A panel of solar financiers has questioned whether or not debt remains the most efficient way of financing projects post-subsidy as power purchase agreements replace subsidies as the chief source of revenue.
Giles Clark, formerly of developer Primrose Solar but now a director at consultancy firm AlSi Consulting, moderated a session at last month’s Solar Finance and Investment Europe event, organised by Solar Power Portal publisher Solar Media, which looked to discuss subsidy-free projects in European nations including the UK, Spain and Portugal.
Clark questioned the panel on whether debt remained an efficient source of finance for solar development given the changing landscape.
Previously, subsidies paid under the Renewables Obligation scheme provided 15 years of stable income which developers could use to raise debt. This created an industry standard in the sense that debt was sized to the level of potential subsidy on offer.
But in the absence of that subsidy, banks could demand similarly long-term, stable revenue from a 10 or 15-year power purchase agreement in order to provide finance.
The issue over efficiency arises because off-takers opting in to longer-term PPAs will require discounted prices for entering into such agreements. It therefore may be more efficient for developers to finance a solar farm without debt and take the inherent merchant risk of seeking multiple, shorter-term PPAs that would be agreed at more beneficial prices.
The UK’s first and currently only subsidy-free solar farm, Anesco’s Clayhill project, was financed by Anesco’s balance sheet and is backed via a PPA.
Abid Kazim, managing director at Next Energy Capital, agreed with the premise by indicating flatly that he believed debt to no longer be an efficient way of financing solar developments in the absence of subsidy.
Octopus Investments’ Ed Pitt Ford, however, noted that Octopus had found debt to be a “very efficient” way of financing new developments and had not yet been forced into long-term PPAs by maintaining close relationships with its banks.
Hassen Bali, commercial director at Camborne Capital, said that his firm was being offered debt on subsidy-free projects.
“We will weigh [it] up, but ultimately I expect that a forward-funding arrangement with a large infrastructure fund is the most efficient way for us as a developer,” he said.
Subsidy-free solar development and its financing will be discussed at length at Solar Media’s ‘Large Scale Solar Europe: The Transition to Subsidy Free’ event, held between 13 and 14 March at Dublin’s Aviva Stadium in Ireland. For more information and ticketing enquiries, click here.