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We have witnessed a number of market trends accentuate in the European PV markets in the last quarters. Trends that in our opinion drive the healthy development of the EU PV markets:
1) Secondary PV Market consolidation of solar portfolios in all the major markets like Spain, Italy, UK, Germany and France. Both national and global champions have continued to announce deals that prop them up in the sought-after top 10 list.
2) Grid Parity: Strategic focus of most big players in post-subsidy solar projects across Europe. Certainly, the competitive battle will be rather fierce in Southern Europe where the generous solar production resource starts to yield solid IRR returns.
3) Lower entry barriers allow multiple new players to enter the market and compete with other big players. This translates into more new developers realising projects, more investment management companies structuring solar capital deals, and so on.
4) CleanFintech: Emergence of marketplace-based financial modelling software companies like greenmatch, which increase transaction speed and eliminate process inefficiencies.
« As a sell- and buy- side advisor we found in greenmatch a solution enabling to show our customers’ project portfolios in a standardized way without making any compromise regarding the complexity of project structures. With greenmatch we scale up our business in no time.«
José Gaspar, Founder & CEO Solar Portfolios
Secondary Solar PV markets are leading yield compression in Europe from North to South. While single digit equity IRRs of 5-7% are becoming the norm in Germany, France or Holland, in Spain and Italy it is not unheard of to find deals that can go for a 10-12% equity IRR. Evidently, competition for deals here is at its highest thanks to, first and foremost, Mr Draghi’s money helicopters flooding EU financial centres with endless liquidity.
In the hunt for a stable asset yield, investors are starting to pay much more attention to post-subsidy merchant solar projects. Game is on! Or maybe it isn’t yet actually, as a number of challenges stubbornly remain before we see the market taking off. Two issues reverberate across the conference halls in Spain whenever we talk about merchant solar: PPAs and financing. Bankable PPAs and bankable off-takers pose as a necessary element for bankability.
But how about investability? In the merchant solar era, equity and quasi-equity structuring is as important as debt structuring. If the first merchant business models in Spain are showing equity IRRs in the 7-8% range, the market will not be able to raise the necessary equity in the time that is needed to kick start again. Every single component of the business model has to be optimised and that doesn’t mean only squeezing your EPC supplier. It is time to look closely at optimal mezzanine financing, pre-completion revenues, ancillary revenues, merchant future sales management, etc.
It is obviously as important to reflect well all these elements in your model before hitting the market for debt and equity.
Author
José Gaspar, Solar Portfolios
Solar entrepreneur with financing, strategy and business development skills and 12 years international experience in Renewables investment and financing with positions in Banking (BBVA Greater China), Solar IPP (Solarig) and Advisory (Voltiq). Solid transactional experience gained through more than 30 international debt/equity transactions
Founder of Solar Portfolios in 2015, Jose Gaspar leads the company along Sergio Vera and works on the vision of making the global solar market more transparent and accesible to all types of investors. Solar Portfolios is a deal-centric specialized advisor of solar M&A and financing transactions on a global scale.
