Category: News

Financing and asset sophistication the last hurdles to subsidy-free solar

Financing is the last obstacle to more widespread subsidy-free developments throughout Europe as merchant risk remains problematic to debt providers, industry experts have concluded.

Speaking at last week’s Solar Finance and Investment Conference in London, ex-NextEnergy Capital MD and current Wise Energy chief Abid Kazim spoke of the unlikelihood that providers of significant debt finance would consider solar projects built on merchant business models appropriate from a risk perspective.

Other costs, especially hardware, have fallen to a level where subsidy-free developments throughout Europe should be plausible, with BayWa r.e.’s Benedikt Ortmann expressing his belief that solar developers should be able to build plants without subsidy support in the south of England this year, and as north as Aberdeen by 2021.

This would substantiate similar reports from within the industry. Late last year the Solar Trade Association unveiled new research which showed solar could be deployed in the UK at around £40/MWh by 2030 and somewhere between £50-60/MWh this year, a price which would be sufficient enough to bring forward around 500MW of new utility-scale solar in 2019.

However Kazim was more ambitious, arguing that it should be within a developer’s targets to be capable of developing at £35/MWh by the end of 2020, factoring in continued decreases in costs.

There was also discussion surrounding what the post-subsidy landscape would require in terms of skillsets, and how they might differ from the previous, RO and FiT-fuelled development cycles.

Ortmann said that the need for plants to be as productive and efficient as possible would place greater importance on build and module quality, especially as emerging business models are trending towards 30-40 years of operation rather than 25.

Ezio Ravaccia, chief financial officer at Solar Ventures, said the increasing reliance on power purchase agreements to stabilise revenues for financing purposes would result in a growing requirement counterparty management, something which many pureplay solar developers have not needed until now.

Solarcentury’s Peer Piske and Kazim however struck a similar chord with their suggestions that solar developers and asset owners would need more sophisticated asset and data management strategies, with Kazim in particular pointing towards an ever increasing sophistication in post-acquisition management.

This, Kazim added, was part of an emerging trend that solar as a whole was professionalising.

“We’ve gone from a business of cowboys to a room full of professionals, [and] it’s a very different world today,” he said.

Ortmann responded however that the first signs of an emergent subsidy-free market, which are already being seen, meant that the cowboys were “coming back”.

Standardisation a ‘long way off’ from solving the ‘gulf’ in corporate PPA understanding

The corporate power purchase agreement (PPA) market is currently struggling from a “large gulf” in understanding that standardisation could solve, but the industry is still a “long way off” from introducing them.

A panel at this week’s Solar Finance and Investment conference in London discussed the scope of post-subsidy developments throughout Europe, including the potential for long-term corporate PPAs to help projects receive financing in the absence of stable, subsidy-backed revenues.

With merchant risk and wafer-thin margins unlikely to trigger much interest from financial institutions, and many energy utilities favouring short-term PPA contracts, there has been an expectation that PPAs with bankable corporate counterparties will be a source of growth for the solar sector moving forward.

However, there has yet to be a tangible, significant movement towards corporate PPAs and this week’s panel discussion concluded that this is predominantly down to a “large gulf in understanding” of such agreements.

Abid Kazim, formerly of asset holder NextEnergy Capital and now MD at asset manager Wise Energy, said that solar developers and corporates were not necessarily speaking “the same language” in most cases.

He went on to discuss how there is also an issue regarding contract structure and length. While most debt structures for projects are in advance of 10 years in length, most corporates and energy management professionals are bound to lock-in energy costs at five or seven years at a time, rendering it difficult to find a middle ground in negotiations.

Other members of the panel, including BayWa r.e.’s Benedikt Ortmann and Solarcentury’s Peer Piske, mooted the possibility of standardisation in the field, wherein an acceptable template of a PPA contract could be introduced by the industry, in close collaboration with corporate groups, in a bid to establish some common ground in negotiations.

Standardisation in contracts has long been sought after in other areas of solar, most notably in O&M, but Richard Slark of Poyry, another participant in yesterday’s discussion, argued that standardisation was a “long way off” and there were no “quick wins”.

This was substantiated by a poll of the audience, which found that a significant majority – more than 80% – considered utility companies to be the source of most PPA interest for the solar sector, with just 10% arguing that destination to be corporate customers.

