The solar project asset class provides rich ground for investors seeking compelling risk-adjusted returns. With respect to real estate and other infrastructure, solar project investments compare favorably from both a risk and returns perspective. As a result, in the past 5 years, institutional investors seeking above-market returns, without sacrificing on the quality of the asset, have invested tens of billions in these assets.
Solar installations comprise a small but growing proportion of the electricity generation capacity in America. By the end of 2016, solar is expected to provide 2.8% of all energy in the United States. However, the rate of solar installations increased twentyfold from 2011 to 2015. In 2015, solar projects accounted for a full quarter of all electricity generation capacity placed into service in the U.S. (U.S. Energy Information Administration). In 2014 alone, the industry financed over $17.8 billion of solar projects. In the first quarter of 2016, 64% all new U.S. electric generating capacity came from solar (SEIA / GTM 2016 Q2 Solar Market Insight). Given this growth, many market observers expect solar to play an increasingly core role in the country’s energy portfolio.
The headroom for growth for solar continues to expand as the costs of developing solar projects decline, lowering the levelized cost of energy (the LCOE) from solar. The LCOE of solar now competes with conventional sources of electricity like natural gas and coal in several state markets.
The risks of solar project investing can be allocated into three broad categories: credit risk (i.e. electricity purchaser fails to pay), technical risk (i.e. the solar technology fails to produce expected amounts of electricity), and resource variability (i.e. there are fewer sunny days, or less solar resource, than expected). Each of these risks can be material if not sufficiently underwritten.
Investment Strategies to Mitigate Risk
Today, there are several investment strategies designed to provide balances between risk and return specifically for this asset class.
Depending on the investor’s risk and return thresholds, investors considering developing a portfolio strategy can participate across the capital structure as debt, equity, or structured tax equity. Each portion of the capital structure has a unique risk and return profile.
Partner With Experts in the Solar Asset Class
- Sol Systems has eight years of experience focusing 100% of our time and resources on distributed solar – we do only solar all of the time.
- We have a team of engineers, lawyers, and asset managers we apply in underwriting and managing each solar project
- Our experience in the market and relationships translate to the best opportunities for our clients.
- Aggregate portfolios across multiple states, utility territories, and/or offtakers to diversify risk
Contact Us to Access Informational Resources
Learn more about the asset class, or take a brief introductory call to explore how this asset class can fulfill your objectives: firstname.lastname@example.org