Wholesale price cannibalisation poses the most significant threat to Europe’s utility-scale solar industry, a panel of investors has heard.
Speaking at today’s Solar Finance & Investment Europe conference, organised by PV Tech publisher Solar Media, Michael Ebner, managing director for infrastructure at investment giant KGAL, said that the prospect of “unknown cannibalisation”, caused by an influx of zero marginal cost renewables on European grids, was the “threat to the industry” as deployment looks set to accelerate.
The potential for price cannibalisation has been raised before but has grown in prominence as markets throughout Europe emerge from subsidy-backed regimes and embrace business models centred around merchant power sales.
This has caused significant volatility with power price curves, Ebner said, with other investors on the panel remarking on how even the most pessimistic of price curves from years ago would appear optimistic if published today.
Ebner did, however, conclude that of all renewable generating technologies, it was solar – hallmarked by its continuing declines in price – that could hurdle cannibalisation.
Isabella Pacheco, director for renewable power at BlackRock Real Assets, echoed Ebner’s sentiments, adding however that asset managers would need to adapt more sophisticated approaches to power pricing as the market continued to evolve.
But this too requires a degree of balance. Pacheco also remarked that complicated power sales strategies comprising various moving parts only stood to put off investors, with many financiers favouring a standard, stable power purchase agreement, preferably with utilities.
Giovanni Terranova, managing partner at solar investor Bluefield LLP, meanwhile pointed to a separate risk – changes to the European Union’s priority dispatch rule that ensures power from renewable sources is procured ahead of other sources.
Existing assets will maintain their priority dispatch rights but, from 2021, newly-built systems with capacity in excess of 400kW will lose that right. This, Terranova said, added “volume risk to price risk” for future plants, but ultimately concluded that given the “changing world” of electricity generation, coupled with international renewable energy targets, such a change was unavoidable.
The business of solar is changing, as the industry scales up, technology, IT and new players to the market will add complexity. This sparks a host of opportunities such as co-location of solar and storage and the rise of unsubsidised solar projects as well as challenges which will question the very business model of European solar asset owners. Solar Finance & Investment Europe is the meeting place for institutional investors, sovereign wealth funds, solar, wind and storage funds and large energy buyers to do business.