Analysis of Distributed Photovoltaic Financing: A Case Study Approach of Crowd-funding with Photovoltaic Water Pumping System in Microgrids

Analysis of Distributed Photovoltaic Financing A Case Study Approach of Crowd funding with Photovoltaic Water Pumping System in Microgrids 1876 6102 © 2016 The Authors Published by Elsevier Ltd This i[.]

Available online at www.sciencedirect.com ScienceDirect Energy Procedia 103 (2016) 387 – 393 Applied Energy Symposium and Forum, REM2016: Renewable Energy Integration with Mini/Microgrid, 19-21 April 2016, Maldives Analysis of Distributed Photovoltaic Financing: A Case Study Approach of Crowd-funding with Photovoltaic Water Pumping System in Microgrids Chi Zhanga*, Pietro Elia Campanab, Jin Yanga,c, Jinyue Yana,b a School of Chemical Science and Engineering, Royal Institute of Technology, Teknikringen 42, Stockholm SE-100 44, Sweden b School of Business, Society and Engineering, Mälardalen University, SE-721 23 Västerås, Sweden c School of Humanities and Economic Management, China University of Geosciences, Beijing 100083, PR China Abstract Distributed photovoltaic (PV) system is playing an increasingly significant role in the fast growing global PV market, as a renewable power supply source In rural and remote areas, the integrated PV technology with remote micro-grid offers a potential solution for agriculture and small businesses to access to clean, reliable and efficient energy source As the cost of solar PV modules continues to show a downward tendency, the distributed PV systems with remote micro-grid are capable to meet growing energy demand with affordable price Meanwhile, a series of policies and actions have been enacted in China since 2013, to motivate the distributed-generation PV development as equal as large-scale PV development However, compared to coal-fired power plants or large-scale PV systems, a barrier exists in securing financing of distributed PV systems, which has high up-front costs and the risk of commercializing renewable energy initiatives Under current market incentives and barriers, this paper studies the existing financing methods in distributed PV systems with remote distributed micro-grids In comparison with other financing sources, a case study approach is employed with distributed PV water pumping system in China to introduce crowd-funding as a new source of financing in distributed PV systems Through the SWOT analysis, this paper identifies a capacity for new financial approach of crowd-funding with PVWP deployment The scenario is modelled for different stakeholders and organization forms that target social network interactions in crowd-funding, and the results provide insights for incentives and policy © 2016 The Authors Published by Elsevier Ltd This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) © 2016 The Authors Published by Elsevier Ltd Peer-review under responsibility the scientific committee of the Applied Energy Symposium and Forum, Selection and/or peer-reviewof under responsibility of REM2016 REM2016: Renewable Energy Integration with Mini/Microgrid Keywords: PVWP, Financing mechanism, Crowd-funding, China *Corresponding author: Chi Zhang Tel.: +46-073-623-5627, E-mail address: chz@kth.se 1876-6102 © 2016 The Authors Published by Elsevier Ltd This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) Peer-review under responsibility of the scientific committee of the Applied Energy Symposium and Forum, REM2016: Renewable Energy Integration with Mini/Microgrid doi:10.1016/j.egypro.2016.11.304 388 Chi Zhang et al / Energy Procedia 103 (2016) 387 – 393 Introduction China leads the solar power development in Asia, in both capacity growth and the availability of a capable workforce in the solar power sector There are mainly two types of business models for Distributed Photovoltaic (DSPV) in China In host-owned business model, it is often the case that the host customers purchase the solar system by themselves, who install on their rooftops or other sites [1] The system owners use the power produced by the systems and may sell the surplus power to the grid station then In China, this host-owned model is the simplest type of PV business model and firstly processed by the eco-friendly household customers Differentiated with the host-owned model, the third-party ownership model transfers the ownership to financiers The host customers lease or sign the power purchase agreement (PPA) for the distributed PV system on the host customer’s roof or other sites [2] It is