Building your own grid-connected solar farm under an EPC contract

In a previous blog post, we analysed eight ways to reach 100% renewable electricity, looking at various buy and build options. In this blog post, we will shed more light on the EPC (build) options.

The volatility of wholesale electricity prices in recent years had many organisations consider building their own mid-scale solar farm to mitigate this risk. Also, installing solar PV on facilities can have an upper limit due to available roof size or suitability, so some organisations are considering building one big solar farm instead that can supply them with renewable electricity.

What is a mid-scale solar farm?

There is no official definition of the size of such a system, but it typically ranges between 0.5 MW and 10 MW (as opposed to utility-scale systems, which are much larger). Mid-scale systems usually connect to the distribution rather than the transmission network, which makes them cheaper to implement than utility-scale plants. They are NOT serving any behind-the-meter loads.

How can you build your own mid-scale solar farm?

You will need to invest capital and directly or indirectly manage the construction of a renewable energy asset, typically through an Engineer, Procure, Construct (EPC) Contract. Given that you are constructing a new generation asset, your contractual arrangements must cover site preparation, approvals, construction and maintenance.

Upon commissioning or after an agreed period of operation the ownership of the plant is transferred to you. At this stage, you take on the management and risk of the ongoing performance. Your greatest interest will be the technical aspects of your solar farm.

Using the electricity from your solar farm to offset your energy consumption

When you install solar PV behind your meter, every kWh that your system produces displaces energy consumption from the grid. There is no need to ‘sell’ the produced energy to yourself. The situation is different when you run a grid-connected solar farm that does not serve any behind-the-meter load and instead is connected to the grid. If your renewable energy project is in front of the meter, you must sell the generated electricity into the market, like any other generator.

Under National Energy Market (NEM) rules, all energy projects must have a retailer to sell the energy to the market. The retailer will balance your load when your renewable energy plant is not generating or not generating at full capacity and will provide other risk management services for you.

Classification of solar farms under AEMO rules

Under Australian Energy Market Operator (AEMO) rules, your solar farm will likely be classified as either exempt, non-scheduled, or semi-scheduled depending on the extent to which it will be participating in central dispatch.

  • Exempt – Plant size is less than 5 MW
  • Scheduled – The generating unit participates in central dispatch. Plant size is greater than 30 MW.
  • Non-Scheduled – The generating unit does not participate in central dispatch. Between 5 MW and 30 MW if some or all energy is sold in the NEM. Less than 30 MW if energy output is purchased by a local retailer or a customer located at the same connection point. However, ‘local use’ means that no more than 50% of the electricity supplied can be exported to the network.
  • Semi-Scheduled – The generating unit will participate in central dispatch in specified circumstances. Greater than 30 MW. However, AEMO can – at its discretion – classify the renewable energy plant as a scheduled generator.
Types of energy generators under AEMO rules
Types of energy generators under AEMO rules

Common ways to sell renewable electricity from your solar farm

Given that you need to sell the electricity into the market, it is worthwhile investigating different ways you can do this. In this blog post, we will focus on the most likely models, being a fixed price and spot market EPC.

EPC and sell fixed-price offtake

Under this model, you undertake an EPC construction agreement and sell the generation at an agreed fixed price per MWh (typically at a discount to market) to an offtaker. The offtaker can be a third party or your own organisation if you wish to balance your energy consumption with the renewable energy generation from your solar farm. As per NEM rules, a retailer needs to pass through or ‘sleeve’ this agreement.

Depending on your objectives, you can sell or purchase the Large-Scale Generation Certificates (LGCs) from your solar farm. For implications of selling or retiring the LGCs, please read our blog post on What you need to know about accounting for LGCs.

If your solar farm is bigger than 5 MW AC, your project will likely need to be registered as a semi-scheduled generator with AEMO. This means that AEMO can curtail your energy output or ask you to stop generating when there is network congestion (see picture at the top of this blog post). This won’t be the case if your project is smaller than 5 MW – you will receive an automatic exemption from AEMO.

EPC and receive spot market revenue

Under this model, you will register your solar farm as a generator which will likely be a semi-scheduled market generator (less than 30 MW generation) market participant under AEMO rules. Your renewable energy generation will be sent to the market via an export meter, and you will receive spot market revenue from AEMO.

Like with the option above, AEMO may curtail your energy output, which will affect the business case of your solar farm (unless your solar farm is smaller than 5 MW in size).

Should you build your own solar farm?

Building your own solar farm is a long-term investment that requires management of the construction process with significant up-front costs before any benefit can be realised. In addition, the underlying technology costs are on a downward trajectory which reduces your asset value over time.

However, if you have access to cheap, suitable land and if your cost of capital is low, this will improve your business case. Adding a shadow carbon price into your business case further improves it.

Your benefits depend on what price you can sell (and purchase) your generated electricity for, whether you will sell your LGCs which will generate additional income and the difference between this and your regular grid cost for electricity. Each situation is different, and if you are interested in evaluating your options further, you should consider asking specialists like 100% Renewables for help – please contact Barbara or Patrick.

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