NrgEdge interviews Sam who is the founder of Solar Horizon with its aim to harness Singapore’s solar potential. A passionate advocate of solar energy, Sam is considered among the top Solar PV leasing experts in Singapore.
1. Can you tell us about how Solar Horizon came about and the process of creating the team?
I’ve been in the solar industry for about 8 years, I started out at SolarWorld, the German panel manufacturer handling the Indian market for large scale power plants. A few years into the journey, I felt that the supply models were without any value-add in an extremely price competitive market such as India and general Asia – it was a losers’ business module. We had to really look at innovative channels to market. In those days, between 2012 – 2013, the solar leasing model in the US was growing, such as the solar city that was built by Elon Musk. When we looked at that, we thought, why can’t we do that here in Asia? Initially when I was with SolarWorld, I developed a business model with the sole intention of selling the panels as part of the business strategy and to create investment opportunities for the company. We managed to get a few projects in place but SolarWorld’s appetite was only in the business of selling modules and they were not interested in investing. I thought this was not going to work, because if suppliers wanted to create long term value-add and were not willing to budge on price, then this would not be a feasible long-term business model. If you look at today where the biggest solar companies are at, including SolarWorld, I believe that became true.
After I decided to leave SolarWorld, I joined a small startup in India to do this business model. But about a year in, I realized that the Indian market is an extremely challenging market in terms of regulation and contract enforcement and it is controlled by the various “big boys”, the existing giants in the industry. For this business model to work, we needed to work in great parity market where we have a stronger reach, a better enforcement structure and since Singapore was home for me for the last 20 years, I thought it would be wise to come back to Singapore. In late 2013, Singapore’s power prices was quite high. And it was the first big boom of solar where the government announced the Solar Nova program and so on. We, along with many other new entrants rode along this wave.
I was looking for guys who could help me sell and market to get some deals. I initially tied up with Kyle and Saagar who were the two original partners. We set up Solar Horizon with a focus on smaller projects with a 1kWp range but we quickly recognized that we were quite strong in business and project development, so we began our first projects in Roha, Kapoor and FT Group. At that time, my current partner and current co-founder Andrew Zhang came on board to Solar Horizon. We were childhood friends for over 20 years, and he had been in Keppel for the past few years. He saw the company’s progress he was excited about the business model, so he came in as a full-fledged partner. Essentially from that point onwards, it was Andrew and myself as the main partners, with Kyle and Saagar as co-founder and support staff. Our team formed organically over time and we were a sort of band of brothers and entrepreneurs who came together for a common passion and dream. Over the years, the team has evolved, Andrew and I are the main partners and the rest of the team are spread out in the region. We have built a pretty lean organization, where Solar Horizon Singapore is the nucleus, and we have built an extensive ecosystem of partners, suppliers, Engineering, Procurement, and Construction (EPC) contractors, clients, investors, etc. So our team has grown from a small group of entrepreneurs to a large ecosystem of partners from different parts of Singapore. The team has expanded laterally, and we work with 6-7 consortiums.
2. Since Solar Horizon’s inception in 2014, do you see a significant boom in the Renewables energy workforce? What skillsets and qualities do you look for in a team member?
There has already been a boom and bust cycle – as it’s an emerging industry, it is quite nascent. I think that the second boom is starting now. There was a huge boom when the Singapore government was promoting solar and oil prices were very high and the power prices were high as well, therefore the attractiveness to the solar market was there. But when the oil prices crashed, Singapore’s wholesale Power crashed, and the economic attractiveness of solar was decimated over 3-4 months. It’s quite tough and a number of our colleagues in the industry are no longer around. And now, what’s happened is that the developers who are still in play, including us, should enjoy a pretty good upturn within the next 12-18 months.
There is a huge amount of people looking to get into the renewable energy industry. As a recently graduated startup who’s now moving into SME business, we look at a few different things: we look for those who are hungry and eager to learn, self-starters who don’t need to be constantly hand-held – as the project development business is quite entrepreneurial and there’s a lot of late hours and traveling involved. There’s not necessarily a “corporate structure” because project development is quite a volatile business. We also look for those with an entrepreneurial mindset and those who like to take initiatives. I don’t expect these young professionals to have a fully trained solar background but what we do expect is that they are willing to learn and put in the hours so that we can train them to do the financial modeling, build marketing proposals and contracts and so on. We operate a little differently because we’re the “underdogs” in the industry. We’re a group of entrepreneurs who are taking on the “big boys” so we look for people who can put on a good fight and take rejection well because we do hear a lot of “No’s” in the industry. Those who can grow stronger and be resilient are those who will be successful in their careers.