also the third party financier that is in charge of the installation, maintenance, and financing services Both models have certain markets in China right now The third-party ownership model is booming with new financial mechanism, but it also exists new risks rather than the host-owned model In our previous studies, we provide a solution for alfalfa production with photovoltaic water pumping (PVWP) system The PVWP system acts as an integrated system that utilizes PV panels to generate the power for irrigation equipment on the grassland or farmland The system improves grass coverage, forage and crop yields with the energy reductions [3], [4], [5], environmental co-benefits [6], [7] and climate mitigation of the grassland or farmland The economic performance of integrated PVWP system with alfalfa production has been evaluated under different incentives and schemes [8], [9], [10] The integrated PVWP system with alfalfa production for dairy farm has a short payback period with high IRR in the study [10] By introducing an innovative business model for integrated PVWP system, we create new sources of revenue with an extensive production line and benefits from incremental values in the integrated system with Alfalfa and dairy products [9], [10] However, with the development of the business model innovation of the integrated PVWP system, feasible financial mechanisms are required for implementation This paper is to investigate what financing mechanisms are used so far in DSPV industry and the major challenges they are facing in China What is the strength, weakness, threaten and opportunity for the crowd-funding mechanism in the scenario with integrated PVWP system in China? This study uses a PVWP pilot system in Inner Mongolia to generate realistic estimations of the performances Specifically, we will analyse how the crowd-funding financing mechanism interacts with key internal elements and external environments, such as policy and market regulations The structure of the paper is organized as follows: section is on the methodologies; section illustrates results and discussions; and, section summarizes the conclusions of this study Methodology In this study, the SWOT analysis is employed to evaluate the approach of crowd-funding financing mechanism in distributed PVWP in China We use the case of PVWP pilot operation and environmental conditions have collected at the Inner Mongolia station since 2010 [4], [5] By introducing the crowdfunding financing mechanism into the integrated PVWP system We build up the integrated PVWP fundraising model as Fig 1, and we identified potential strengths, weaknesses, opportunities and threats (SWOT) related to the diffusion of PV bottom-up initiatives in China In this scenario of integrated PVWP system with alfalfa and milk production, the main products are generated solar power, planted alfalfa grass and the extra milk produced by lactation cow fed by alfalfa The revenue comes from feed-in tariff of solar power, the sale of extra milk produced by alfalfa The cost includes PV panel and irrigation system, seed and land costs, and operation and maintenance As shown in Fig 1, dairy farm cooperated with PVWP system constructors and crowd-funding platform The third-party crowd-funding platform may help to the due diligence and eligibility assessment of investors It requires the investors as experienced investment institutions, enterprises, or high net worth individuals The minimum investment is 10, 000 RMB per share After raising funds from the platform, the third-party institute is commissioned to supervise the fund and pay to operate PVWP project Chi Zhang et al / Energy Procedia 103 (2016) 387 – 393 Fig Integrated PVWP Fundraising Model The completed PVWP project generating solar power for alfalfa products will be transferred to the dairy farm for extra milk production Then the dividends might be shared to the investors via the operator and managing team of the integrated PVWP system Results and Discussions In China, the existing financing mechanism of distributed PV systems mainly includes methods: conventional bank loan, local financing platform, PV industry funds, finance leasing, and internet financing 3.1 Conventional bank loan The bank loan from commercial banks and policy bank as China Development Bank (CDB) is the main resource of financing for distributed PV systems in China now From the government side, couples of support policies for distributed PV systems have been set by National Development and Reform Commission (NDRC), The Ministry of Finance (MOF), National Energy Administration (NEA), CDB since the second half-year of 2013 [11] The central government has been motivating the development of distributed PV systems in China However, on commercial banks aspects, the current credits system relies on the borrowers’ capital, credits, solvent capability The borrowers of distributed PV loans mainly consist of city residential users, rural peasant users and PV companies It constrains the commercial banks to approve the short-terms loans for those borrowers with unpredictable risks on returning when compared with the state-owned solar power station companies [12] 3.2 Local financing platforms Guided by the NEA and CDB, the local financing platform supposed to be established for the distributed PV projects One of the projects— the Sanshui PV pilot used is the local financing platform [13] The local financing platform intends to provide investment for DSPV in short span of time and less administrative requirements But in reality, the CDB requires the local government to provide financial guarantees for the loans of the platform As a consequence, the limited liability company has to require the shareholders of the company to provide financial guarantees in proportion to their shareholdings in the company This suggests that in financing mechanism innovation, breakthrough has not yet been made [14] 389 390 Chi Zhang et al / Energy Procedia 103 (2016) 387 – 393 3.3 Solar PV industry investment fund To promote the projects in the PV market share, Shanhai electric group company established the PV industry investment fund as limited partner (LP) with 100 million RMB in June 2016 [15] Zhongjin Guotai and Hanergy signed cooperation framework agreement for the PV investment fund with PV supply chain financial services, PV power station and distributed PV station in June 2016 Hanergy group company has invested in Sichuan, Guangdong, Hainan, Zhejiang, Shandong, Jiangsu for thin film solar cell equipment R&D manufacturing bases, whose total capacity has reached 3GW [16] The cases of PV investment funds are all cooperated with other LP or local governments, this financial mechanism jointly attains the investment for PV projects with leveraged assets The risks of the fund mechanism are its high financing cost may be larger than the income from the PV projects, leading to incurred losses 3.4 Lease financing The PV industry has a large demand for financing capital and a long-term payback period Since the difficult to get the convention bank loan, leasing mechanism is an innovative method to solve the financing problem for PV enterprises However, the lessee in leasing mechanism is required to have credibility and operation experiences [17] It is very rare for small companies or individuals to participate in this mechanism 3.5 Internet financing The first PV equity crowd-funding was operated by the United PV Group Limited in 2014 The project attracted 10 million RMB via the internet to participate the construction of the GW distributed PV power project in Qianhai, Shenzhen [18], [19] United PV cooperated with instituted partners CDB and crowd-funding platform zhongchou.cn [19] The third-party zhongchou.cn helped to the due diligence and eligibility assessment of investors The minimum investment is 100,000 RMB per share After raising funds from the platform, CDB was commissioned to supervise the fund and pay to distributed PV project constructor The completed PV project will be transferred to United PV, then the dividends might be shared to the investors via United PV [19] By evaluating the strengths, weaknesses, opportunities and threats, we conclude the results from internal to external of PVWP system with internet crowd-funding financing mechanism as the Tab.1 In the category of strengths, i.e positive internal factors, we note that with the crowd-funding mechanism, it is exceptionally accessible to investment in DSPV in short span of time and less administrative requirements Integrated PVWP system can be a financially attractive investment with a higher internal rate of return and shorter payback period than other PV system investments The internal rate of return is 38% and the payback period is 3.8 years [10] Furthermore, the PVWP system benefits environment with participation from local investors, local governments and communities Since PVWP system have high potential of carbon emission reductions combining both fossil fuels replacement and carbon sequestration (PVWP system can