European solar yields continue to fall, but can banks, governments and grids alleviate risk problems?

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Lightsource BP’s solar project in Zaragoza, Spain, where yields will continue to fall as the sector becomes more competitive. Image: light source BP

European solar investors are struggling with lower returns, but banks, governments and network operators could do more to reduce risk and address investor concerns.

A panel discussion focused on the role of solar in Europe’s economic recovery this week Solar Solar on a large scale Conference hosted by PV Tech Solar Media publisher, solar investors and consultants announced that the forecast internal rates of return (IRRs) of major solar projects in Europe had fallen.

João Cunha, COO and deputy CEO of renewable energy investor, Smartenergy, said that while his company would need a double-digit IRR rate to consider a green hydrogen project, utility-scale solar PV has become increasingly competitive and returns between 5 and 6 would have achieved% Mark far more often.

His view was corroborated by Ignacio Cobo, senior consultant at consulting firm AFRY, who said the solar industry “is no longer talking about double-digit target returns,” and agreed with Cunha’s forecast for IRRs between 5% and 6%, sometimes with returns that is closer by 4%, as seen in recent European renewable energy auctions such as Spain and Portugal.

The most recent solar auction in Portugal, which took place last summer, was characterized by a new record low for solar at auctions. Enerland submitted a bid of $ 0.0131 / kWh for a 10 MW lot in the auction, beating the previous auction record of $ 0.0135 / kWh set by a consortium of JinkoSolar and EDF for the Al Dhafra project in Abu Dhabi set up last spring.

These more modest returns did not whet the appetite of some investors, however, despite a “green capital tsunami” pouring into the markets, as presented by BloombergNEF’s discussion moderator and head of solar analysis, Jenny Chase, to the panel.

Cobo said the decline in returns has pushed education across the value chain, especially for banks and risk committees to familiarize them with the risks associated with solar projects, as projected returns decreased. Other means of reducing this risk would be more regulatory auctions that guarantee a purchase price for electricity over a contractually agreed period, while hybridization with other generation technologies or energy storage could also be a means of reducing market volatility.

Stefan Müller, co-founder of the multi-faceted solar company Enerparc, said the solar industry no longer needed open funding such as subsidies to attract investors. However, governments could go a long way towards allaying investor concerns by offering bank guarantees. Network operators could also serve a purpose by becoming consumers. Such a step could be a “real boost for the market,” said Müller.

The participants in the discussion also seem to have agreed. In a poll, more than half – 56% – said that improved political stability would be the best way for governments to support utility-scale solar energy in the future.

Large Scale Solar Europe 2021 continues this week with a series of sessions that will address issues critical to Europe’s thriving solar market. Further details about the event can be found here.



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