Global Renewables

Investors Banking on Solar

The bankability of solar investments is generating wide receptivity among traditional oil and gas energy investors for a number of reasons.

avatar for Dennis Dimovski

Dennis Dimovski

Feb 1, 2014 • 2 min read

nsw solar farm during bright yellow sunset

The bankability of solar investments is generating wide receptivity among traditional oil and gas energy investors for a number of reasons. As the demand for electricity continues to grow, solar energy has the potential to deliver much-needed peak demand relief to the existing grid infrastructure. With continued, annual drops in the cost, solar will not only result in competitive electricity, but, in many cases, cheaper electricity coupled with higher profit margins for the industry. By 2020, solar projects could produce power at costs significantly lower than nuclear, coal or natural gas. The solar boom stems from the precipitous price drops solar photovoltaic (PV) has experienced in the past three years. In 2010, solar was approaching $2/watt. In early 2012, solar PV began to approach grid parity, and it’s almost there. Extrapolating from this, solar PV could dip as low as $0.50/kWh in 2014.

These numbers are supported by many of the largest solar cell and PV manufacturers. The projected 2014 price will make solar PV not only competitive with, but also less expensive than traditional energy sources. Excellent returns for equity investors Utility-scale solar generation has reached a point where it can be financed similarly to traditional generating facilities with a ratio of debt and equity, financed over 15- to 20-year periods. Such financing produces solid returns for debt holders and excellent returns for equity investors. Traditionally, conservative investors have placed capital in utilities because of the stability of returns based on a fixed, captive customer base.

In simple terms, solar has no moving parts, which results in low maintenance. Also, its fuel is free, resulting in long-term stability of pricing. Perhaps most importantly, solar is produced during periods of peak demand and as such, provide important peaking capacity relief. As solar continues to become more cost effective, it too will function as a traditional utility investment, without the same volatility of existing generation sources. There are billions of dollars to be earned from converting sunlight to electricity. What’s more, once built, solar produces no pollutants. A solid capitalist foundation will be the primary factor driving solar development and its potential for delivering more efficient and less costly power — while creating jobs and opportunities that will energize the economy.

Electricity drives almost every part of the economy, and cheap, abundant electricity delivered during peak periods helps keep industry competitive. Not only will solar add diversity and improve reliability of power grids, it will also ease congestion in energy-stressed grids and provide affordable power over the long term. While solar will not replace current sources of energy in the near future, it will bring an important part of the diversity to the existing energy mix. As we begin to deploy solar on a large scale, we will see a positive impact on energy security, lowered cost and environmental issues.

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