reduce up to 7.4 tonne CO2/year when combined for irrigation of degraded grassland and renewable power generation [7] As regards the weaknesses aspects, it costs a lot of efforts to deal with the administrative and communication issues with stakeholders, including financiers, third-party supervisors and system operators Besides, there is the concern for fraud of internet crowd-funding, increasing doubts of the financiers The investment of PV system is rather new to the energy market When considering a new PV business model, the risks and uncertainty of investments are increasing Chi Zhang et al / Energy Procedia 103 (2016) 387 – 393 Tab Overview of SWOT factors Internal Strengthens Weakness Exceptionally accessible to investment in DSPV in short span of time and less administrative requirements Administrative and communication costs Financially attractive investment for participants with reducing payback period and increasing IRR Environmental benefits for local investments participation in renewables from the business sector and local governments and communities External  Opportunities Concern for fraud The risky nature of innovative businesses model and PV Threaten Better informative and eco-awareness society Less regulatory from financiers Positive incentives for developing DSPV and crowdfunding from central government Legal restrictions uncertainties for internet crowd-funding A niche investment opportunity / way to raise capital with less overlap conventional financing methods Trustworthy and legitimate uncertainty of crowd-funding platform In the category of opportunities, the crowd-funding financing mechanism has the synergy with better informative and eco-awareness society The government and media frequently emphasize the importance of renewable energy Published policies and incentives motivate more and more participations and investments in DSPV And the investments in eco-business earn a positive image and gain significance of social responsibility for investors By using crowd-funding financing, it provides a niche to attract a number of individual investors with a small amount of inflows, while at the same time is not overlapped with conventional financing ways With threat aspects, the PVWP system provides an innovative business model of PV industry, a few questions appear in administrative and regulatory parts As the individual financier in crowd-funding with rather small amount of investment via internet, it is hard to the due diligence as other conventional financiers The uncertainties of trustworthy and legitimate also remain upon the crowd-funding platform Furthermore, there are legal restriction uncertainties related to the internet equity crowd-funding It may have negative implications for stakeholders, especially when the government punished a series internet financing platform such as P2P in recent years [21] Conclusions Business models and financing mechanisms have different influences on the economic performance of DSPV systems in China PVWP can stimulate the increase of revenue on ecological-friendly products and active participations of investments The added value of integrated PVWP system is measurable and profitable with milk production and alfalfa sale in crowd-funding By SWTO analysis, it indicates rather optimistic external and internal environment regarding the crowd-funding mechanism in PVWP system with alfalfa and milk products With the development of legal and regulatory system in internet crowdfunding platform, the drawback pressure may be released in the future Acknowledgements One of the authors, Chi Zhang, would like to thank the China Scholarship Council (CSC) and KTH-Royal Institute of Technology, Sweden, for their financial support Previous studies on photovoltaic water pumping were supported by the Asian Development Bank, Swedish International development Agency (SIDA), and The Swedish Agency for Economic and Regional Growth (Swedish: Tillväxtverket) This 391 392 Chi Zhang et al / Energy Procedia 103 (2016) 387 – 393 work has also received funding from KKS Future Energy Profile and National High Technology Research and Development Program (863 programs) of China (No 2015AA050402) References [1] Zhang, F., Deng, H., Margolis, R., Su, J Analysis of distributed-generation photovoltaic deployment, installation time and cost, market barriers, and policies in China, Energy Policy, Volume 81, June 2015, Pages 43-55, ISSN 0301-4215, [2] Reinsberger, K., Brudermann, T., Hatzl, S., Fleiß, E., Posch, A Photovoltaic