3. What has been your greatest achievement – personally and from the company’s perspective?
To be honest, it’s not about the megawatts that we’ve built or the deals that we’ve got – for me, I don’t believe numbers define success. My personal biggest success was my learning and growth over the last several years of having established Solar Horizon from essentially nothing. From a one-dollar company to a multi-million dollar business, the growth pains and the learning curves that we’ve endured – my single biggest achievement has been the resilience, growth and learning that we have held on in the tough times and being able to establish ourselves as a meaningful brand in the rooftop space in the region.
For the company, I think we have had a couple of successes – one of the biggest achievements is winning a 4MW project in the Philippines as part of our diversification strategy. We kind of went in there without knowing anybody and within a year and a half, we managed to secure and win this large contract which we later sold to one of the investors. Another achievement for the company is our ability to repeat in scale in the region. Having learned the hard way on how to make this business work correctly, and make bankable and sustainable projects where our clients, investors, partners and ourselves benefit – this has certainly been one of our defining hallmarks.
4. Would you say that your previous working experiences helped you in getting where you are today? Did the relationships and connections you formed in those early years help you?
Absolutely 150 percent. With my four years of working hard as a salesperson in SolarWorld and being able to attend a 10-day course at MIT in Boston in creating greentech ventures, all of that groundwork was instrumental in helping me set up Solar Horizon. I developed the expertise and knowledge in my formative years. If you’ve heard of the 10,000 hour rule (the principle coined by Malcolm Gladwell that holds 10,000 hours of "deliberate practice" are needed to become world-class in any field), I probably clocked in seven or eight thousand hours in the last several years. The network and relationships I formed during those years also helped in building my business. Another thing that really motivated me was when people said “No you can’t do it!” for going into project development business in the industry. Every “No” and rejection made us stronger and more determined which helped us in setting up Solar Horizon and being successful in the business.
How we manage relationships? We focus on win-win-win. That is our philosophy. We focus on building eco-systems that can run on autopilot. We don’t think that any single party can do it alone. Our strength is bringing in specialist players who are very good at their individual piece of the value chain, which creates an eco-system where everybody around it benefits. We are looking to create long-term partnerships that create value in harnessing energy in underutilized space sitting on our rooftops. We also focus on empathy – putting ourselves in our clients’ shoes. We have learned to create a more systematic customer journey. Finally, when you bring in a consortium together, 1 plus 1 has to equal greater than 2 – this is where the value-add comes in. We pride ourselves on creating more value than the sum of parts, which is why our clients come to us.
5. In one of the talks you gave back in 2014, you mentioned the key risks in the industry which are 1) Technology risk, 2) Off-taker risk, and 3) Energy yield projection. Do you believe these risks still stand today, or are they any different? Can you elaborate?
Things have changed a lot since then. In any emerging industry, the rate of change is faster than others. Technology risk has now reduced significantly. Solar is now a proven technology and works in large scale. There have been installations that is working for almost 20 years and you can see its lifecycle. There’s been a huge efficiency in solar panels so you can put more power in the same space. And there has been a huge cost drop as the technology matures. With the low technology risk, it has affected the workmanship of panels. Since the solar industry has exploded, every Tom, Dick and Harry think they can easily go into business. I think quality control and EPC in installation is now a bigger risk than the actual technology.
On the other hand, off-taker risk has evolved but in the opposite direction. Previously, when Solar first boomed in Singapore, we were offering PPA to all kinds of clients without much KYC (Know Your Customer). What we learned is that most investors are not willing to take 20 years risk for anything more than double their company. Now we are more selective with our clients and focus more on the premium sector of the market such as MNC, corporate PPA, triple A-rated companies.
For the energy yield risk, this is tied to the first point. If you have a great panel but terrible EPC, your energy yield will be lower. Some of the players in the market are doing it “cookie cutter” style by integrating different contractors on different pieces of the value chain. When you do that, you improve your cost but you reduce your quality and therefore reduce your yield. At Solar Horizon, we have a different approach given that our business is to maximize and optimize rooftop space by generating the highest yield possible, we provide only high quality offering. We do not go for “mainstream”, quasi-branded products and we offer very high Performance Ratio (PR) guarantees and much higher yield guarantees than the market. By ensuring high quality control, by working with EPCs which we have long-term relationships, then we are able to offer a higher energy yield guarantee.
6. As Singapore is restricted in terms of space and land, how else do you think solar panels can be installed in the city? There are some studies being conducted to ‘hang’ the panels as well as installation on water surfaces such as the pilot test of 10 floating PV systems at Tengeh Reservoir.
There are a few points I’d like to raise. 1) There is actually a lot more rooftop space in Singapore than people imagined. We do have potential of over 1GW of installed capacity. And 2) companies are driven dollars and cents. I find that most companies will not take on solar unless it has an immediate economic benefit. With that in mind, hanging solar panels is not going to be efficient as you’ll only get half of the sunlight yield. In addition, the installation costs will be frightfully expensive and the technology put on the buildings will have much lower efficiency. And lastly 3) floating installation actually makes sense, from a theoretical perspective. However, the cost of installation is at least 50% higher than installing on a rooftop.
So these things may sound and look nice, but it is not practical. It’s more of a gimmick. What we at Solar Horizon think will work in Singapore is the mobilization of the electricity market and offsite PPA (Power Purchase Agreement) model where you generate power in Point X and pump it through the grid and sell it to a client in Point Y. For the next few years, I believe the rooftop installation of solar panels to supply energy directly to the customer, exporting the excess through the grid, perhaps having a bilateral contract to export elsewhere – these should work to sustain Singapore.
7. One of the key technical challenges of solar is the intermittency of electricity production. To address this, we need reliable and cheaper battery solutions that can be well integrated with solar systems. Do you a see gigafactory being built in Singapore or anywhere in Southeast Asia within the next decade?
Firstly, Singapore has 100% grid reliability. We actually have 13GW supply against the 6GW demand, which means we have 60% excess power in our grid supply system. There are very few rooftop systems that can supply more or all of the load to customers. I don’t believe that intermittency of solar power is an issue at all for Singapore.
Secondly, when you have such a massive over-capacity and low prices, why would you want batteries and go off the grid? We have such a good, robust system and we believe in working hand-in-hand with the grid. I don’t see us needing to build a gigafactory any time soon in Singapore.
Thirdly, when we’re talking about Southeast Asia, that’s where the market gets more interesting. We have done micro hybrid systems in the Maldives and we’re exploring larger scale in Philippines and Indonesia. In these markets where you may not have grid availability, then having a mixture of solar, diesel and storage makes a lot of sense. You can have continuous power on micro grid systems. As the price of storage increasingly lowers, for us, we have one very keen eye on it, we are monitoring the development and particularly the cost of technological advancements – we see that it will be appropriate for smaller systems initially in more flat land areas such as resorts in the Maldives, off-grid islands in Indonesia, etc. But in terms of a gigafactory, I don’t see that happening in SEA anytime soon because there is already a lack of raw materials and the big players like Tesla is already monopolizing the supply. I think it is an important development and can be useful for smaller systems in remote areas in the region. But it may take 4-5 years until there is enough demand to build one.
8. What major changes or developments do you foresee in the industry in the next 10 years?
I think the solar industry’s strategy will evolve in a more dynamic way in Singapore. I think Singapore will be more focused on integration of solar energy with blockchain, or integration of solar with offsite PPA, or bundling with retail offerings. I see solar integrating in a wider energy strategy, being hand in hand with energy efficiency, urban farming, etc. Singapore will be a showcase platform for regulatory advancement, technological innovation, testbeds and R&D. It is important that we in Singapore set an example to the region and export our expertise and knowledge.
9. How soon do you think that renewable energy industry will replace fossil fuels as the main energy source to power the economies in this region?
As the price of solar is currently so low (1.77 cents per kilowatt-hour), it is a no brainer for solar and renewables. If you look at the state arms at Norway, they are looking to divest $30 billion in fossil fuel shares and holdings. So the move is already starting. Over the next 20 years, renewable energy will become the dominant force. However there are technical and regulatory challenges. The utility players have spent billions over decades putting up the infrastructure and transmission lines on which they have made windfall profits because of their monopolies. When distributed generated energy is growing, that means that people will no longer need to depend on the central grid. When you introduce the blockchain, you no longer need the grid to account and transact which is a game-changer. So the revolution of energy will be digital, distributed and it will be smart. A company such as Solar Horizon who are lean, innovative and creative, are staying at the forefront by making sure that a number of our projects can accommodate the integration of technology, blockchain and energy efficiency. So when the industry explodes in that direction, we’ll be ready for it.
