Investment to move away from Europe while UK solar recovers

Institutional investors are expected to turn away from the UK, and the European market in general, according to a panel of experts speaking at this week’s Solar Finance and Investment conference.

Discussing how to increase the engagement of long-term investors in solar, the group claimed that due to changes in government support, the fluctuating wholesale power market and the markets expected to grow following COP21, investors would likely move away from Europe.

Ilesh Patel, a partner at Baringa, claimed institutional investors are facing a “perfect storm of challenge” in Europe in terms of deal flow caused by a number of factors.

“One is a wholesale power market which no longer provides any useful long term investment signal to investors within the power sector. The second is a well-trailed scenario of potentially low power commodity prices for the foreseeable future and thirdly governments that are increasingly turning to auction to reduce the subsidy burden on consumers and the reaction of consumers to that.

“All three are probably going to cause institutional investors to re-look at the way they look to engage with the energy sector [in Europe],” he explained.

According to Richard Crawford, director of infrastructure at InfraRed Capital, issues around government support are particularly unique in the UK. He said: “The solar industry has really outperformed on government expectations in terms of deployment and therefore the government has turned the taps off on the availability of incentives to enable solar to be developed.

“So although there's deal flow today, we're expecting that to drop very quickly in the UK. It’s acute in solar because solar gets developed, built and into the long term holders hands very quickly.”

Following the global agreements made at COP21, Armin Sandhovel of Allianz claimed that investors would likely now look to Africa and India for new opportunities instead of the “decreasing markets” in Europe.

Crawford added: “The challenge for solar is really to be big enough to be exciting to these investors, particularly in the UK where we are seeing less development activity at the moment. I think keeping the attention of these investors is going to be a challenge within the UK so we're probably dealing with investors looking increasingly out of the UK."

This movement of capital could also have the knock-on effect of reducing the O&M market, with many of the firms providing these services coming from companies who develop the sites themselves. With these firms likely to follow investors abroad, Crawford claimed the “critical mass” of teams providing O&M is likely to dissipate and result in a loss of development and maintenance skills.

However, the panel did also provide some optimism as it is expected the UK market will re-emerge within a few years as the price of solar continues to fall and new hybrid technologies emerge. Patel claimed that combining technologies such as solar and storage and the growing trend for behind the meter generation will "result in investable prepositions."

Speaking to Solar Power Portal after the discussion, Crawford reinforced this optimism and said: “It can come back, it’s not a critical point because the one good thing about solar is that it is very mobile, the teams develop very quickly, it’s very entrepreneurial activity and it will develop itself again.”

He added that while this could take around three or four years, the government has a responsibility in the meantime to maintain activity and provide a level playing field between the cost of fossil fuels and the cost of renewables.