Renewable Energy Project Development, 'One-Stop-Shop' and Digitization: A Conceptual Product

In the framework of the 2015 Paris Agreement that has been signed (or ratified) by around 191 countries, leaders are implementing policies to contribute to the attainment of the agreed objectives (UNFCCC 2016). Renewable Energy is one of the main pillars of mitigation of climate change, it represents around 300 Bio USD of investment p.a. (UNEP & BloombergNEF 2020). This is essentially because energy is the sector that creates the largest part of Co2 emissions with 31 Mio tons (IEA 2018) and any mitigation measure has a positive impact (i.e. emissions reduction). Leaders and policymakers need to establish efficient policies in order to foster renewable energy infrastructure deployment, as per their commitment to the global agreement. Given the capital-intensive nature of infrastructure, one of the key aspects of these policies is putting the right market and political conditions to attract foreign investments. Yet, renewable energy policies around the around had up and downs, and low and medium income countries in particular have been struggling to attract investors. One major barrier: bureaucracy, commonly referred to as 'red tape'. The latter is often due to the strict binding to administrative rules (Weber, 1922).

Executive Summary

Governments have been intending to tackle the Bureaucracy Issue by implementing the so-called 'One-Stop-Shop' for the project permitting process. The objective of these unique desks is to allow the promotor to file his license request in a single administrative place, which then would handle it internally with all relevant authorities, up to final response (granting or not the permit or license), and by doing so, reduce inefficient interfaces.

The product, subject to this conceptual reflection, is an IT-based platform designed to be the single source of permitting processes for new renewable energy (RE) projects in jurisdictions that would acquire the product. Its purpose is to speed up permitting processes and reduces costs of said processes in a secured and transparent way (e.g. citizens can access certain data). The cost reduction will also benefit the jurisdiction (product's customer) in that sense that investors will tend to choose countries, where they quickly and for a limited costs, would be able to develop their RE projects. This cost optimization would also benefit the end-users since the development costs would be reduced (a small development team could easily cost 1 Mio USD per year to the Sponsor, excluding studies costs) and thus the LCoE as well and ultimately the tariff per kWh paid. Given the multi-million value of each project, the benefits of the product, although difficult to quantify, surpass the costs of implementing the product, after only the implementation of a couple of permitting processes.

Problem Description

Despite the significant progress made in the last decades, bureaucracy in public administration remains an important hurdle to foreign investment (Whincop et al. 2003). In general, but also in the development of RE project, red-taping has 3 main negative effects on investments:

• It slows down the processes;
• It increases the development costs of new infrastructure projects;
• It downgrades the jurisdictions in the Doing Business rankings, leading to a possible exclusion by investors of the (bureaucratic) market in question.

RE Project Permitting Process

This is a typical, though highly simplified for the sake of comprehension, RE project permitting/licensing process:

As we can see in the figure above, permitting processes not only are sluggish (could last years depending on the jurisdiction and its market maturity), but they function in a step-by-step manner, meaning you often need to have first one authorization (e.g. preliminary grid access) before going to the next step (e.g. preliminary acceptance of the EIA) etc. This makes, somehow, sense, because why would the administration spend time and money in reviewing an EIA with all its complexity, if the promoter did not even secure the grid? However, there are numerous hurdles in proceeding without a one-stop-shop, among them the lack of coordination between the different authorities and ministries. We will assume that the benefits of the one-stop-shop permitting concept, although more or less efficient depending on the countries, are proven for both promoters and the administrative entities, especially on the experience with building energy efficient renovation (European Regional Development Fund, 2019). So that we can focus on how digitization could improve this concept.

Suggested Solution

One way to overcome the bureaucracy barrier faced in the process of RE project development, is to develop an IT-based solution using the concept of “One-Stop-Shop” described earlier, which reduces the number of interfaces and silo effects and provides a ‘single source of data truth’ to the users. This digitized hub would allow a unique request for permit placed by the project promoter in an ad hoc administration or authority (the so-called one-stop-shop or hub), which will then circulate between the different governmental entities (e.g. the Ministries of Energy, of Finance, of Environment and Planning etc.) for review and approval/refusal.

Conceptual Product Description

The conceptual product, subject to the present reflection, is an IT-based integrated platform that allows a ‘real-time follow up’ of permitting processes from the request up to the grant or refusal of the permit (i) and ‘data exchange’ between the involved parties (the project promoters vs. the competent authorities) along the permitting process (ii), in an “end-to-end” approach. We could call the product ‘DREPPH’, acronym of Digitized Renewable Energy Permitting Process Hub, just for the sake of realistic illustration.

Illustrative system architecture of the DREPPH:

Given the sensitive nature of the data exchange (confidential documents, financial data, costly studies needed for the development etc.), Blockchain Technology shall be used as far as possible and economically viable. This technology presents, in addition to security, several advantages such as transparency, speed, users verification, real-time connectedness, secured records of data exchange. However, costs of energy for the use and storage of this data could create an important carbon footprint.

Blockchain ensures security, transparency, speed, users verification, real-time connectedness, secured records of data exchange etc.

Product Development

We can imagine that the product could be easily customized, probably in a question of months. Of course, it would depend on who would be the product provider (a start up might be more agile but a IT giant such as SAP or Oracle might have more resources to dedicate).

Illustrative description of DREPPH product customization:

An initial development cost for the 'standard version' needs to be considered and then a variable cost per each customization.

A focus would be made on how to allow a cooperation between the different administrations, acceptance and reduction of information asymmetry.

Target, Market Sizing and Sale Pricing

The primary targets would be governments from all around the world: 191 countries are participating to the fight against climate change and need to implement efficient RE policies including the attraction of foreign investors and promoters by shortening their development time and reducing their development process costs. The pledge made in the framework of the Paris Agreement ‘guarantees’ a market for our fictive product until at least 2030.

