- What are the benefits of adding renewable energy for your company?
- How are such projects financed, and what is the payback for the firm?
- How complex are the procedures and regulations, and what are the timelines?
We want to launch a photovoltaic (PV) system to reduce the company's electricity bills. This is the simple way of describing one of the new goals of many Bulgarian businesses. In the wake of high electricity prices on the free market, the turbulence with natural gas deliveries and problems with the supply of key raw materials in recent months, many businesses are facing the difficult decision of whether and how to stay on the market, retain customers and peg production at pre-crisis levels.
One solution that more and more companies favor is the construction of solar plants for their own needs. The reasons are clear - the investment is cost-effective and relatively quick to implement, with the panels providing independence and security in the face of sharp market price fluctuations. It is not only companies in the manufacturing sector that are eyeing this alternative, but also those where electricity is not among their main costs.
Summary information on the number of companies, the investments they have made and the capacities implemented is currently not available. But the Agency for Sustainable Energy Development's register shows that dozens of solar installations with relatively small capacities have been introduced in the last year - a signal that these are for the self-consumption of various companies and not for selling the energy to the energy exchange.
It is also difficult to give specific figures for the payback of investment, as it depends on many factors - the capacity of the installation, the consumption profile, the consumption of the company itself, etc. It can be said that it varies from 2-3 to 6-7 years. After this period, the energy that is obtained from RES installation is practically almost free.
In the mass case, such systems cover up to 30 percent of the energy needs of the enterprise, but one of the big advantages of the PV systems is that they can be upgraded - both with additional panels and with batteries. Thus, as technology develops, renewables could become a major source of electricity catering to business needs.
It is not all roses, however. Regulations in Bulgaria have not yet been updated and there are currently lengthy procedures before solar panels can be put into operation. The high interest in such investments leads to a lack of available specialists for their construction and companies have to wait for months until their turn comes. Also, due to the coronavirus pandemic and disrupted supply chains, as well as Russia's war in Ukraine, commodity prices are increasing, and with that, the need for funds to build renewable energy plants is also becoming greater.
Rooftop solar is already here
Companies' interest in renewable energy for their own needs became massive after 1 July 2019. Then, corrections were adopted in the Energy Act, which abolished the payment of all grid fees and surcharges for electricity from new wind and solar power plants, which is delivered by direct cable to the consumer. This is precisely why panels are being installed on the roofs of halls, workshops, offices and shops. Meanwhile, the prices of the panels and inverters themselves have also fallen significantly - the money needed to build such capacity is now less than a tenth of what it was in 2010. This has effectively opened the door to new investment, which has been almost completely lacking in recent years.
In fact, the energy transformation that politicians mention a lot (but do little to actually promote nationally) is already quite tangible at corporate level. Hundreds of businesses across the country have turned to building PVs for their own use, which is relatively small, quick to implement and the opposite of capital intensive. But they provide real savings on energy costs and when this is multiplied, the effect becomes tangible.
As such projects take at least a year to implement, the first operational rooftop solar plants became a reality in late 2020. Factories such as those of ZMM in Sliven and Nova Zagora, the companies of the Stara Planina Hold group, Delta Textile - Bulgaria in Rousse, Treis Ipoma, METRO, Zagorka, Technopolis, Mr.Bricolage, Elhim Iskra, Interplast, and many more already have solar panels on their roofs, so reducing the need to purchase electricity from the grid.
Giants such as "Aurubis" are building an entire plant on their own territory near Pirdop - at the first stage with a capacity of 10 mW but expected to double later, sufficient to meet the needs of more than 22 thousand households.
In the economic zones near Plovdiv, Haskovo and Stara Zagora, there are plans for larger solar power plants to electrify several enterprises simultaneously. This is possible because the industries are relatively close to each other.
More than 200 new business-owned projects are expected to be implemented in 2022, but cumulatively they will have a huge impact on the country's energy sector. This is because any energy produced and consumed locally means a greatly reduced need for the centralized generation of the big thermal power stations, nuclear power stations etc. If, for example, a business manages to save even just 10 percent of its annual consumption, a plant like the state-owned Maritsa East 2 TPP will simply have no one to sell half of its energy to. This, combined with the large renewable energy projects that would displace the old generation on a purely market basis, means a completely different energy mix to the current one.
What the RES bills show
The economic viability of investing in a solar system for its own use depends mostly on how much energy a company consumes during the day. Certainly, at the current high electricity prices of around £350-400 per MWh, the return on investment comes much more quickly as the cost savings are significantly more.
Here is one example. If a company consumes 20 megawatts of electricity per month, at BGN 350 per MWh of average exchange electricity price, this amounts to BGN 7000. Separately, there are network charges, which are another BGN 55 per MWh, or in this case BGN 1100. On top of the whole amount VAT is charged - BGN 1620. Or roughly the bill would be BGN 9720 (this is without the subsidies that are now paid by the state).
With a photovoltaic plant that can replace 30% of the energy consumption, the bill for electricity will drop to BGN 6800. In a year this makes a saving of almost BGN 35,000.
