l'Actualité du Solaire

In thiscontext, how does the photovoltaic activity work in France? Power plants in operation, Power plants under construction, Power plants in the planningstage

What are the five consequences of this confinement for the profession?

At the end of the second week of containment in France, the guidelines are still in place. The aim is to stop human contact in order to prevent the spread of the epidemic and thus constitute a barrier to its spread. This has had the effect of stopping between 90 % and 100 % of the activities in the hotel and catering industry, and of reducing by 80 to 85 % those of the automobile industry (the construction is at a standstill). More than 80 % of the building sites in the public works sector are at a standstill. These rates can be found in furniture, cosmetics, mechanics, plastics, textiles... The Post Office is almost at a standstill and the various Parisian railway stations are closed... According to the Minister of the Economy, French industry is running at 25 % of its capacity. One can almost wonder how this figure is calculated since only the food production and distribution activities work with the health activities....

In this context, how does the photovoltaic activity work in France?

The health crisis has brought to light two very distinct parts in this industry. On the one hand, the operation of the power stations in operation; on the other hand, the construction of these power stations with, upstream, the study, the signing of contracts and the financing of these projects.

Power plants in operation

While the comments focused on the completion of construction or the launch of projects, it was forgotten that solar or wind power plants are assets that work on their own with the sun and the wind. They produce energy without human intervention. This means that, confined or not, production is carried out by the plants in operation and that unless there is no wind or cloud cover, energy production will be approximately the same each year. The power plants are remotely monitored by their energy production. This part of their activity is a permanent income base except in case of destruction of the installations. They benefit from the priority of injecting their energy into the power grid over other energy sources. This provides a safety mattress for the various power plant developers.

Power plants under construction

They have been shut down by containment. The construction sites have been stopped by government measures. These worksites, which had suffered a two- to three-week interruption in the delivery of panels from China, were subsequently halted, with no indication of when they would be completed. They are expected to be completed by the end of 2020, which will not significantly impact plant owners who meet the projected 2020 targets for megawatts installed, sales and gross operating surplus (EBITDA).

Power plants in the pipeline

They are much more affected because these projects require studies (the engineers are confined to their homes and may have difficulty consulting each other), soil analyses, but travel is prohibited, which prevents any progress on the files. Similarly, consultations with the municipalities or administrative authorities are impossible because the interlocutors are confined to their homes. Calls for tender are postponed or cancelled. It is impossible to move a file or a project forward! This delay will be felt not in 2020, but in 2021 when these projects should have started to be built or put into service. The path of contracts with subsidies is temporarily closed.

There are still contracts concluded directly with the users (generally large industrial groups). Here, the situation is different because the parties involved can work from home. However, the negotiation of power purchase agreements (PPAs) is based on an electricity price. However, the period is completely turned upside down because the drop in industrial or commercial activity creates a surplus of energy which is reflected on the European stock exchange (Epex Spot). Current energy production is comparable to that of January or February, but demand is currently reduced by 10% to 15% (according to Enedis) [Editor's note: this decline seems very small given the cessation of operations of the user industries.]. Thus, an excess of supply over demand manifests itself. It lowers prices, which are sometimes negative (the energy supplier then pays for its electricity to be injected into the grid, which is generally the case in sunny and windy periods and around midday). This drop in prices, or rather this price instability, makes it difficult to establish a long-term contract: should we consider the prices of 2019 or those of recent years? What will the price per kilowatt-hour be in six months or two years' time? Buyers want a minimum price difference of 10% to 20% over the grid price. However, the price per kilowatt-hour from the construction of solar power plants can exceed the price of the grid! How can we reach an agreement on these bases, especially since we don't know the wholesale market price after confinement? In 2019, 8.4 GW of purchase contracts (PPAs) were concluded in Europe, i.e. almost half of the year's solar installations (including 4.4 GW in Spain, 1.9 GW in Italy, 1.1 GW in Germany, etc.). The conclusion of power purchase contracts is therefore postponed to the period in which electricity prices have stabilised, although some commentators believe that the price differential between grid and solar power plant prices still makes it possible to conclude contracts (which would be the case in Spain).

The political authorities must therefore issue calls for tenders or the large user companies must consider that the economic and financial situation has stabilised and commit themselves to five or ten years! Whether with administrative tenders or private contracts, the conclusion of contracts is postponed to a later date, which will affect the planning of solar power plant builders. The start of construction will thus be postponed.

In its presentation of the 2019 accounts, Neoen makes a projection for 2020 and 2021: The various disruptions linked to containment will cause it to lose 5% of its gross operating surplus margin this year (80% in 2020 against 85% in 2019). This is linked to the various delays in the launch of new projects. The resulting delay in the start of operations means that the Group has lowered its EBITDA target for 2021.

What are the five consequences of this containment for the profession?

The main one for developers is the delay in the start and completion of construction.

2°) However, a second favourable consequence will occur. Chinese manufacturers are increasing their production rate and are currently delivering the orders received during the Chinese confinement. However, as of this week, the price trend in the production chain is downwards. For its part, the confinement in Europe or in other regions of the world (it is said that the peak of the world epidemic will take place in the third quarter) is causing a vertiginous fall in panel orders. Chinese manufacturers will see their production capacity fall below 50% (compared to 80% to 100% currently according to the producers). Chinese domestic demand at 40 GW represents only 33% to 40% of world demand (if it is estimated at 100 or 120 GW). We can therefore expect a violent fall in prices and certainly financial difficulties for some producers, unless the Chinese government intervenes by speeding up projects to build solar power plants.

3°) A third consequence is that it is very difficult to predict what will happen after the two-thirds drop in the price of oil on the world market. It has fallen back to $20 today (compared to $60 at the end of 2019). Will there be a return to all oil because it has become cheap and perhaps more advantageous than the use of renewable energies? Or will the price of oil rise very quickly to the level of the end of 2019, and thus make the use of clean energy profitable? The alternative is still open.

4°) A fourth consequence is that investors are on the lookout for good acquisitions of projects in Spain. They have money and the announcements of the central banks make them hope for more. On the other hand, some projects have no financing, or have been set up to be sold. The drop in electricity prices, combined with the crisis, means that some projects will be sold under excellent conditions for buyers. We can expect many transactions to take place, especially in Spain, where there is more money to invest than power plants to sell.

5°) A fifth consequence, even more difficult to envisage, lies in the post-confinement period: will we return to a polluting and oil-polluting world? Or has the behaviour of populations changed in favour of a more ecological life, after the constrained period during which attitudes have changed and adapted? In favour of the first alternative, habits are the most difficult to change. We know how we acted before confinement and we know the oil world. It's the easiest; it's the most normal; it's what comes naturally to your mind or in your behaviour. Moreover, after SARS or the financial crisis less than twelve years ago, a change was expected, but nothing had happened. In favour of the second alternative, all environmentalists, but also all those who have been forced to change their behaviour, have found advantages in it, a rediscovery of solidarity, of the local, of the fundamental, and have perhaps seen the uselessness of the superfluous. The importance of this alternative is that confinement can change society and daily life, but the habits are the ones we know. What will be the trend after confinement? The question is open.

Today, the world can still go back to the way it was in the twentieth century, or it can go back to the twenty-first century. This is certainly the interest of this epidemic!