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The Future of Solar PV Investments in the EU
The European Union is the global number one in installed capacity in solar.
Having just crossed 100GW milestone in 2016 – from just 3GW in 2006 – the EU is currently just ahead of the Asia-Pacific region, which is in pursuit at just over 96GW. But the competition is growing faster, with China as the main driving force in the growth of this Asian solar powerhouse.
The European solar market took off in 2008 and continued to grow rapidly until 2011 in a period of high support schemes and declining costs. After 2011 however, the EU solar market went into decline and volumes of new solar installations reached a five year low in 2014 at 7.1GW.
Only in 2015 did the European PV market start growing again, with a 15% year on year increase to 8.2GW (of which 7.7GW was within the EU).
Over the last ten years European solar markets have been largely policy driven; they were determined not by the solar irradiation resource but by regulatory frameworks as well as support schemes available.
The support schemes available combined with the perception of political risk in turn determined the cost of capital in the respective country. In larger markets, the leading business model was also dictated by support schemes, with the revenues being guaranteed by the state and therefore generally considered low risk.
Like many other renewable energies solar PV is very capital intensive, with low operating costs. The extensive amount of up-front costs is one of the barriers to investing in solar. Additionally, revenues are spread out over long periods of time, which can exceed 20 years, resulting in a fundamental timing mismatch between costs and revenues.
Applying new and innovative financing business models is what can overcome the high up-front costs. Combining new financing mechanisms and business models is what will allow investors to feel more security when investing in low-subsidy solar PV. Leading solar to be accessible to a maximum number of power consumers and application segments if sufficiently attractive projects can be put forward.
It is estimated that 79% of EU citizens live in locations where in theory solar PV has a lower LCOE than the residential retail price of electricity (European Commission Joint Research Centre “Cost Maps for Unsubsidised PV Electricity”, 2014), which shows that the fundamentals of the solar business model are in place.
Finally, as the level of support schemes are being reduced revenue streams for solar projects becomes more exposed to market forces, such as wholesale electricity price fluctuations, which makes revenues more unpredictable, and requires a more complex business model to maintain adequate rates of return.
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