Solar Shift

 SOLAR ENERGY 01The move to outsourced solar energy has implications for construction.   

By Pete Christakis

Construction of commercial- and large-scale solar plants in the United States is a multibillion-dollar industry, leading to thousands of megawatts of new solar power on the grid. Within the market, there has been a significant shift toward outsourcing all aspects of solar plant development, including ownership and maintenance, to owner/developers through comprehensive, long-term power contracts. Outsourcing solar plant development is attractive to many companies and government agencies because it allows them to claim the benefits of renewable energy – the carbon-free electricity they generate – while sidestepping the capital costs, intrinsic risks and administrative challenges in building and operating solar plants, often at rates that are comparable to (or lower than) the electricity they buy from the grid.

Outsourced solar plant development can leverage a number of contract structures, but the most common arrangement is a power purchase agreement (PPA). Under a PPA, a property owner signs a long-term contract with a solar developer to design, build, own and operate a plant for a fixed length of time, often about 20 years. The developer finances the plant construction and is repaid through a fixed rate for each kilowatt-hour delivered to the customer. In addition, the property owner may potentially receive a lease payment for the space necessary for the construction of the project. 

The private sector has embraced renewable energy enthusiastically in recent years, and PPAs have been a popular vehicle for procuring it. Over 150 major corporations are members of RE100, an international consortium of companies that have pledged to procure 100 percent of their power from renewable sources, and a number have already reached their target by signing large deals. In 2018 alone, corporations procured more than 6,500 MW of off-site wind and solar energy in the United States, mostly through PPAs, to meet their renewable energy targets, according to data from Rocky Mountain Institute. 

In the public sector, government agencies at the federal, state and local level have also invested significantly in renewable energy to meet ambitious climate targets and manage energy costs. By outsourcing the design, construction, operation and maintenance of on-site solar through a PPA, these agencies have been able to go renewable without spending precious taxpayer dollars. By taking advantage of incentives and selling power to the grid, the arrangement can often reduce an agency’s energy spend while also reducing their carbon footprint.

For firms interested in playing a role in building renewable power plants, the shift toward outsourced models changes the construction process in important ways. Building projects for the private and public sector have traditionally been delivered through a conventional design-bid-build contracting process in which the entities responsible for design and construction do not play a role in a facility’s long-term operations and maintenance. However, outsourced models like PPAs entail a different process, one that takes long-term considerations into account, and the developers of these PPAs will scrutinize subcontractors for their ability to deliver quality construction work that will minimize their long-term risk. 

One of the key differences that construction companies will face in this changing environment is the sales process. Under a PPA, it is the project developer that manages the bidding and subcontracting process, serving a dual role as general contractor and plant owner. Those project developers will be looking for subcontractors with a proven track record, local know-how and best practices, competitive pricing, and the staying power that would potentially enable the subcontractor to become a long-term partner to the project developer on future projects. Some of the larger solar project developers even have a predetermined list of preferred subcontractors in order to ensure consistency and quality for future projects they deliver in a particular region. Subcontractors that aim to play in the solar market, therefore, may wish to develop relationships with project developers proactively and position themselves as long-term partners. 

The construction process for a renewable energy plant involves far more than setting up racks for solar panels, and developers of outsourced plants will look for specialized expertise for subcontracting jobs. For example, site preparation is a major part of the solar plant construction process, with many projects requiring grading, construction of retaining walls and drainage systems, anti-erosion features, security fencing and other measures. Mounting structures including posts, roof fastening devices, ballasted foundations or special features such as structural canopies designed to support solar panels above parking lots may be part of the design as well. Given the long-term nature of these projects, the developer may require subcontractors to procure performance bonds or provide long term warranties or other security measures. Contractors with experience working on solar projects will have a competitive edge against other local contractors in the bidding process. 

The solar plant construction market offers rewarding opportunities for firms that want to participate in it. Those that can best satisfy the long-term nature of today’s outsourced solar projects and ideally serve as ongoing partners will be the ones that project developers opt to work with over time. 

Pete Christakis is vice president of construction and operations for Ameresco.

 

 

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