Cost declines are driving the growth of merchant solar. Where are the best opportunities?

Cost declines are driving the growth of merchant solar. Where are the best opportunities?

In some markets, solar is now at a price point where installation costs are competitive with locational marginal pricing (LMP). As solar costs continue to fall, the potential for merchant solar is on the rise. With overall system pricing decreasing by 5-10% in Q1 2016 alone (depending on geography), the merchant solar market is ripe with opportunity. 

Who? The solar industry’s rapid cost declines are catching the eyes of sophisticated corporate buyers, educational institutions, and other entities who are increasingly looking to off-site renewables to hedge against volatile electricity pricing and provide cost savings. The wind industry has been structuring these transactions for years, but paired with cost declines, solar has added appeal because projects can be sized in accordance with an electricity buyer’s load at much smaller scale, and more rapidly deployed.

Why? Developing merchant solar projects can be far more straightforward from a developer’s perspective than a typical PPA deal. One of the appeals of merchant solar is that it can be far more streamlined than selling a PPA to a host customer. After leasing land from a landowner, a developer can move through the various stages of development and then exit by selling the development rights before one would have otherwise entered PPA negotiations. For Sol Systems, merchant projects are most attractive when site control is in place, interconnection is underway, and geotechnical concerns have been addressed.

Where? The opportunity for merchant solar is most prevalent in open energy markets, such as PJM and ERCOT. In the PJM region, Maryland and New Jersey are especially ripe with opportunity given the added boost from solar renewable energy credits (SRECs). California is also an attractive market for similarly structured transactions because of Direct Access (DA), which allows customers to purchase electricity from competitive suppliers. However, DA is unavailable to new customers.

So, you want to go merchant? Now is the time. Contact ben.margolis@solsystems.com for tips on breaking into this new market, or if you have projects in need of off-take.

This is an excerpt from the June edition of SOURCE: the Sol Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail pr@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a leading solar energy investment and development firm with an established reputation for integrity and reliability. The company has financed approximately 450MW of solar projects, and manages over $500 million in assets on behalf of insurance companies, utilities, banks, and Fortune 500 companies.

Sol Systems works with its corporate and institutional clients to develop customized energy procurement solutions, and to architect and deploy structured investments in the solar asset class with a dedicated team of investment professionals, lawyers, accountants, engineers, and project finance analysts.