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

Share on facebook
Share on twitter
Share on linkedin
Share on reddit
Share on 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.

Read Next

May 10, 2021
Spanish energy company Acciona plans to carry out an initial public offering (IPO) of its renewables unit before the end of June despite recent volatility among Spanish green energy stocks.
May 6, 2021
Independent power producer has Opdenergy has postponed an initial public offering (IPO) just days before its shares were due to start trading on the Spanish stock exchanges.
May 5, 2021
Europe’s solar industry has lauded the inclusion of a commitment to "re-ignite" Europe's solar manufacturing sector within the European Commission’s refreshed industrial strategy.
May 4, 2021
Spanish renewables developer and independent power producer (IPP) Grupo Ecoener has seen its shares slide on its market debut today.
PV Tech Premium
May 3, 2021
Companies are purchasing solar, wind, and other forms of renewable energy more than ever before. The power purchase agreement (PPA) market in Europe has grown to a cumulative capacity of over 12GW, with a record 4GW signed in 2020. Corporate climate commitments are opening doors for investment in renewable energy, and continued price declines are convincing companies to sign new contracts. Is the European market ready to fulfil its potential? By Dr. Mercè Labordena, senior policy advisor at SolarPower Europe, and Milena Koot, communications advisor at SolarPower Europe
April 28, 2021
Renewable energy group BayWa r.e. has opened what it claims is its largest PV warehouse in Europe yet in a bid to expand its distribution network in the continent.

Subscribe to Newsletter

Upcoming Events

Solar Media Events
May 11, 2021
Upcoming Webinars
May 26, 2021
Session 1 - 7:00 AM (BST) | Session 2 - 5:00 PM (BST)
Solar Media Events
June 15, 2021
Solar Media Events
July 6, 2021