Photovoltaic module supply has outstripped demand leading to a significant oversupply in the industry. Current production plans and demand outlook suggest oversupply will continue in 2012. According to conclusions in the latest Solarbuzz Quarterly report, “continued solar module overproduction will lead to sustained price pressure across global PV markets, already reeling from factory gate prices now down 33% year over year.” See the report here.
While falling panel prices mean reduced profitability, the oversupply of panels that must be kept in inventory represents a significant cost to manufacturers as well. Since short-term assets such as inventory represent uses of working capital, the panel oversupply is reducing manufacturer’s cash flow at a time when they cannot afford it.
The saving grace for PV manufacturers is that the product they make – when deployed in a solar project — generates electricity and thus revenue. So, the answer to PV manufacturer’s problems in this difficult environment is staring them right in the face: they need to take product out of inventory where it costs them money and put it to work in a solar project where it earns money for them. By moving downstream into the electricity sales business, manufacturers benefit from long-term electricity sales revenue.
The only obstacle for manufacturers to overcome is the attachment to the solar power purchase agreement (PPA) financing model. The PPA model is dead. However, PPAs were only necessary to bring in non-recourse project finance debt from financial institutions. What PV equipment providers need to understand is that, under the right circumstances, they are the financing providers. BlueChip Energy has created those circumstances by pioneering its market-based agreement solar development model.
As a developer of more than 100 MW of merchant solar PV plants selling electricity at market-based rates, BCE can help guarantee off-take for PV producers’ equipment as well as long-term electricity sales revenue.
BCE’s marquis solar power project – the Sorrento Solar Farm – is unique among many announced solar power projects in the United States for several reasons. The Sorrento Solar Farm is:
- Fully permitted: Rezoning authorization issued by Lake County Zoning Board and the Lake County Board of Commissioners; Environmental Permit issued by Florida Department of Environmental Protection (permit No ERP35-0307272-001-SI);
- Ideally Located: The project is located on land owned by BCE, gently sloping from north to south (eliminating the need for grading) and adjacent to two substations owned by Progress Energy Florida and SECO; and
- Federally Licensed: The project has Qualifying Facility status (FERC Docket Number QF11-240-000) and Wholesale Generator status (FERC Docket Number EG11-58-000) certified by the Federal Energy Regulatory Commission.
The first phase of the Sorrento project is 40 MW, while the second phase is an additional 60 MW. Recognizing this unique opportunity to seamlessly move downstream, several PV equipment producers are in the process of signing Letters of Intent with BCE to contribute their equipment for an equity stake in the Sorrento Solar Farm.