Key Performance (Risk) Indicators for Wind and Solar PV Projects


Compared to conventional energy technology such as gas, nuclear or coal, the cost of renewable technology historically generally was considered higher because of high capital cost and low capacity factors, which is why, for most places in the world, renewable technologies needed a subsidy over wholesale electricity prices in order to be developed. However, various reports demonstrate that the cost of renewable technologies, in particular solar photovoltaic, have declined significantly over the past five years and that these technologies are no longer cost outliers (especially compared to retail power prices). Compared to other infrastructure projects, renewable energy projects (in particular solar PV and wind projects) are characterized by a comparatively short construction period. Also construction risks are comparatively limited (wind and solar PV today are considered standardized technologies) and interface risks can be managed rather easily. However, industry size renewable energy projects are capital intensive as well so that their economics are driven in large part by the cost of capital. The other main driver in renewable energy projects is the location and the related capacity factor. Especially for wind projects, any such resource related risks can be objectively assessed by technical advisors through statistical analysis though (e.g. in contrast to commodity price volatility and traffic studies). For solar projects, the capacity factor is less of a risk because there is less variability for changes in irradiation and there is less fluctuation in the amount of power that comes from the sun. Other risks such as availability risks and maintenance risks can be properly managed in standardized operations and maintenance agreements.

Historically, especially for equity investors, retroactive changes to the support regimes for renewables have wiped out returns, when projects had to become merchant and had to (at least partially) orientate themselves to operating on the wholesale power market. We therefore consider overly optimistic off-take assumptions as another key risk factor for the success of renewable energy projects.