the savings of energy buyers by ensuring that inflation is always lower than actual electricity inflation.
There are many signs that investors have pinned their hopes on the 50-year solar project timetable. The value of grid interconnection far exceeds the current 25-year service life of solar panels. In fact, value is eternal.
Recently, Portuguese renewable energy auction bids hit a record low. Local commentators stated that the reason why the bid price is lower than the hard cost of solar power projects is that although the power contract is short-15 years, the land and interconnection rights are indefinite. Investors are clearly betting that they can make up for their low bid prices in the long run.
Jenny Chase of Bloomberg New Energy Finance likened the value of grid interconnection to the “gold powder” sprinkled on the value of the original power purchase agreement for solar power plants.
The author saw a long-term solar land lease agreement for farmers in the Midwest with a contract period of 25 years, including the developer's option to extend the original land lease for a second time by 25 years. Most other power generation assets have a useful life of 40 years or more. And American nuclear power plants are now seeking opportunities to operate for 80 years.
So, what will you do in 2071?
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More articles by John Fitzgerald Weaver
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