Investments in solar are booming16. November 2012 | Investor news |
Despite the on-going euro crisis and diminishing feed-in tariffs, investments in solar energy are booming, particularly in the secondary, or installed photovoltaic market. Milk the Sun’s CEO, Felix Krause, discusses.
As observed by the European Photovoltaic Industry Association (EPIA) in 2012, solar energy currently accounts for 1% of Europe’s total electricity consumption. Assuming the European Union achieves its goal of 20% renewable energy by 2020, this will increase to between 4 and 6%; and, if solar’s full potential is realized, its share could grow to reach 12%.
In light of the current economic turbulences in Europe, however, it seems that renewable energy development has become less important to governments, with subsidy cuts and reduced solar support, for example, becoming the norm.
Despite this, there are, thankfully, many entrepreneurs and politicians who believe green energy could help in overcoming the financial turndown and, in recent years, PV has significantly increased its presence in Europe, and beyond.
Looking at the size of investments in the sector, as well as the booming secondary markets and easing of administrative procedures for reselling/repurchasing installations, prospects remain positive. Indeed, judging by the activity seen by online photovoltaic project trading portal Milk the Sun, investor interest is increasing, as it becomes easier to buy low-risk, already-existing installations.
Due to the on-going Euro crisis, the past two years have presented the PV industry with many challenges, including numerous layoffs and insolvencies. Nevertheless, installed capacity has continued to increase, especially in Germany and Italy, thus indicating that these markets are still not saturated.
The growing trend towards renewable energy adoption can be best observed through the trading of PV installations – equally project rights (primary market) and already-installed PV systems (secondary market).
It has been estimated that there are currently 1.8 million PV installations across Europe, while the volume of operational installations traded is predicted to be more than €1.5 billion, and growing. Such statistics cast a positive light onto PV’s future.
Looking at initial data for 2012, Germany is still the leader in terms of installed PV capacity, followed by Italy. Together these two countries accounted for 60% of global annual growth in 2011, according to EPIA.
This trend can also be seen in PV trading patterns, where projects in Germany and Italy are among the most purchased. According to Milk the Sun, 40% of the projects bought are located in Germany, 35% in Italy and 25% internationally.
However, as has been widely predicted, as interest in emerging markets increases, PV is becoming more international, with an increasing number of projects in regions like eastern and south-eastern Europe – Romania, Bulgaria, Poland and the Ukraine, for instance – and the U.S. and India.
Long-term investment (of at least 20 years) has, until now, comprised the biggest obstacle in the solar sector. Due to unforeseeable liquidity requirements or regrouping of investments, some investors have been forced to sell their existing PV installations. Until recently, such developments could have been perceived as a risk.
However, the past years have brought a new concept to the market: the online marketplace, where already functioning PV installations and project rights can be easily sold or bought. Hence, the risk of loss has been minimized over time, as the procedures of reselling/repurchasing PV installations have been simplified.
The scale of the secondary PV market is growing, with an increasing number of people interested in purchasing existing installations. According to figures from Milk the Sun, while 90% of the projects the company hosted belonged to the primary market (project rights to build a new installation), in the initial phase, in the recent months this trend has reversed. As such, today, 60% of the projects it hosts are secondary market installations (operating systems to be resold).
This trend has developed analogously – as the number of the secondary projects increased, so did the demand of investors for existing installations.
Prospects for PV's secondary market
Until recently, the process of reselling or acquiring an existing project was connected with long brokerage chains and high procurement fees. This used to be extremely discouraging, as profit got lost for intermediaries.
However, a new era has begun with the development of online marketplaces. Such approaches ensure PV market players can directly interact with each other, and the process of finding investors for a project, or an installation that corresponds to an investor’s needs, is simplified.
On the back of such platforms, within the last year, there has been a strong trend among investors to repurchase already-existing installations. Such deals prove to be profitable, due to avoidance of costs connected with bureaucratic obstacles of project development or construction risks.
As renewable energy support diminishes across Europe, it is often the case that older installations receive more favourable support rates. These trends have made the purchase of existing solar installations more popular in the recent years.
Overall, 28% of the PV projects hosted on Milk the Sun’s online marketplace have been small projects (between 30 and 100 kWp), while the lion’s share – 42% –are medium projects (between 100 kWp and 1 MW), 24% belong to projects of 1 to 5 MW and just 6% are projects over 5 MW.
Although trading PV installations on the primary and secondary PV markets is chiefly concentrated in central Europe, there is movement away from established markets like Germany and Italy, towards new, emerging markets in eastern and south-eastern Europe, Asia and the Americas.
It further appears that investors from southern (and often crisis troubled) countries, like Spain or Italy tend to invest in the PV installations in the North, which are associated with smaller risks and, hence, smaller but more secure returns.
In contrast, investors from northern parts of Europe, like Germany or Scandinavia, seem to lean towards investing in projects in the so-called Sunbelt, which are more risky, but potentially can bring more gain.
Additionally, many investors tend to form clusters, in which a bigger group invests in a few projects in order to distribute the risk between several installations. Therefore, if one does not bring the expected profit, there are many others which can.
About the author
Felix Krause is co-founder and CEO of Milk the Sun, the first B2B online marketplace for photovoltaic projects, connecting rooftop and greenfield owners, roof agents, project developers, installation companies, banks, insurers and investors. Before Milk the Sun Felix Krause, together with his partner Dirk Petschick, founded LuzSolar GmbH – a project developer and management company for PV installations in Germany and the U.K. He holds MSc in International Business Studies from Maastricht University, Netherlands and has previously worked as Key Account Manager for the UK and Netherlands for Philips and Product Manager DACH for Dyrup.
Disclaimer: The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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