Record Year for Solar Project Acquisitions

Investors bought a record 3.9 gigawatts (GW) of solar PV projects in 2011, worth an estimated $10.8 billion. That’s a 122% rise from the previous year, reports Bloomberg New Energy Finance.

Italy was home to the most deals, with 540 megawatts (MW) purchased, but the top five individual deals in megawatt terms were in the US, and all were projects under construction rather than operating solar parks.

Among the large solar assets changing hands were three operating Italian portfolios developed by Terna totalling 242 MW, First Solar’s 550 MW Desert Sunlight Solar Farm and 550 MW Topaz project in California, the latter bought by Warren Buffet’s utility.

Why the surge? Partially it’s natural market consolidation as entrepreneurial developers sell to long-term asset holders. And partially it’s cuts in European subsidies, which are providing fewer opportunities to start PV projects from scratch.
Utilities and infrastructure funds are thus opting to buy already-permitted, or already-operating, projects instead of building them. The financial crisis has also made banks and equity investors more risk-averse, preferring to buy operating assets rather than take on construction risk.

"The boom in solar PV in Spain and Italy, driven by unsustainable feed-in tariffs, left a pool of assets generating very attractive cash flows, and still owned by developers, manufacturers and contractors. These firms have a high cost of capital and many would prefer to recycle what funds they have into new projects. They are selling to longer-term investors with a lower cost of capital, who are happy with returns of between 5% and 15%, depending on the country concerned, over 20-25 years. PV projects can be a very attractive product for this type of investor, at the right price," notes Michael Liebreich, CEO of Bloomberg New Energy Finance.

About 2.8 GW of the 3.9 GW acquired in 2011 consisted of projects that either were completed and generating power for the grid, or were under construction at the time of purchase. The remaining 1.1 GW of projects were permitted but not yet under construction.

Valuations on PV projects have fallen about 44% since their peak in 2008, when they reached EUR 6.4 million per megawatt (MW). In 2011, they were EUR 3.6 million per MW.

"This reflects two influences," says Pietro Radoia, solar analyst at Bloomberg New Energy Finance. "First, the subsidies for the average operating plant have become less generous, and therefore the potential revenues are reduced. Second, the financial crisis has pushed up the cost of debt and equity."

The average price of a solar PV module worldwide has fallen 75% since 2008, including a drop of nearly 50% last year alone. This has resulted from fierce competition in the solar manufacturing chain, particularly from Asia, and improving technology. The result has been to reduce the levelized cost of PV-generated electricity (i.e. the cost before any subsidies or support mechanisms) by more than 30% in 2011 alone, according to Bloomberg New Energy Finance.

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