kWh Analytics launches tool to address optimistic pricing, underperformance in solar projects

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kWh Analytics is launching a new tool that it hopes will address the solar industry’s systemic overestimation bias and accelerate the adoption of a more data-driven approach to arriving at production estimates.

Finding a way to address and correct the industry-wide bias toward optimistic performance expectations is important because accurate production estimates are a key ingredient to the financeability and growth of the sector, Hao Shen, director and head of data products at kWh Analytics said.

On a weather-adjusted basis, solar assets underperformed their target production on average by 6.3% between 2016 and 2019, according to kWh’s 2020 Solar Generation Index report. A quarter of projects studied by kWh missed their production targets by more than 10%, after accounting for weather, it said.

Production estimates factor into the market valuation of a solar system and the financial models underpinning a solar power plant’s economics, but until now asset owners have not had access to data that could contextualize their portfolio’s performance, kWh said.

According to Shen, the use of market data to improve the financeability of an asset is an inevitable step in the maturation of the asset class, and kWh’s Solar Technology Asset Report (STAR) Comp took aims to address this gap for solar.

Using its STAR Comps, asset owners and investors can input their metadata and receive objective performance yield, weather and loss assumption metrics reports that show how a solar asset stacks up relative to a peer set of comparable industry systems, Shen said.

The solar industry needs these types of risk management tools now because its continued success depends on its ability to reliably deliver the results that it promises to investors, he added.

“The use of objective market data will force accuracy,” Jigar Shah, Generate Capital’s ‎cofounder and president said.

In June, kWh likened the solar industry’s bias towards overly optimistic pricing to the big three credit rating agencies’ pre-financial crisis, saying that the independent engineers that are hired by solar developers to give solar production estimates have an inherent profit motive for giving an aggressive projection. At that time, it said that investors need to take a step back and adjust to the reality that unreliable energy estimates have been baked into projections.

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