The European solar market is booming again
The European solar sector has experienced its first upward trend since 2011. With an annual growth rate of 15% (8.1 GW in 2015 vs 7.0 GW in 2014), the total capacity within the EU has reached 97 GW end of 2015 (figure 1). Together with wind, solar accounted for 75% of newly installed capacity in 2015.
Figure 1. Newly installed capacity in EU (GW). Source: SolarPower Europe
Solar is quickly gaining market share and is now supplying more than 4% of electricity demand in Europe, increasing from 3.5% in 2013 to 4.2% 2015 (figure 2).
Figure 2. Electricity production by source, EU, 2015. Source: Eurostat
Growth was mainly driven by the further falling costs of system hardware and installation and competitive subsidy schemes offered in a.o. UK, Germany and France at the background of high grey electricity prices
The solar sector has continued to experience advances in technologies and economies of scale. The price of solar systems has declined more than 80% over the past 8 years. Additionally, installation costs have decreased substantially due to the increase of labour from lower cost countries.
Lower costs in combination with national subsidy systems have powered the growth of utility scale projects. At the same time, electricity prices for industrial consumers are stabilising at a high level comparable to most subsidies available today.
There is huge potential for solar as the levelised cost of electricity (“LCoE”) of solar is or will be lower than industrial electricity price in several EU countries and regions
The falling costs together with subsidies are making self-consumption economically feasible in an increasing number of locations. A well designed solar system would reach break-even for most countries with long term power purchase agreement in place.
This provides a huge opportunity for prosumers to develop solar projects in the residential, commercial, and industrial sectors. Additionally, green electricity consumers can benefit from saving energy bills and participating actively in the energy transition.
However, proper policies and regulations should be in place
The European solar sector is in the middle of a transition phase and is shifting from a subsidy based growth to a more market based framework. Regulatory policies are being reformed in several member states, mostly concerning net metering and energy taxes. Germany and the UK, for example, will use feed‑in premiums in addition to a remuneration based on electricity market prices. With proper policies and clear regulations that do not disincentivise investments, solar can tap its huge potential and gain further market share vis-a-vis conventional power and other renewable electricity sources.
Solar projects have an attractive risk return profile
Solar assets are evolving from a niche to a mainstream asset class among the financial community due to their attractive risk return profile. The unique combination of stable and predictable cash flow and risk mitigations have resulted in solar assets now being more widely recognised by investors as an attractive asset class. Increasingly, institutional investors are adjusting their asset allocations for the ultra-low yield age to come.
Revenues from solar projects consist of subsidies and electricity sales to local users and the grid. Subsidies come about through a fixed electricity tariff which is granted by the relevant government multiplied by the actual green electricity production. This electricity rate is fixed during the term of the solar projects. In addition to income from subsidies, power purchase agreements (PPAs) for the purchase of the electricity produced are agreed with local users and wholesale power suppliers (figure 3). Thus, revenues are only partly exposed to price fluctuations in the electricity market.
Figure 3. How a solar infrastructure project works and generates revenues
Also on the cost side, the issuer seeks to maximise stability. Bank financing supplied at project level have maturities of 10 years and more with fixed interest rates. The daily operation and maintenance is contractually agreed for a fixed fee for the duration of the project. As a result, the majority of the operating and financing costs of each project is defined and the remaining cash flows have a stable character.
Sunrock Investments is well positioned to offer attractive solar investments in the development and secondary sectors within its core markets
The Sunrock Investments team consists of 7 investment professionals with over 50 years of combined experience in solar asset management, operations, and financing in Europe.
We offer fully integrated services to project owners, developers and investors including project due diligence, acquisition, financing, tax optimisation, project management and optimisation and investor reporting. Through our unique financial, technical, and operational approach, we reduce operational cost and maximise project yield, resulting in above market return for our investors.