Solar investments share many features of other real assets, and boast a number of attractive characteristics for capital providers. Solar generation costs have undergone a stunning decline over the past decade, fuelled by an explosion in PV cell output. Driven by Chinese manufacturing, global cell production increased from 50MW in 2004 to 55GW in 2015 — more than a 500-fold increase. American manufacturers have followed suit and local manufacturers in San Antonio, Texas, have joined the market with brand new photovoltaic technology. As a result, average solar PV system costs have plummeted by approximately 82% in the last six years alone. This continuing slide in costs means that solar is entering a new investment era. Instead of chasing preferential subsidies, investors can now evaluate these assets on a standalone, purely commercial basis.
"The rapidly increasing cost-competitiveness of solar energy is creating attractive opportunities for capital providers interested in infrastructure investment."
Alongside this cost-competitiveness solar technology has characteristics which set it apart from other renewable and traditional energy assets. Similar to other renewables, solar investments are typically backed by real assets. These offer predictable, long-term, inflation-linked revenues supported by power purchase agreements. Reasons to invest in solar can be categorised into operational, scalability and financial.
Operational: Low resource and technology risk, and correspondingly lower operating and maintenance costs,
Scalability: Both in terms of the asset itself, but also the potential levels of investment and profit.
Financial: Key solar indices have been outperforming broader market and traditional energy stocks over the past four years.
"Solar investments have the potential to generate average annual expected returns on investment of between 6.6% and 10.1% over the next 35 years"
Solar PV is a rapidly growing asset, with plummeting costs and constantly improving technology. Alongside the minimal operational requirements (compared to traditional energy sources), vast potential for scale and proven financial returns make it one of the most attractive assets for investors in the medium, and especially long terms. In addition, the added benefit is the environmental argument, one which is quickly growing in importance for regulators and investors alike. There is a vital need for investors to recognize that an energy sector in transformation is also an energy sector in need of capital. A willingness to understand the unique and highly promising solar investment market could offer some equally unique long-term returns.