But how much would it cost to build a solar system that would provide this effect? Calculations show that a 50 kW (0.05 MW) installation is needed to produce the 6 MW per month (30% of the 20 MW consumption). This is because, on average, solar panels operate 120 hours per month.
At current prices, building a 50 kW PV system would cost around BGN 50-60k, depending on the technologies used. Or, put it another way, the investment could be recouped in less than two years if, however, the current high prices for exchange electricity remain. It is expected that in the near future the cost of electricity will normalize to around BGN 200 per MWh, which would mean that the cost savings per year would fall from BGN 35k to BGN 22k. And, accordingly, the buy-back period of the investment will be extended.
This example would change significantly if the solar system covers 15% or 40% of the company's needs. Therefore, it is very important to prepare such a project that would serve the needs of the business most optimally. At least two main parameters should be analyzed - the hourly consumption and the possibilities of installing solar panels. The aim is to design the plant in such a way that as much of the energy produced as possible is consumed on site. If the available free space is small and filling it 100% will not satisfy the needs of the enterprise - the project is relatively easy. However, if there are very large areas of land that can be used, it is necessary to consider exactly how powerful the plant should be so that some of the panels do not have to be switched off at certain times or excess energy returned to the grid.
For now, it is absurd to think that renewable energy can completely replace electricity from the grid because batteries are still too expensive and inefficient. Projects that cover 5% to 40% of consumption are being massively developed. It is extremely rare that substitution up to 70-80% can be achieved.
All these calculations are made without the presence of batteries for energy storage. At this stage the inclusion of these increases the cost significantly, and very rarely can sufficient efficiency be achieved to compensate for this.
How about the price?
On average, it can be said that one kilowatt of installed solar power costs about BGN 1000. However, specific projects can range from 800 to 1300 BGN/kW. It depends on what panels are ordered. If they are of the newer models that can generate electricity on the reverse side, they are more expensive but also more efficient. Inverters are also important - for smaller plants, they are considerably cheaper, whereas larger ones need more professional and expensive equipment so that they can withstand the load. The supporting infrastructure is also important - if, for example, the solar is on a warehouse and the electricity is to supply a workshop 500 meters away, this would make the project significantly more expensive.
Most importantly, financial institutions are now seeing the benefits of such projects and are offering special loans for captive solar en masse. In addition, most companies involved in the construction of solar power plants offer leasing, rental or other repayment schemes.
One of the most popular principles is the "Long Term Lease Agreement". Under this scheme, the contracting company invests in the design and installation of its client's PV system and covers all the costs of operating the system. The electricity consumer provides only its land or roof area. A long-term lease agreement is signed for 10/15/20-years, where the rent is calculated based on the electricity consumed by the solar plant at an agreed fixed price, which is lower than the market price. This model distributes the economic benefits of the project between the two parties over time, with the possibility of acquiring ownership of the PV system after the investment is paid off.
Another option is a deferred payment of the investment. Typically, the contract period is 60 months, requiring a down payment of only 20% of the investment cost. The remaining amount is deferred over the term of the contract at a specified minimum appreciation. The aim is to achieve near parity between the monthly lease payment and the actual savings on electricity bills that can be achieved. Optimally, the savings may even be greater. After the payback period, the entire net effect of the electricity remains with the customer, as does the ownership of it.
The pure ESCO contract model is also possible - the investment is fully borne by the contractor, with a return on the savings made over a period of time in which the customer continues to pay according to their previous electricity bills.
Obstacles to rooftop solar
In order to put solar on the roof of an enterprise, warehouse or shop, a long bureaucratic process with many pitfalls still has to be negotiated. The Energy Act and Renewable Energy Acts, the Grid Connection Ordinance and other regulations do not distinguish whether the plant will be used entirely for self-consumption, such as a diesel generator, or whether it will sell electricity like a nuclear power plant. This is a big problem for investors.
Currently, the procedure, excluding construction, for company projects takes 12 to 18 months - time in which companies can realize savings to invest in improving the quality of production or hiring additional staff, for example.
The good news is that this year Bulgaria has to transpose the provisions of the European Renewable Energy Directive, which should make it much easier to build self-generation systems. And the creaking state administration is now a little better equipped to deal with renewable energy business projects and no longer views them as exotic and incomprehensible.
Facts and figuresFrom 2019 to the end of March 2022, the applications received by the national Electricity system operator for the construction of new RES were for nearly 19k MW of installed capacity.
Only from the beginning of 2022 to the end of March, 503 other applications have been received from distribution companies for new RES with a total installed capacity of 718 MW and 54 applications for direct connection to ESO's grid with a total capacity of 3991 MW.
Twenty preliminary contracts for direct connection of new RES plants with a total installed capacity of 528 MW were signed. There were 143 preliminary contracts with distribution companies for the three months with a total installed capacity of 1833 MW. The final contracts signed with the distribution companies numbered 15 and had a total installed capacity of 29 MW.