The World's #1 Renewable Energy Network for News, Information, and Companies.

Solar and Geothermal Tracking Reports: Project Finance Still Major Challenge

Despite healthy expected returns, finance-related challenges remain the largest barriers to renewable energy development, according to NREL's Renewable Energy Finance Tracking Initiative (REFTI).

Two recently released reports on solar and geothermal technologies show greater than 10% expected returns for both developers and tax equity investors. Yet roughly half of both geothermal and solar respondents (350 in total) reported financial issues (project economics, PPAs, creditworthiness, and raising capital) as the largest barriers to development. In light of this, only 11%-13% of respondents reported abandoning their projects.

Figure 1. Expected returns on developer equity for all solar technologies and project sizes Q4 2009 – 2H 2011

Geothermal projects reported the highest returns among all technologies (Figure 1 above) with both developer and tax equity returns estimated to exceed 15%. Returns were rather comparable between small- and large-scale solar, with concentrated solar power (CSP) reporting the lowest expected tax equity returns. Although some research suggests tax equity investors' returns can be much higher than developers', the rather tight spreads reported by REFTI participants indicate this may not necessarily be the case. Higher developer participation could also be influencing expected returns.

On the cost side, CSP reported lower estimated installed costs and LCOE than PV (Table 1 above), which could be due to a number of factors, including the timing of panel purchases, estimated nature of total CSP project costs, and storage capabilities. Prior to the second half of 2011, installed PV costs were declining faster than module prices, as reported by SEIA/GTM's U.S. Solar Market Insights Reports, 2010 – 2011, indicating balance-of-system costs were declining as well. This trend reversed in 2H 2011, however. Small PV, for example, reported a 60% increase from the prior period ($0.039 to $0.063/W). Conversely, LCOE reportedly dropped for both PV categories, but large PV is trending down and small PV is trending up over the entire timeframe. Geothermal reported the lowest LCOE, averaging $0.067/kWh from late 2009 through 2011.

Figure 2. Average PPA term, escalation rate, and first-year price (measured in ¢/kWh and size of bubble) by technology, Q4 2009–2H 2011

In line with LCOE cost data, first-year power purchase agreement (PPA) prices for large-scale PV were also highest among the four utility-scale project sizes and technologies shown above in Figure 2 (small PV excluded due to retail/wholesale price differences). Geothermal reported the longest PPA terms and second-highest year one PPA price at $0.098/kW. This is likely due, in large part, to its high capacity factor and dispatchability compared to wind and solar.

Figure 3. Project soft costs as a percent of total project costs by type and technology. Source: 2H 2011 REFTI data

Additional insight into balance-of-system (or "soft") costs was gained from the most recent REFTI questionnaire, which asked participants to report various soft costs based on their percentage of total project costs. As illustrated in Figure 3 above, geothermal reported the largest total percentage of soft costs at 15%. Both PV scales reported lower soft costs with wind recording the lowest — at 4.5%. Combined, engineering and interest costs during construction accounted for the largest portion, ranging between 45% and 67%.

See these links for the reports:

Renewable Energy Finance Tracking Initiative (REFTI) Solar Trend Analysis

Renewable Energy Finance Tracking Initiative (REFTI): Snapshot of Recent Geothermal Financing Terms, Fourth Quarter 2009 – Second Half 2011

This article was originally published on NREL Renewable Energy Finance and was republished with permission.

RELATED ARTICLES

Wind turbines

Why It's Time To Get Real About Energy Security

Hannah Smith, Contributor Energy is Europe’s quiet crisis. While the clamour of failing economies, desperate migrants and political clashes grabs the headlines, energy policy is rarely front-page news, but it should be — the statistics are shocking.

Largest Solar Farm in Virginia Just Commissioned by Amazon Web Services

Renewable Energy World Editors Back in 2012, Amazon received a failing grade from Greenpeace regarding its use of renewable energy to power its cloud centers. Skip a couple years and in 2014 Amazon Web Services (AWS) announced a goal of achievi...

A Closer Look at Fossil and Renewable Energy Subsidies

Susan Kraemer, Contrubutor A new study by the International Monetary Fund puts the total cost of fossil fuel subsidies at approximately $10 million a minute globally, when health costs and environmental degradation are included, never mind the effect...

How to Win Planning Permission for Renewable Energy Projects (and Influence People)

Tildy Bayar, Contributor At Tuesday afternoon’s POWER-GEN Europe and Renewable Energy World Europe conference session in Amsterdam, Paul Davison of PR firm Proteus discussed how to best communicate with the public regarding renewable ener...
Ryan Hubbell is a Research Program Participant with the National Renewable Energy Laboratory’s project finance team. He has an MBA with concentration in renewable energy development in addition to numerous years of experience in corporate finance ...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 3
1505REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @megcichon @jennrunyon

FEATURED PARTNERS



EVENTS

Microgrid Global Innovation Forum

Microgrid Global Innovation Forum  This event brings together thoug...

Grid Edge Live

Grid Edge Live 2015 The impressive two and a half day agenda addresses k...

GRC Workshop - Drilling and Risk Management

Patrick HansonScientific Drilling Inc. patrick.hanson@scientific...

COMPANY BLOGS

Signing a Solar Lease? Here are Five Things You Need to Know

Solar leases have grown in popularity, and they continue to be one of th...

DIY: Don’t Install Yourself

You finally made the choice to go solar. Seems like it might be pretty e...

Capturing Your Prospects' Attention In Three Sentences

You have about 15 seconds to capture your prospects’ attention, wh...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS