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Solar power seen overcoming credit crunch

    Solar energy could power up to 100 million European homes by 2020, but only after a squeeze on bank lending is over, officials and analysts say. Solar power currently provides a tiny proportion of the world’s electricity and is much more expensive to produce than conventional energy.

Spain was the world’s hottest solar market last year, adding about 2,500-2,800 megawatts (MW) of power-producing capacity from photovoltaic panels, outpacing an increase of 1,800MW in conventional gas generators, industry groups estimate.

But the sector’s fortunes have reversed after Spain slashed its subsidies and a global financial crisis dried up project finance for new installations. “It is more costly, the quantity is more limited, but it is there for good projects with good fundamentals,” said Cristiano Spillani, of Emerging Energy Consulting, Barcelona.

Spain slashed subsidies last September and capped new PV plants entitled to receive them at just 500MW a year, while more expensive debt had added to the slowdown. Jenny Chase, senior analyst for solar energy at New Energy Finance (NEF), London, estimated financing costs for solar had jumped to 270 basis points above Euribor from 150 a year ago.

Spanish company Abengoa Solar is locked in financing for 180MW out of its planned 300MW Solucar complex last August, but is still negotiating the remainder for the mainly solar-thermal project.

The industry is pinning hopes on guaranteed, 20 or 25-year subsidies for solar power in new markets -- including Italy, Greece and France -- which confer much security for newly risk-averse investors following the financial crisis.

“Essentially they’re treasury bonds,” said NEF’s Chase. “There’s a small amount of technical risk, small amount of resource risk -- small risk of people stealing your modules -- but there are government-backed cash flows.” Second-tier opportunities were available in the Czech Republic and Bulgaria, said Spillani.

LONGER TERM

PV panels directly convert sunlight into electricity. Some new plants use solar-thermal technology, which concentrates the sun’s rays to boil water and drive generators.

Feed-in tariffs are guaranteed prices to help solar power gradually become competitive and now stand at around €300 per megawatt-hour in Europe, or well above wholesale market electricity prices of about €40. They are motivated by government goals to cut greenhouse gas emissions and reduce dependence on imported oil and gas.

The falling costs of projects, as a result of a glut in inputs, may offset higher financing costs, added Chase. “There’s no reason why, as PV system prices come down and returns go up, they shouldn’t be seen as an attractive asset class for risk-averse investors.” Those brighter prospects longer term could see solar power rivaling fossil fuels in barely a decade.

Spillani estimated PV plants alone could generate 80,000MW by 2020, based on conservative growth assumptions, compared to less than 5,000MW now. A 100,000MW or 1 gigawatt of intermittent solar-generated electricity plant can power about 500,000 homes.

Pietro Menna of the EU executive’s energy department, told a conference in Barcelona this week that all types of solar power could generate at least 100GW in 2020. “Even if we assume stable consumption, we can easily talk of hundreds of gigawatts, maybe 300, of combined technology,” he said.

The EU aims to obtain 20% of its energy supplies from renewable sources by 2020, and within that, wants 10% of electricity consumption to come from solar. (Reuters)