Quality and Safety Criteria Applied in Financing Photovoltaic Projects

Background

Increasing the share of renewable energy in the national energy mix ranks high on the political agenda of many  governments around the globe. Multi- and bilateral development banks support national governments in pursuing this objective and provide funding for renewable energy projects. The ultimate success and sustainability of the investment as well as the achievement of national renewable energy targets depend to a large extent on the quality, performance and safety of the financed energy system.

Therefore, adequate quality and safety criteria should be taken into account in the respective financing scheme.
In this context, this study analyses current approaches, possible bottlenecks and lessons learned in photovoltaic (PV) projects in India and Indonesia. An emphasis is put on criteria which entail the use of services of the quality infrastructure, including metrology, testing, standardization, certification, inspection and accreditation.

The study, commissioned by the Physikalisch-Technische Bundesanstalt (PTB), was conducted between December 2015 and March 2016. The data collection comprised desk research as well as interviews with relevant international and local stakeholders in India and Indonesia. Preliminary results were discussed in a stakeholder roundtable in India in March 2016 and used as input for the Host-Country Seminar “Promoting Renewable Energies in Asia – the Quality Challenge” held during the Annual Meeting of the Asian Development Bank (ADB) from 2nd to 5th May, 2016 in Frankfurt, Germany.

Main findings

Insufficient consideration of quality and safety criteria in financing schemes may lead to risks for the performance of PV systems.

Quality and safety issues arise in PV projects across the globe, with approximately 30% of PV installations having serious defects, mainly caused by installation errors.¹ Also in India and Indonesia, where the development of PV is relatively recent, problems related to quality and safety have occurred in PV projects.

Therefore, quality and safety aspects need to be taken into consideration in financing schemes to avoid issues such as power losses, safety problems, fire risks and low reliability of PV systems that can negatively affect the performance of individual projects, the reputation of the PV sector and the achievement of national and international objectives for the development of renewable energy. This includes targets concerning electrification rates and the composition of the national energy mix, goals for reducing CO2 emissions and air pollution on a national level, but also related international agreements, such as the Sustainable Development Goals of the Agenda 2030.

Development banks exert different levels of influence on quality and safety in function of the applied financing scheme and bank-internal approaches to quality assurance.

Development banks apply different financing schemes, including direct financing and refinancing of projects as well as the possibility of supporting Public-Private-Partnerships (PPP). Direct financing of a project gives the bank most influence on quality and safety during the implementation as the project can be followed more closely, while the refinancing approach focuses the collaboration on the local partner bank rather than the specific projects and the actors involved in the implementation. In a Public-Private Partnership (PPP) structure the development bank is often financing the infrastructure for the PV system, leaving the power generation to the private party engaged in the project.

While development banks have general procurement guidelines as well as tools to ensure the environmental and social sustainability of their projects, there are no specific publicly available guidelines for the assurance of quality and safety in financed PV projects. It is common practice that technical aspects are reviewed by experts who evaluate quality and safety in a given project based on internal criteria and individual knowledge.

National project partners assume the responsibility and risks related to quality and safety aspects although necessary processes might not be in place.

The responsibility for the preparation and implementation of criteria that allow to assure high quality and safety in a PV project usually lies with the local project executing agency, while the financial risk rests with the system operator, as plant performance below estimations results in a reduced return on investment.

The responsibility of development banks regarding quality and safety of the financed projects is often perceived as limited within the organisation. In line with this perception, the extent of support offered to the project partners varies considerably between banks.

As the relevant national policies, regulations, standards and procedures are still not fully developed in many cases, the implementation of the relevant quality and safety criteria is not always assured.

International standards and a functioning quality infrastructure (QI) foster quality and safety in the PV sector.

When quality criteria are included in financing schemes, it is mainly by referring to the relevant international standards. In order to assure quality through standards, the availability of all associated and internationally recognised services, such as testing, inspection and calibration, is crucial so compliance with these standards can be verified.

The study highlights the importance of a functioning quality infrastructure (QI) which is essential to assure the quality and safety of PV installations. Through the presence of all necessary services, a well-developed QI can improve the performance of the installed PV systems, the return on investment and the safety of workers and people in the surroundings of the installations, such as users of buildings with rooftop installations. It has thus a positive influence on the long-term value of PV projects.

Many developing and emerging economies including India and Indonesia are still in the process of building up the required services of the national quality infrastructure and gaps persist. Consequently, the local PV sector can either make use of QI services that are not internationally recognized, which results in a lack of confidence in the quality and security of local products, especially in international markets; or the needed services have to be purchased abroad, which leads to higher costs and longer times needed to procure these services.

In the last years, India and Indonesia have taken important steps towards developing the services of the national QI needed to assure quality and safety in the PV sector. Opportunities for further improvement include, for example, the adoption of all relevant international standards by the national standardization body, the provision of reliable metrological services for cell calibration, the development of effective inspection and certification schemes, and the availability of all relevant accredited and internationally recognised testing services. Additionally, the local PV industry needs to be supported to be able to fulfil international standards in all areas and improve its competitiveness compared to foreign companies.

Awareness of the need for quality and safety in PV is lacking.

A fundamental obstacle is the low awareness amongst many actors, including the financial sector, policy makers, public administration, private companies and end users, that quality and safety needs to be given more consideration in PV projects. The technology is often perceived as comparatively easy and safe. Therefore, the demand for quality assurance and safety measures remains low.

Recommendations

Based on the findings of the study, the following recommendations can be made:

General recommendations

• Systematic collection of performance data of PV installations on a regional or national level
• Study on risks for investments in PV due to quality and safety issues and concrete measures to
• reduce these risks
• Establishment of national working groups on quality and safety in PV, bringing together relevant
• stakeholders
• Elaboration of national guidelines for quality assurance in PV financing
• Development and review of training activities to conform with international best practices.

Recommendations for development banks

• Development banks should gradually increase their quality and safety criteria and implementation support.
• The following requirements should be included in particular project agreements:
• Use of high quality solar irradiation data
• Reference to international standards
• Requirement of certification of workforce and components (with periodical audits of the production process) and pre-defined testing procedures
• External expert to follow the project implementation and ensure quality (especially for big projects)
• Use of best practice guides and instruction manuals for different phases and tasks
• Performance monitoring and disclosure measures for a systematic collection of performance data
• Reduced time constraints for project implementation
• Long-term performance warranty with penalty in case of non-achievement
• Developer/EPC revenue should depend on long-term plant performance.

Additionally, development banks should:

• Assess the state of the operating framework of the local project executing agency and adjust
• support measures and requirements accordingly
• Create additional opportunities to discuss requirements and ensure a common understanding of
• quality aspects among all actors involved in the project implementation
• Support the development of the national QI, providing funding e.g. for laboratory infrastructure
• Implement capacity building initiatives and consultancy for regulatory bodies
• Take an active role in national initiatives for the improvement of quality in the PV sector.

References

This text is drawn from the executive summary of the following study:

Quality and Safety Criteria Appliaed in Financing Photovoltaic Projects: A practical appraisal of the examples of India and Indonesia.

PTB, 2016. Authors: Katharina Telfser, Niels Ferdinand, Friedrich Lutz

¹ Quality Monitor 2015: Quality Assurance and Risk Management of Photovoltaic Projects.