That poll triggered another point of discussion led by the panel’s chair, Chris Hewett of the Solar Trade Association, who mentioned the potential for public sector entities to emerge as potential counterparties for PPA-backed projects.

Lars Quandel, head of energy and infrastructure at HSH Nordbank, suggested the same – that local authorities could become a great area of interest for solar developers moving forward – but Slark argued that the risk of political upheaval could be a thorn in the side of projects moving forward. Unlike with corporate PPAs where the long-term bankability of the offtaking organisation is scrutinised, with local authorities it was suggested the issue could be one of change in political situations as a result of local elections.

Pan-European secondary solar market set for ‘exciting times’ as growth, O&G interest set to continue

The continued growth of the secondary solar market on a pan-European scale will result in “exciting times” for the sector, but big utilities are unlikely to stay on the sidelines.

Those were the conclusions from this morning’s opening plenary session at the Solar Finance and Investment Conference held in London, which discussed the health of secondary solar markets throughout Europe. 

Lee Moscovitch, partner at Greencoat Capital, said that despite a retraction in the number of opportunities relating to subsidised built assets throughout Europe, secondary markets continue to grow and are “very healthy on a pan-European basis”, indicating it to be an “exciting time” to be in PV.

Moscovitch’s sentiments were echoed by Octopus Investment’s Chris Gaydon, who said that asset holders were currently taking advantage of a lot of opportunities to squeeze value from their portfolios, including economies of scale benefits in asset management, increased buying power when negotiating power purchase agreements and larger project refinancing packages helping to improve portfolio economics. 

Last year Octopus celebrated completing what remains Europe’s largest solar refinancing package, standing at £564 million

A poll of delegates found that a majority of 55% considered Spain to be the hottest secondary market for the year ahead, leading Italy (18%) and the UK (16%). Moscovitch, whose fund is bound to invest solely in UK-based assets, remarked that one Spanish tender had received more than 50 expressions of interest, indicating the scale of appetite for solar in the country. 

However Aldo Beolchini, managing partner at NextEnergy Capital, suggested investors “may have very short memories” to place the Spain and Italy PV markets so high on their agendas, alluding to sweeping regulatory uncertainty in those countries.

The secondary solar market, particularly in the UK, continues to attract a multitude of investors and an increase in investment from institutional funds has been one of the must-watch trends. A significant majority of the audience at this morning’s session – some 70% – said institutional investment would be the largest contributor to the built solar asset market in 2019. 

However the results of the poll attracted questioning from Gaydon, who said it was surprising to see corporate entities such as oil and gas majors and energy utilities expected to take a back seat. 

“Oil and gas companies aren’t going to sit around while renewables cannibalise their profits,” he said, alluding to continued interest in the solar space from the likes of Shell, BP, Orsted and Vattenfall.

Limited tickets for this week’s Solar Finance and Investment Conference remain available and can be purchased here or by calling 0207 871 0122 and asking for Will/Tony.

Pan-European secondary solar market set for ‘exciting times’ as growth, O&G interest set to continue

The continued growth of the secondary solar market on a pan-European scale will result in “exciting times” for the sector, but big utilities are unlikely to stay on the sidelines.

Those were the conclusions from this morning’s opening plenary session at the Solar Finance and Investment Conference held in London, which discussed the health of secondary solar markets throughout Europe. 

Lee Moscovitch, partner at Greencoat Capital, said that despite a retraction in the number of opportunities relating to subsidised built assets throughout Europe, secondary markets continue to grow and are “very health on a pan-European basis”, indicating it to be an “exciting time” to be in PV.

Moscovitch’s sentiments were echoed by Octopus Investment’s Chris Gaydon, who said that asset holders were currently taking advantage of a lot of opportunities to squeeze value from their portfolios, including economies of scale benefits in asset management, increased buying power when negotiating power purchase agreements and larger project refinancing packages helping to improve portfolio economics. 

Last year Octopus celebrated completing what remains Europe’s largest solar refinancing package, standing at £564 million

A poll of delegates found that a majority of 55% considered Spain to be the hottest secondary market for the year ahead, leading Italy (18%) and the UK (16%). Moscovitch, whose fund is bound to invest solely in UK-based assets, remarked that one Spanish tender had received more than 50 expressions of interest, indicating the scale of appetite for solar in the country. 

