European solar returns continue to fall, but can banks, governments and grids ease risk concerns?

Facebook
Twitter
LinkedIn
Reddit
Email
Lightsource BP’s solar project in Zaragoza, Spain, where returns are continuing to diminish as the sector becomes more competitive. Image: Lightsource BP

European solar investors are coming to terms with smaller returns, however banks, governments and grid operators could do more to help alleviate risk and ease investor concerns.

In a panel discussion centred around solar’s role in Europe’s economic recovery during this week’s Large Scale Solar Europe conference, hosted by PV Tech publisher Solar Media, solar investors and consultants revealed that forecasted internal rates of return (IRRs) from large-scale solar projects had tumbled in Europe.

João Cunha, COO and deputy CEO at renewables investor Smartenergy, said that while his company would need a double-digit rate of IRR to consider a green hydrogen project, utility-scale solar PV had become increasingly competitive, with returns around the 5 – 6% mark far more common.

His view was endorsed by Ignacio Cobo, senior consultant at consulting firm AFRY, who said that the solar industry was “no longer talking about double-digit targeted returns”, agreeing with Cunha’s forecast for IRRs of between 5 – 6%, with returns sometimes slipping closer to 4%, as has been seen in recent European renewables auctions like those seen in Spain and Portugal.

Portugal’s most recent solar auction, held last summer, was notable for setting a new record low price for solar at auction. Enerland submitted a bid of US$0.0131/kWh for a 10MW lot in the auction, beating the previous auction record of US$0.0135/kWh set by a consortium including JinkoSolar and EDF for Abu Dhabi’s Al Dhafra project last spring.

These more modest returns were, however, failing to whet the appetite of some investors, despite a “tsunami of green capital” flooding into markets, as discussion moderator and BloombergNEF’s head of solar analysis Jenny Chase, posed it to the panel.

Cobo said the contraction of returns had placed greater emphasis on education throughout the value chain, especially for banks and risk committees to make them more comfortable with risks associated with solar projects as projected returns diminished. Other means of reducing that risk would be via more regulator auctions, which guarantee a purchase price for power over a contracted period, while hybridisation with other generation technologies or energy storage facilities could also be a means of reducing market volatility.

Stefan Müller, co-founder at multi-faceted solar company Enerparc, said that the solar industry no longer needs any overt means of funding such as subsidies to attract investors, but governments could go a long way to easing investor concerns by offering bank guarantees, while grid operators could also serve a purpose by becoming offtakers. Such a move could be a “real push for the market”, Müller said.

Attendees for the discussion would also appear to have agreed. In a poll, more than half – 56% – said improved policy stability would be the best way for governments to support utility-scale solar moving forward.

Large Scale Solar Europe 2021 continues this week, with a range of sessions unpicking topics key to Europe’s flourishing solar market. For more details on the event, click here.

14 September 2022
Join us in London for 2 days as we look at the UK’s new landscape for utility & rooftop solar. Understand the new opportunities within this GW-plus annual market!
15 September 2022
Bifacial PV modules will be the dominant solar PV technology globally within one or two years; in the utility-scale sector, their market share is already above 70%. This webinar will provide a clear view on the successful implementation of bifacial technology, maximizing system performance and minimising LCoE.
4 October 2022
Solar & Storage Finance USA, the only event that connects developers to capital and capital to solar and storage projects, will be back in November 2022.
29 November 2022
PV ModuleTech EMEA in Madrid on 29-30 November 2022 will address the factors underpinning the changing PV module landscape, gathering together all the key stakeholders across the value-chain from module production to field testing. Join us for presentations from the leading players in the sector, clearly identifying the opportunities and challenges set to impact module supply to Europe and the Middle-East over the next few years.

Read Next

August 3, 2022
Global investment in renewable energy reached a record half-year figure of US$226 billion in H1 2022, driven by soaring demand for clean energy technologies amid the ongoing energy and climate crisis, according to a BloombergNEF (BNEF) report.
August 2, 2022
The building-integrated PV (BIPV) market is expected to reach US$94.4 billion by 2031, up from US$11.7 billion recorded in 2021.
July 26, 2022
UK-based energy group Octopus Energy has raised US$550 million to invest in renewables-enabling technologies and solutions.
July 21, 2022
Nearly 40GW of solar PV will be rolled out across Europe by the end of the year, according to SolarPower Europe (SPE), as the continent scrambles to deploy renewables and wean itself off Russian gas.
July 20, 2022
Clean energy investor Octopus Investments Australia has launched a AU$10 billion (US$6.9 billion) platform that will finance renewables assets and has already acquired Australia’s largest operational solar project.
July 14, 2022
US community solar owner-operator Summit Ridge Energy has secured a US$175 million investment from private equity firm Apollo Global Management.

Subscribe to Newsletter

Upcoming Events

Upcoming Webinars
September 7, 2022
15:30 AEST (UTC +10)
Solar Media Events
September 14, 2022
London
Solar Media Events
October 4, 2022
New York, USA
Solar Media Events
October 11, 2022
Virtual event