10. For an entrepreneur who is considering a business in Solar industry, what advice or tips can you provide him/her?
Figure out your niche and what you’re good at doing. Find out what kind of resources you have access to. If you want to go into large scale power plant development and construction, you’ll need a lot of capital. If you want to enter the solar operation and maintenance spaces and offer services, you need good engineers on board. Think about business model innovation – not every startup has to invent a new technology or invention, you can be creative and innovative. Talk to a lot of people to get a lot of ideas. Try to do something that has not been done or if it has been done, figure out how to make it different. Luck and timing are also important – get into the market at the right time.
11. Tell us more about Solar Horizon. What’s next in the pipeline for your company?
We’re going through a rebirth because it’s been a tough past year which shook us and our competitors. We almost got acquired early this year but we pulled out of the acquisition to maintain our independence, creativity and agility. What’s next for us? We are being very strategic and targeted, moving our focus away from mainstream to a niche, premium segment. We’re looking to repeat in scale a few key markets, and looking to stay focused on the PPA business but for now slowly but surely starting to put a concrete high on how we can integrate emerging technologies to make our offering more competitive. We are looking to scale the next 2-3 years and our project sizes are greatly expanding so this is the time for Solar Horizon to put into practice everything we’ve learned the hard way, to establish ourselves in a larger scale environment but still remaining niche and focused.
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Headline crude prices for the week beginning 18 March 2019 – Brent: US$67/b; WTI: US$58/b
Headlines of the week
Midstream & Downstream
Risk and reward – improving recovery rates versus exploration
A giant oil supply gap looms. If, as we expect, oil demand peaks at 110 million b/d in 2036, the inexorable decline of fields in production or under development today creates a yawning gap of 50 million b/d by the end of that decade.
How to fill it? It’s the preoccupation of the E&P sector. Harry Paton, Senior Analyst, Global Oil Supply, identifies the contribution from each of the traditional four sources.
1. Reserve growth
An additional 12 million b/d, or 24%, will come from fields already in production or under development. These additional reserves are typically the lowest risk and among the lowest cost, readily tied-in to export infrastructure already in place. Around 90% of these future volumes break even below US$60 per barrel.
2. pre-drill tight oil inventory and conventional pre-FID projects
They will bring another 12 million b/d to the party. That’s up on last year by 1.5 million b/d, reflecting the industry’s success in beefing up the hopper. Nearly all the increase is from the Permian Basin. Tight oil plays in North America now account for over two-thirds of the pre-FID cost curve, though extraction costs increase over time. Conventional oil plays are a smaller part of the pre-FID wedge at 4 million b/d. Brazil deep water is amongst the lowest cost resource anywhere, with breakevens eclipsing the best tight oil plays. Certain mature areas like the North Sea have succeeded in getting lower down the cost curve although volumes are small. Guyana, an emerging low-cost producer, shows how new conventional basins can change the curve.
3. Contingent resource
These existing discoveries could deliver 11 million b/d, or 22%, of future supply. This cohort forms the next generation of pre-FID developments, but each must overcome challenges to achieve commerciality.
Last, but not least, yet-to-find. We calculate new discoveries bring in 16 million b/d, the biggest share and almost one-third of future supply. The number is based on empirical analysis of past discovery rates, future assumptions for exploration spend and prospectivity.
Can yet-to-find deliver this much oil at reasonable cost? It looks more realistic today than in the recent past. Liquids reserves discovered that are potentially commercial was around 5 billion barrels in 2017 and again in 2018, close to the late 2030s ‘ask’. Moreover, exploration is creating value again, and we have argued consistently that more companies should be doing it.
But at the same time, it’s the high-risk option, and usually last in the merit order – exploration is the final top-up to meet demand. There’s a danger that new discoveries – higher cost ones at least – are squeezed out if demand’s not there or new, lower-cost supplies emerge. Tight oil’s rapid growth has disrupted the commercialisation of conventional discoveries this decade and is re-shaping future resource capture strategies.