The secondary targets could be all the sub-national/federal authorities (hundreds of authorities at global level). These targets create a significant market volume, which on the long run will contribute significantly to the margin of the product.

The future sale price could be calculated based on a method that combines 3 components:

• 'Development costs + Variable costs' + Reasonable Margin
• Psychological Price (i.e. according to customer's readiness to pay for the solution)
• Market Price - Entry Cost (e.i. lower than competitors, to allow quicker market entry)

Costs and Benefits for the Customer (i.e. the jurisdiction)

Given the conceptual stage of this idea, one could expect, in theory, direct benefits as well as some further positive collaterals.

Benefits of the DREPPH for the jurisdiction or authority:

• Speed up of permitting processes by an estimated 30% (vs typical average process time): direct benefit both the project promoter and for the jurisdiction;
• Reduction of the processes costs: direct benefit for the promotor; indirect for the jurisdiction in that sense that investors will tend to choose countries, where they quickly and for a limited costs, will be able to develop their RE projects.

Further positive externalities:

• Security and transparency (benefits for both citizens and jurisdictions);
• Stress reduction for the public employees (less interfaces conflicts);
• Improvement of the ‘Doing Business’ rating of the jurisdiction.

Unique Selling Proposition (USP)

Unlike other existing cases where large IT companies developed specific products for specific processes of governments. The (hypothetical) intention here is to specialize in the DREPPH product so that we could gain in:

• Product Efficiency;
• Replicability (quick adaptation of the standard product);
• Maintenance Efficiency.

Being specialized and having an expertise in the DREPPH, after a couple of successful implementations (references), would be the USP and would contribute standing out of possible opportunistic competitors. However, the threat remains, that if expertise is not quickly accumulated (and corresponding branding), IT giants like the ones we mentioned before may enter the market, diluting the market share we would be pretending to. Therefore, in order to safeguard this ‘innovative’ aspect, which is the main competitive advantage, an agile approach for the development has to be implemented in a timely manner. A focus would be put on the ‘Time-to-Market’ indicator during the product design phase.

A further extremely important aspect is the human factor, given the relevance of change and transformation management in the implementation of such products.

Pending Analysis

Of course, we are talking about an idea of product that uses digitization to benefit the process of project development in the RE sector. We are pushing the reflection as far as possible to explore and check if possible obstacles could prevent this type of (fictive) product from becoming a commercially viable solution. If we wanted to make a business case out of it, we would have to analyze much further, incorporating aspects such as, but not limited to:

• A study to quantify the ‘typical’ benefits for the customer based on a ‘typical’ case needs to be conducted in order to have more tangible sales arguments (estimated at 30% time reduction for now). One option to do that is to convince a jurisdiction to acquire the product on the real-costs basis, implement it successfully, obtain quantified benefits. This sort of 'pilot case' would also serve as a reference, often needed to convince further customers to purchase the product, especially when selling to the public sector (tender qualifications requirements etc.);
• A market study to identify the market price has to be carried out to figure the right price;
• A final business case on a 5 year period is required to close the 'conceptual stage' and get to the next one. It should include, if possible, a risk analysis, PESTEL and SWOT analysis, an accurate costs and pricing calculation, financing scheme and a marketing/communication plan together with a sales strategy.
• A complementary business case for the Maintenance Business (trouble-shooting, after sales, software update, service in general) to make sure that additional revenues (if possible with high margin) could be generated after the sale of product itself. And also to safeguard quality issues on the long run, that could affect the image and reputation of the provider and that allows continuous improvement.
• A positioning in terms of Environmental, Social and Governance (ESG) to be in line with the most modern management style and impact responsibility on society.
• Last but not least, a timeline and a responsibility matrix has to be defined in order to ensure compliance with schedule and personal accountability.

Caveat

These processes could be improved using project or process management methods such as AGILE SCRUM/KANBAN or CANVAS for instance, but the idea here is to take advantage of the digitization current trend, and see to what extent it could be applied in a cost-effective way (everything is technically feasible, but not everything is a 'business case' meaning affordable, making economical sense). Some jurisdictions adopted IT-based tools to improve the flow of information in their permitting processes although the practice is actually more in energy efficiency rather than in RE policies, however this type of products needs to be popularized in order to reach low or medium income economies. There might be small errors in the processes I described in the figures (I am not qualified in information technology). This solution might turn too expensive to be viable.

Farid Mohamadi, Bogota D.C.

References

UNFCCC, (2016) Paris Agreement – Status of Ratification, https://unfccc.int/process/theparis-agreement/status-of-ratification

UNEP and BloombergNEF (2020), Global Trends in Renewable Energy Investment 2020, https://wedocs.unep.org/bitstream/handle/20.500.11822/32700/GTR20.pdf?sequence=1 &isAllowed=y

IEA, Data and Statistics (2018), https://www.iea.org/dataandstatistics/country=WORLD&fuel=CO2%20emissions&indicator=CO2BySource

Interreg Europe, European Regional Development Fund (2019), Supporting energy renovation of private households through One-Stop-Shops: A Policy Brief from the Policy Learning Platform on Low-carbon economy, https://www.interregeurope.eu/fileadmin/user_upload/plp_uploads/policy_briefs/2019_02_10_PolicyBrief_OSS.pdf

Maurya Ash, (2012), Running Lean: Iterate From a Plan A to a Plan That Works, 2nd Edition, ISBN 978 144 9305 178,

Weber Marx (1922), Economy and Society,

Whincop J. Michael, (2003), From Bureaucracy to Business Enterprise: Legal and Policy Issues in the Transformation of Government Services

If you, by the way, would like to learn about RE projects and how they are structured for the purpose of their financing, check out and get my book: