Next to a wheat field north of London, banks of solar panels in 35 neat rows are generating electricity without any support from the government.
Despite Britain’s reputation for grey skies, the closely-held developer Anesco Ltd. is building the hybrid solar and battery facility in Milton Keynes with its own capital. It’s just one of about 15 photovoltaic projects underway from Italy to the U.K. that aren’t relying on subsidies to make a profit, according to Bloomberg NEF, which anticipates many more to come.European nations are leading the way because they were among the first to back solar farms with above-market power prices and tax breaks in the early 2000s. That triggered a global manufacturing boom and 80 percent plunge in the cost of installing photovoltaics. Now, governments are cutting incentives as prices drop, and renewables are competitive with fossil fuels in more places.“The change has come about because many governments believe that support is no longer necessary for the mature technologies which have seen significant cost reductions,” said Michelle Davies, head of clean energy and sustainability at the law firm Eversheds Sutherland LLP. “They take the view that the sector is sufficiently advanced to enable the market to find its own solutions.”In Germany and Spain, incentives in the form of feed-in tariffs for solar electricity made it easy to anticipate how much each project would earn. That gave investors and bankers comfort enough to write loans to the industry.
Cheap and Clean
Costs for wind and solar power equipment are plummeting
Source: Bloomberg NEF
- Natixis SA’s Mirova unit owns a Portuguese solar farm, financed by Banco BPI SA, PPA with Axpo Holding AG’s Iberia unit
- Iberdrola SA’s 391-megawatt Nunez de Balboa project in southwest Spain, PPA deal with Kutxabank SA
As more subsidies are abandoned, developers will tune into the wholesale power market, where prices have been rising in recent months. European benchmark rates for power have more than doubled since a trough in early 2016, reflecting higher costs for natural gas, coal and the carbon-emissions permits utilities must buy to burn fossil fuels.“It’s an exciting development, but the big question mark is around what electricity prices will be in future,” said Pietro Radoia, analyst at Bloomberg NEF in Milan. “Either project developers lock into long-term contracts, which debt lenders value very much, or they end up being exposed to price variations, which are hard to project 10 years down the line.”European nations are the first to get offers from developers to build solar plants without government support, partly because market structures elsewhere haven’t yet squeezed costs that low. European countries slashed incentives rapidly as the price of PV panels fell.
- In the U.S. by contrast, the federal government offers a tax credit approved by Congress to stimulate solar power.
- Latin American nations from Mexico to Brazil are using competitive auctions to reduce the cost of renewables.
- Japan and China still rely on feed-in tariffs to pay for solar power, though the Shanghai Securities News reported last month that the government has a pilot project that would give solar the same payments as coal plants receive.
Back at Anesco, revenue from the panels vary with daily fluctuations in the power market. If rates would fall too much, Chairman Steve Shine said the company could charge a bank of batteries attached to the farm instead selling at the market. Those batteries could be discharged when prices are higher.To expand beyond Milton Keynes, Anesco is planning another four U.K. projects. It expects to raise debt from banks for the next round of projects after shouldering on its own balance sheet the 10-megawatt facility north of London.“At the beginning we were chasing banks,” Shine said. “Now they’re chasing us. They’re starting to get their heads around it.”— With assistance by Feifei Shen, Chisaki Watanabe, and Brian Eckhouse