Case of Buying Operating Solar Plants in Nagano

Some agreements such as with local community, landlords not in documents

2019/05/02 17:38
Shinichi Kato, Nikkei BP Intelligence Group, CleanTech Labo

The "EBH Chino Stadium Power Plant," a mega- (large-scale) solar power plant with a solar panel capacity of about 1.33MW and a PV inverter rated capacity of 1.26MW, is located in Chino City, Nagano Prefecture, Japan (Fig. 1).

Fig. 1: EBH Chino Stadium Power Plant (source: EnBio HD)

As the plant's name represents, solar power generation facilities were set up on a former baseball stadium. Along with the stands for hundreds of spectators, the dugout built below ground level and the official room behind the backstop show the stadium was big enough for major local games (Fig. 2).

Fig. 2: Used to be full-fledged baseball stadium. Yatsugadake mountains can be seen (second photo from top) (source: Nikkei BP)

This baseball stadium was not a public facility, but a welfare facility of a leading precision equipment manufacturer based in the neighboring area. Next to the stadium is the company's dormitory for single employees, which is still being used.

The mega-solar plant was developed by renting the former stadium site. The initial power producer was a special purpose company (SPC) established by Next Energy & Resources Co Ltd (Komagane City, Nagano Prefecture) and started selling power in July 2016. One year later, ownership of the plant was transferred from Next Energy's SPC to EnBio Holdings Inc (hereinafter EnBio HD). The plant was sold and acquired through the so-called "secondary market."

Around the same time, another solar power plant of Next Energy's SPC was also taken over by EnBio HD one year after the operation start in Ina City, Nagano Prefecture. This is the "EBH Ina Power Plant" with a solar panel capacity of about 436.8kW and a PV inverter capacity of 490kW (Fig. 3).

Fig. 3: EBH Ina Power Plant (source: EnBio HD)

Benefits of power plants with 1-year operation record

EnBio HD has developed and operated solar power plants in Japan by itself or through joint ventures with other companies (2MW Rooftop Solar Plant Adopts Panasonic 'HIT' Heterojunction Panels). Amid such circumstances, the company began to find it attractive to acquire solar power plants in operation after selling power for about one year. It was also beneficial to efficiently develop and operate solar power plants with a total output of 30MW, which EnBio HD aimed for in its mid-term business plan.

EnBio HD limited its target projects for acquisition to those in operation for about one year and that have a positive track record. Projects before starting operation have such risks as the lack of important requirements to meet during development.

Original developer Next Energy approached EnBio HD about taking over its projects in Chino City and Ina City almost one year after the plants had begun operation. As the plants had been operating just as long as EnBio HD was seeking, the companies reached an agreement, and both plants were transferred to EnBio HD.

According to EnBio HD, it had the sense of security in and trusted Next Energy through joint solar power plant developments. That also led to the acquisition of those power plants.

EnBio HD jointly developed with Next Energy mega-solar plants with a solar panel capacity of 2.3738MW in Kume-gun, Okayama Prefecture, and about 1.95MW in Urahorocho, Hokkaido. They began operation in September 2015 and February 2017, respectively (1.9MW Solar Plant in Hokkaido Generates Most Power in Winter).

EnBio HD also took over both of these power plants and became their sole owner by purchasing Next Energy's stakes after their operation began.

At the power plant in Urahorocho, Hokkaido, generated power is sold at 36 yen/kWh while solar panels manufactured by Upsolar Group Co Ltd of China and Wave Energy (Minato-ku, Tokyo) Inc's all-in-one product, which primarily integrates PV inverters and other related devices of Toshiba Mitsubishi-Electric Industrial Systems Corp (TMEIC), were adopted. The all-in-one product integrates current collectors, PV inverters, step-up transformers and other devices.

At the power plants in Chino City and Ina City, generated power is sold at 36 yen/kWh and 32 yen/kWh, while PV inverters manufactured by SMA Solar Technology AG of Germany and Wave Energy's all-in-one product, the same as the one used in Urahorocho, were adopted, respectively. Next Energy's solar panels (Fig. 4) are used at both plants.

Fig. 4: Next Energy's solar panels (source: Nikkei BP)

How to assess power plants

How did EnBio HD assess the power plants in Chino City and Ina City before acquiring them and appropriately take over their operation? First, the plants had to meet EnBio HD's requirement for 6% or more internal rate of return (IRR), just like at the power generation projects EnBio HD develops by itself. EnBio HD proposed an affordable price it calculated by assessing each plant and eventually reached an agreement.

In actual assessment, EnBio HD leveraged the data Next Energy collected by rigorously conducting due diligence (survey on the value and risks of an investment target) when developing the power plants (Fig. 5).

Fig. 5: Documents offered by Next Energy (source: Nikkei BP)

To be more specific, EnBio HD utilized, among others, the "soil contamination risk assessment," "power generation facility state assessment," "power generation amount assessment," "risk of earthquake assessment" and "opinions on profitability and profit continuity of infrastructure investment assets."

Although some mega-solar plants in Japan keep records on the state of operation after the operation start, only a few companies can smoothly and promptly submit a set of such records when negotiating the sale of a mega-solar plant. It is important to properly store such documents as well as the measures used to keep the records. This is because it will be difficult to smoothly provide the records when they are required, unless they have been strictly managed in advance in view of the plant's sale.

Benefits from O&M company remaining unchanged

It was beneficial for the landlords and the local areas that Next Energy continued operation and maintenance (O&M) services as before. Next Energy negotiated and coordinated agreements with landlords and the local areas when the power plant was developed.

Next Energy's familiarity with these circumstances and continuing to operate and maintain the plants leads to a sense of security since it would be less likely that agreements, common understandings or such would be broken. It would also be easier for EnBio HD to take over the operation while understanding and respecting the agreements with landlords and the local community.

For instance, how does each power plant accommodate local customs and rules? The power plant in Ina City has a lot of rules such as the area that the power plant side weeds and efforts to prevent cut grass from falling into and flowing down the nearby canal when weeding the site. It is also reportedly necessary to consider managing the plant in collaboration with the local community, weeding both around and inside the power plant almost at the same time to improve the landscape, for example (Fig. 6).

Fig. 6: Weeded in accordance with agreement with landlords, local conditions (source: EnBio HD)

In Chino City, cutting trees larger than a certain diameter is regulated by a municipal act. At the plant in Chino city, there are some areas where trees grow like weeds. Especially in those areas, EnBio HD cuts the trees before they have grown to the size regulated by the municipal act (Fig. 7).

Fig. 7: Area where trees easily grow (source: Nikkei BP)

According to EnBio HD, it also needs to confirm in advance many other important matters, which are not covered in due diligence and monthly reports, such as participation in local activities, membership fee for the neighborhood association, landlord successions, continuation of the power generation business after 20 years and landlords' understanding.

Facility overview