To sustain portfolios, many companies have shifted away from exclusively relying on exploration to emphasising lower risk opportunities. These mostly revolve around commercialising existing reserves on the books, whether improving recovery rates from fields currently in production (reserves growth) or undeveloped discoveries (contingent resource).
Emerging technology may pose a greater threat to exploration in the future. Evolving technology has always played a central role in boosting expected reserves from known fields. What’s different in 2019 is that the industry is on the cusp of what might be a technological revolution. Advanced seismic imaging, data analytics, machine learning and artificial intelligence, the cloud and supercomputing will shine a light into sub-surface’s dark corners.
Combining these and other new applications to enhance recovery beyond tried-and-tested means could unlock more reserves from existing discoveries – and more quickly than we assume. Equinor is now aspiring to 60% from its operated fields in Norway. Volume-wise, most upside may be in the giant, older, onshore accumulations with low recovery factors (think ExxonMobil and Chevron’s latest Permian upgrades). In contrast, 21st century deepwater projects tend to start with high recovery factors.
If global recovery rates could be increased by a percentage or two from the average of around 30%, reserves growth might contribute another 5 to 6 million b/d in the 2030s. It’s just a scenario, and perhaps makes sweeping assumptions. But it’s one that should keep conventional explorers disciplined and focused only on the best new prospects.
Global oil supply through 2040
Things just keep getting more dire for Venezuela’s PDVSA – once a crown jewel among state energy firms, and now buried under debt and a government in crisis. With new American sanctions weighing down on its operations, PDVSA is buckling. For now, with the support of Russia, China and India, Venezuelan crude keeps flowing. But a ghost from the past has now come back to haunt it.
In 2007, Venezuela embarked on a resource nationalisation programme under then-President Hugo Chavez. It was the largest example of an oil nationalisation drive since Iraq in 1972 or when the government of Saudi Arabia bought out its American partners in ARAMCO back in 1980. The edict then was to have all foreign firms restructure their holdings in Venezuela to favour PDVSA with a majority. Total, Chevron, Statoil (now Equinor) and BP agreed; ExxonMobil and ConocoPhillips refused. Compensation was paid to ExxonMobil and ConocoPhillips, which was considered paltry. So the two American firms took PDVSA to international arbitration, seeking what they considered ‘just value’ for their erstwhile assets. In 2012, ExxonMobil was awarded some US$260 million in two arbitration awards. The dispute with ConocoPhillips took far longer.
In April 2018, the International Chamber of Commerce ruled in favour of ConocoPhillips, granting US$2.1 billion in recovery payments. Hemming and hawing on PDVSA’s part forced ConocoPhillips’ hand, and it began to seize control of terminals and cargo ships in the Caribbean operated by PDVSA or its American subsidiary Citgo. A tense standoff – where PDVSA’s carriers were ordered to return to national waters immediately – was resolved when PDVSA reached a payment agreement in August. As part of the deal, ConocoPhillips agreed to suspend any future disputes over the matter with PDVSA.
The key word being ‘future’. ConocoPhillips has an existing contractual arbitration – also at the ICC – relating to the separate Corocoro project. That decision is also expected to go towards the American firm. But more troubling is that a third dispute has just been settled by the International Centre for Settlement of Investment Disputes tribunal in favour of ConocoPhillips. This action was brought against the government of Venezuela for initiating the nationalisation process, and the ‘unlawful expropriation’ would require a US$8.7 billion payment. Though the action was brought against the government, its coffers are almost entirely stocked by sales of PDVSA crude, essentially placing further burden on an already beleaguered company. A similar action brought about by ExxonMobil resulted in a US$1.4 billion payout; however, that was overturned at the World Bank in 2017.
But it might not end there. The danger (at least on PDVSA’s part) is that these decisions will open up floodgates for any creditors seeking damages against Venezuela. And there are quite a few, including several smaller oil firms and players such as gold miner Crystallex, who is owed US$1.2 billion after the gold industry was nationalised in 2011. If the situation snowballs, there is a very tempting target for creditors to seize – Citgo, PDVSA’s crown jewel that operates downstream in the USA, which remains profitable. And that would be an even bigger disaster for PDVSA, even by current standards.
Infographic: Venezuela oil nationalisation dispute timeline