However Aldo Beolchini, managing partner at NextEnergy Capital, suggested investors “may have very short memories” to place the Spain and Italy PV markets so high on their agendas, alluding to sweeping regulatory uncertainty in those countries.

The secondary solar market, particularly in the UK, continues to attract a multitude of investors and an increase in investment from institutional funds has been one of the must-watch trends. A significant majority of the audience at this morning’s session – some 70% – said institutional investment would be the largest contributor to the built solar asset market in 2019. 

However the results of the poll attracted questioning from Gaydon, who said it was surprising to see corporate entities such as oil and gas majors and energy utilities expected to take a back seat. 

“Oil and gas companies aren’t going to sit around while renewables cannibalise their profits,” he said, alluding to continued interest in the solar space from the likes of Shell, BP, Orsted and Vattenfall.

Limited tickets for this week’s Solar Finance and Investment Conference remain available, and can be purchased here or by calling 0207 871 0122 and asking for Will/Tony.

European solar finance community gathers to plot PV’s post-subsidy course

Representatives of some of solar PV’s leading European finance houses will meet in London this week as the continent’s solar industry inches ever closer to grid-parity.

More than 200 attendees representing 150 companies and 25 different countries will meet at this year’s Solar Finance and Investment Conference, now in its sixth year, held at London’s Grange City Hotel this week.

A full list of confirmed attendees at this year’s conference can be viewed here.

The two-day conference will see themes such as secondary market activity, refinancing deals, emerging PPA structures and, crucially, the advent of post-subsidy solar in European markets such as the UK, Italy and Spain.

The full programme for the 2019 Solar Finance and Investment conference can be viewed here.

“This has been a momentous year for solar in Europe. New tender rounds, the rise of Eastern Europe and the repeal of the MIP has kept most of the industry busy.

“That said, the most talked about development of the year has been the incredible advent of subsidy-free solar. This new segment has seen phenomenal growth in just 12 months with impressive pipelines and a surge of interest in the southern European region.

“However exciting, a lot remains to be resolved as there isn’t a one-size-fits-all approach for development and structuring of these deals,” Corinna Algranti, head of Solar Media’s solar finance portfolio, said.

Speakers at the event include representatives from Next Energy Capital, Bluefield, Octopus Investments, Greencoat Capital, Foresight, Amerenco and Solarcentury.

While tickets to Tuesday evening’s gala dinner have unfortunately sold out, an extremely limited number of conference tickets that had been reserved are now being released, and are being made available through the event website: purchase single- and two-day tickets here or call 0207 871 0122 immediately and ask for Will/Tony to secure them.

BayWa r.e. celebrates Octopus solar O&M deal

BayWa r.e. has landed a contract to provide operations and maintenance services to Octopus Investments for 13 of its UK solar farms.

The 13 projects have an operational capacity of 61.1MW and BayWa r.e. is to provide the complete scope of O&M services for the portfolio in what’s being billed as a strengthening of the O&M provider’s relationship with the asset holder.

BayWa r.e. already provides technical and commercial asset management for four UK windfarms owned by Octopus and Ian Draisey, managing director at BayWa r.e. Operation Services, said the additions came at an “exciting time” for the firm’s expansions in the UK.

“We have developed a great working relationship with Octopus over the last years while looking after the technical and commercial asset management of some of its wind farms, and to be entrusted with the O&M on so many of its solar farms is indicative of the strength of our partnership,” Draisey said.

BayWa r.e. will be tasked with all electrical and non-electrical tasks necessary to optimise asset performance.

Matt Setchell, head of energy investments at Octopus, added: “BayWa r.e. is now actively involved in around 20% of our renewable energy portfolio, and we look forward to further developing our fruitful working relationship in the coming year.” 

Greencoat lands trio of UK solar farms to take portfolio beyond 600MW

Greencoat Solar has added a further 60MW to its portfolio with a new acquisition, taking its total installed capacity above 600MW. 

The fund confirmed today that it had acquired a total of three operational UK solar farms at the end of last year from German asset manager CEE Group. 

