When the world began experiencing explosive growth in renewable-energy generation after the turn of the millennium, few would have been actively thinking about what to do with these assets at the end of their lifetimes. After all, that scenario was 20, 30 – or in more optimistic cases – 40 years into the future. Yet, for many asset owners today, that challenge has arrived.
Trade body WindEurope estimates anywhere between 4.7GW and 7.3GW of repowering projects in the next five years across the continent. While up to 30 percent of wind farms in the US – approximately 25GW – could be subject to repowering works through to 2020, according to Bloomberg New Energy Finance.
While the picture is more subjective for solar assets, what is clear is mature renewable-energy markets are reaching significant junctures as asset managers begin exploring the next steps for ageing assets.
Repowering presents new challenges, though, since it is essentially a greenfield investment in a brownfield world, posing significant construction, financial and regulatory questions.
The US has recognised this and, when extending the Production Tax Credits system at the tail end of 2015, it implemented an incentivisation clause, encouraging owners to repower projects and enabling newly fitted turbines to benefit from a further 10 years of tax credits.
In Europe however, only Italy has an incentives-based programme for repowering.
Of course, other options remain for asset owners. Decommissioning at the end of useful life has been performed to a limited extent, with 640MW of wind decommissioned in Europe in 2017 and 43MW in the US. Or assets could continue running as they are, if owners see little reason in performance to change.
If not now, when?
Yet the mantra of ‘if it ain’t broke, don’t fix it’ will struggle to stack up in this instance. The technological changes in the levels of power generated by turbines or panels today and onwards is vastly different from when these assets were built. For some, then, the question is more about when to take this opportunity.
“There are solar panels now more efficient than those manufactured 10 years ago, and their costs are so much lower,” says Aldo Beolchini, chief financial officer of solar fund manager NextEnergy Capital. “Before, we were at a point where it did not make sense to replace panels. We are now at a point with the costs of the technology where it starts to make sense financially. We would not necessarily do it now, but [panels] are getting cheaper and cheaper, while the old panels will continue to lose some of their efficiency.”
For NextEnergy, focused on UK and Italian solar assets, the wait-and-see approach is a perfectly satisfactory one to take, especially given that, over the course of its lifetime, a solar park only loses 20 percent of its efficiency, according to Beolchini.
Across the Atlantic, however, repowering certainly represents part of the future, but much more of the nearer-term future than the medium- and long-term horizons of those in Europe. While the PTC extension incentivises repowering, it does so within a fast-closing window, with the tax-credit system for wind set to expire in 2020.
“Repowering in the US involves reloading the project with PTC and there’s a certain narrow sector of the market where that works well,” explains John Breckenridge, managing director and head of Capital Dynamics’ clean energy infrastructure team. “If you have a nine- or 10-year-old project that used all its tax credits, you could then requalify for 10 years of PTCs. That’s what fundamentally drives the repowering.”
So, is it realistic to repower a US wind farm post-2020 within the current regulatory framework?
“Absolutely not,” responds Breckenridge. “Once the PTC expires, this will no longer be a short term opportunity. There is a very big market for renewables right now but repowering is not a large part of that market. The economics don’t make sense for a five-year-old project. It has to be an eight to 10-year-old project and will only last as long as the PTC is around.”
However, Breckenridge refuses to rule out an opportunity arising further down the line. “Ten years in the future, with wind projects 25 or 30 years old, then it’s a different market. At that point, I expect you’ll replace it with something new. But that market hasn’t come over the horizon yet.”
As emphasised by Beolchini, the repowering prospect in Europe is less time-constrained but rests on several factors.
“We are going to need increasing volumes of renewable energy and therefore there’s a logical path to say current sites with their good weather resource, grid connections, history and so on will get repowered, both from a point of view of economics and energy supply,” adds Richard Crawford, director of infrastructure at Infrared Capital Partners, owner of the listed TRIG fund, which manages assets in the UK, France and Ireland, with northern Europe also being monitored.
Beolchini agrees, providing an additional reason to see repowerings as a significant part of the renewables future. “We built solar plants on disused airfields,” he says. “Do we think in 25 years the local authority is going to take the panels out and bring it back to the state of a disused airfield? You can start to see there’s a case for asset-life extension at some point. Is it 20, 25 years or is it longer?”
Crawford adds: “There are lots of reasons to believe there will be repowering, but articulating precisely how is more important to appreciate.”
Back to beginnings
The “how” differs depending on the asset, manager and country. It may also bring back fond – or less fond – memories of the beginning of the asset.
“Various things need to come together to achieve a repowering,” explains Crawford. “You need the planning permission. In some countries, it isn’t time limited; in some it is. Even if it isn’t, if your repowering requires a different footprint or different turbine height – and very likely it will – you’ll need to redo the planning.”
However, one of the crucial components in building a greenfield renewables asset – obtaining a grid connection – is already present in a project set for repowering, one of several factors helpful to potential lenders to such a site.
“Energy forecasts are likely to be more accurate for repowering because you have actual real production data for a number of years,” points out Alejandro Ciruelos, head of project and infrastructure finance at Santander. “Will a bank prefer to finance a new-build asset or a repowering asset? Probably a repowering asset, because there are more known factors.”
Yet Ciruelos emphasises that if a developer were to put a repowering as part of its base case when initially building an asset, this would represent a red line. “We will not finance an asset with an upside based on repowering,” he states. “The project finance senior debt market is still very centred on sensitive cashflows.”
TRIG has several wind assets in its portfolio commissioned in the earlier part of the 2000s, where decisions on the next steps will form part of the near- to medium-term future.
“We would in each case review both the prospect to extend the economic life of the exiting plant and the prospect for repowering and judge the economics accordingly. Repowering will involve more investment, so maximising the economic life may come first,” says Crawford.
Those looking at repowering also need to consider original planning permission and grid connection rights allocated for a specific amount of power.
“There are no consent issues for replacing solar panels with new panels without trying to change the appearance of the site,” Beolchini adds. “[But] you cannot put panels that generate too much more electricity because then you might exceed the capacity to inject electricity into the grid.”
A different outlook
Beolchini also believes the growth of the renewables market has presented a different outlook on repowering from that originally imagined.
“This is starting to be considered in a different way now there’s a healthy secondary market for these assets,” he outlines. “There is also strategic evidence if you’re looking at evergreen funds, you run a portfolio of assets and the plan is to defend the line of these assets, to make them work on a perpetual basis.”
This factor takes on extra importance for those projects seeing their subsidy regimes expire.
“In the future, if costs continue to come down, repowering of large solar projects might make sense but utility-scale solar in the US is really only a few years old,” says Breckenridge. “That’s pretty far out in the future.”
More immediate markets for growth are likely to be Spain and Germany, according to Ciruelos. “I think it could be significant,” he states. “There’s a lot of new-build assets just going through on an unsubsidised framework. Repowering is a natural extension to that.”