diffusion from the bottom-up: Analytical investigation of critical factors, Applied Energy, Volume 159, December 2015, Pages 178-187, ISSN 0306-2619, [3] Campana, P.E., Li, H., Yan, J Dynamic Modelling of a PV pumping system with special consideration on water demand‫ۅ‬, Applied Energy 112 (2013) 635–645 [4] Campana, P.E., Li, H., Yan, J Techno-economic feasibility of the irrigation system for the grassland and farmland conservation in China: Photovoltaic vs wind power water pumping, Energy Conversion and Management, Volume 103, October 2015, Pages 311-320, ISSN 0196-8904, [5] Campana, P.E., Li, H., Zhang, J., Zhang, R., Liu, J., Yan, J “Economic optimization of photovoltaic water pumping systems for irrigation”, Energy Conversion and Management, vol 95, p 32–41, 2015 [6] Yang, J., Olsson, A., Yan, J., Chen B A Hybrid Life-cycle Assessment of CO2 Emissions of a PV Water Pumping System in China Original Research Article Energy Procedia, Volume 61, 2014, Pages 2871-2875 [7] Olsson, A., Campana, P.E., Lind, M., Yan, J Potential for carbon sequestration and mitigation of climate change by irrigation of grasslands, Applied Energy, Volume 136, 31 December 2014, Pages 1145-1154, ISSN 0306-2619 [8] Campana, P.E., Olsson, A., Zhang, C., Berretta, S., Li, H., Yan, J “On-grid photovoltaic water pumping systems for agricultural purposes: comparison of the potential benefits under three different incentive schemes”, Proceedings of the 13th World Renewable Energy Congress (WREC XIII), August 3–8, 2014, London, United Kingdom [9] Zhang, C., Yan, J Business Model Innovation on the Photovoltaic Water Pumping Systems for Grassland and Farmland Conservation in China, Energy Procedia, Volume 61, 2014, Pages 1483-1486, ISSN 1876-6102, [10] Zhang, C., Campana, P.E., Yang, J., Yan, J Economic Performance of Photovoltaic Water Pumping Systems with Business Model Innovation in China, Energy Conversion and Management (Manuscript) 6-17 [11] National Survey Report of PV Power Applications in China 2013 National Energy Administration http://zfxxgk.nea.gov.cn/auto87/201512/t20151225_2074.htm (Access Date 2016/06/03) [12] Details of 14 Domestic Bank Loans for PV industry http://solar.ofweek.com/2016-07/ART-260009-12008-30011700.html (Access Date 2016/07/28) [13] F Li, Studies on Investment and Financing Mechanism that Support the Development of China's Distributed Solar PV Industry China Renewable Energy Association http://www.cnrec.org.cn/go/AttachmentDownload.aspx?id=%7Bef33a08e-73fe-4613b2b0-99f22e6fbde3%7D (Access Date 2016/06/08) [14] F Lv, H Xu and S Wang, 2014 National Survey Report of PV Power Applications in China 2013 PV Power System Program, International Energy Agency [15] Shanghai Electric Published the PV Industry Investment Fund http://www.semi.org.cn/pv/news_show.aspx?ID=18070&classid=12 (Access Date 2016/06/15) [16] Zhongjin Guotai & Hanergy Establish PV Investment Fund for Distributed PV Power Station Projects http://www.chinazjgt.com/news_show.php?id=HxJkHxJk6E4A57 (Access Date 2016/06/15) [17] Financing Leasing Research Center http://www.01leasing.com/data/index_3.htm (Access Date 2016/06/27) [18] S Zhang Innovative business models and financing mechanisms for distributed solar PV (DSPV) deployment in China Energy Policy Jan 2016 Chi Zhang et al / Energy Procedia 103 (2016) 387 – 393 [19] United PV& China Financial Leasing Signed 10 billion RMB Intentional Financing Leasing Strategic Agreement http://www.cmnechina.com/index.php/artview-84-16.html (Access Date 2016/06/17) [20] China Economic Net http://www.cmnechina.com/en/index.php/artview-215-17.html (Access Date 2016/06/27) [21] P2P financing frued http://news.sohu.com/s2016/dianji-1878/index.shtml Biography Chi Zhang, M.Sc in Climate Economics, is currently pursuing a Ph.D in the topic of PV irrigation system of grasslands and farmland in China at Royal Institute of Technology – KTH, in Stockholm, Sweden 393 ... products and active participations of investments The added value of integrated PVWP system is measurable and profitable with milk production and alfalfa sale in crowd-funding By SWTO analysis, it indicates... DSPV in short span of time and less administrative requirements Administrative and communication costs Financially attractive investment for participants with reducing payback period and increasing... mechanism of distributed PV systems mainly includes methods: conventional bank loan, local financing platform, PV industry funds, finance leasing, and internet financing 3.1 Conventional bank loan