The three solar farms – Bicester, Aston Clinton and Homestead – were acquired by CEE between 2013 and 2015 from solar developer BayWa r.e. and Greencoat said the trio had demonstrated strong operational performance under CEE’s ownership. 

CEE will continue to manage the solar farms on Greencoat’s behalf and the German firm’s CEO David Schreiber said the sale fell in line with its strategic objective of focusing on its core business in Germany and France. 

Lee Moscovitch, partner at Greencoat Capital, added: “We are delighted to acquire CEE’s high-quality assets, adding three more solar parks of significant size to our growing portfolio, and taking our installed capacity to more than 600MW. The visible pipeline of assets remains strong, and we remain very confident in the significant aggregation opportunity in UK solar.”

CEE Group was advised by Norton Rose Fullbright, while Greencoat was advised by both Evergy Engineering and Watson Farley & Williams.

NTR secures £207 million from financial giants to power renewables spree

NTR has landed €229 million (£207 million) in commitments for its second renewable energy income fund, attracting interest from some of Europe’s biggest financial powerhouses.  

NTR Renewable Energy Income Fund II has raised the finance against a target of €500 million (£452 million) and will investment in both shovel-ready and operational projects across various European markets.

Legal & General Capital has participated in the funding round as a cornerstone investor – the second time it has done so for an NTR fund – and has agreed to match 20% of all funds raised up to €100 million (£90 million).

Legal & General Capital head of clean energy strategy John Bromley said that the firm believed there needed to be a “step-change” in the level of renewables investment.

The European Investment Bank has also committed to the fund, investing €84 million (£76 million) of equity which is guaranteed by the European Fund for Strategic Investments. It’s the first time the EIB has backed investment through an Irish Collective Asset-management Vehicle.

Meanwhile, the Brunel Pension Partnership has also backed the fund and Richard Fanshawe, head of private markets at Brunel, said: “This fund is a good fit with both our clients’ return expectations from infrastructure, but also their combined commitment to be responsible, long-term owners of sustainable investments.”

While no specific markets have been identified by NTR other than a predominant focus on Western Europe, the fund has already acquired a raft of operational UK solar assets.

In November last year NTR spent £54.6 million on a portfolio of nine assets developed by Plus Renewables with a combined generation capacity of 38.4MW.

It has also acquired two wind farms in France.

Lightsource BP confirms UK’s ‘biggest ever’ subsidy-free solar deal with Budweiser brewer

Lightsource BP has confirmed that it has clinched a deal with Budweiser brewer AB InBev to develop and operate PPA-backed, subsidy-free solar farms.

And with the agreement totalling 100MW in generating capacity, the deal is understood to be the largest unsubsidised solar deal in UK history.

Earlier this month Solar Power Portal exclusively revealed that Lightsource BP had amassed a 300MW pipeline of PPA-backed solar in the UK, taking the developer back to the levels of activity it last experienced under the Renewables Obligation subsidy scheme.

Under the deal with AB InBev, Lightsource BP is to develop 100MW under 15-year power purchase agreements. The capacity is to be connected by the end of 2020, powering the brewer’s two main breweries in Magor, South Wales and Samlesbury, Lancashire.

In addition, all Budweiser brewed and sold in the UK will bear a new symbol – already in place in the US – which encourages consumer to choose a beer that is brewed using 100% renewable electricity.

Jason Warner, zone president for Europe at AB InBev, said the brewer was committed to delivering its products sustainably.

“This deal is about driving positive change in what people buy in their weekly shop, order in the pub or drink with friends. We want to build a movement towards celebrating and growing renewable electricity, and are asking our consumers, customers, colleagues, business partners and fellow companies to join us – we are making our 100% renewable electricity symbol available for any brands who share these values,” he said.

Meanwhile Nick Boyle, chief executive at Lightsource BP, added: “We have reached a pivotal point in the UK energy sector where unsubsidised solar is going to truly make its mark as the cheapest form of energy generation, even compared to wind. We are proud to be at the forefront of this transition with AB InBev, demonstrating that solar makes an ideal partner for corporate power.”

UK solar costs plummeting beyond forecasts, as cheap as £40/MWh by 2030

Large-scale solar deployment in the UK is set to re-ignite next year as the technology continues to beat all previous cost estimates and could be as cheap as £40 per megawatt hour by 2030, the Solar Trade Association has said.

Citing new analysis conducted by the association alongside its members over the last six months, the STA now forecasts that next year ground-mount solar cost of generation is to sit between £50 and £60/MWh, significantly below both the STA’s previous estimate of £80/MWh and the government’s central estimate.

As a result, the STA is now signalling that large-scale solar PV will be “highly competitive” with CCGTs and onshore wind next year.

At a briefing organised by the STA yesterday morning and attended by SPP, policy analysts Nicholas Gall pointed towards significant reductions in solar’s CapEx in recent years. Modules, which in 2014 were expected to cost around £270,000/MW in 2019, are now forecasted to be as cheap as £200,000/MW and will be a drastically lower proportion of a project’s overall cost – as low as 10% – by 2030.

Annual OpEx costs have also recorded drastic declines in recent years, meaning that solar farms are cheaper to operate and maintain than previously thought.

A number of other factors have also been brought into consideration in the STA’s revised analysis, which Gall described yesterday. Most solar farms are now expected to have an operational life in excess of 30 years, and some as long as 40 years, rather than the 25 years previously considered as an industry standard.

In addition, panel degradation is occurring far slower than previously thought and is now being factored at 0.4%, rather than 0.5%, annually. And load factors are creeping up from the base case of 11% to nearly 12% in 2019, and 13% by 2030.

All of these marginal gains have contributed towards a significant shift in the economic viability of large-scale solar – even in spite of regulatory instability and a later-than-expected repeal of the minimum import price – and Gall now estimates that somewhere between 300MW and 500MW could be installed in the UK next year.

That figure tallies with forecasts provided by SPP publisher Solar Media’s in-house market research team, which has also reported how the country’s post-subsidy solar pipeline has swelled to 3GW in capacity.

Commenting on the analysis, Gall said the results were another example of the fast-moving solar market outpacing forecasts and analyses.

“We urge all organisations conducting low-carbon or energy cost analyses to make use of this up-to-date industry data, which comes directly from our members’ own experience of the UK market. We also urge decision-makers to understand how effective policy frameworks enable the lowest possible costs for solar, which will greatly benefit consumers,” he said.

The STA has further said that deployment of large-scale solar could be nudged further with a few tweaks to existing energy policy, citing analysis by the Committee on Climate Change which has pointed towards a need for up to 50TWh of clean electricity generation by 2030 to meet binding emissions reductions targets.

Floor-price CfDs

Most interesting amongst the STA’s policy recommendations is the design and implementation of a technology-neutral floor-price Contracts for Difference scheme, which would allow projects to bid for government contracts to support their development.

At yesterday’s briefing, Gall described how they could work in practice. If a contract is awarded to a project set at an arbitrary price per megawatt hour, it acts as a price guarantee for the power it exports to the grid rather than leaving them subject to merchant risk.

If the wholesale price dips below that floor price, the project would receive top-up payments to ensure the price it receives for its power does not dip below. However, should the wholesale price exceed that floor price, the project would not receive the inherent upside (i.e. the additional price ahead of the floor) until the project had effectively paid off its balance of top-up payments received when the wholesale price had dropped below.

Such a contract would not amount to any form of subsidy and would remove the threat of merchant risk and make renewable energy projects more attractive to investors.

In addition to the floor-price CfD concept, the STA is also calling for the government to remove regulatory barriers which currently prevent co-located solar-plus-storage sites from participating in capacity, arbitrage and ancillary services markets, and enact a Climate Change Levy exemption for all new-build corporate PPA-backed solar developments, currently only afforded to private-wire projects which are not connected to the grid in any fashion.  

Chris Hewett, chief executive at the STA, said the new analysis provides a “clear message” for government and corporate buyers alike.

“UK solar electricity is now cost competitive with fossil fuels. By establishing the right policy framework for solar and storage, including expediting a smart, flexible energy system, government can enable this technology to realise its full potential in delivering an affordable, low-carbon future energy system.”

During the week commencing 7 January 2019, Solar Power Portal will be hosting a ‘Subsidy-free Week’ of content. Over the course of the week, a series of exclusive news stories, guest blogs and feature articles will examine the scope for grid-parity projects in the UK and how the industry looks set to re-ignite in 2019.

© Solar Media Limited