Catching Some Rays

Solar energy can help solve Europe’s energy security crisis and meet its decarbonisation targets.  

The sun is always shining somewhere. Unsurprisingly, then, as the world moves away from finite fossil fuels, solar is proving to be a very popular source of renewable energy. 

“It’s likely to become the biggest clean energy source in the world, as it’s the cheapest, most straightforward to build, and the easiest to deploy,” says David Tilstone, Head of Renewables, EMEA, at Australia-based Macquarie Asset Management. 

The breakeven costs of solar have declined by 90% over the past decade, due to fewer operating expenses and no ongoing fuel costs once the infrastructure is erected. Further, it takes as little as three months to build capacity for two megawatts of direct current (MW DC) for a standard ground-mounted solar farm. 

To achieve net zero greenhouse gas (GHG) emissions by 2050, the world needs to be annually adding at least 630 gigawatts (GW) in solar photovoltaic (PV) technology capacity by 2030, according to the International Energy Agency’s (IEA) 2050 roadmap.  

The IEA said that an additional 134 GW in global solar PV capacity was built in 2020, estimating that a further 162 GW will be added by the end of this year, thus highlighting the large capacity gap that needs to be filled between now and 2030.    

The EU is doing its part in the transition.  

European trade association SolarPower Europe said that the EU added around 25.9 GW of new solar PV capacity to power grids in 2021, which is a 34% increase on the 19.4 GW installed in 2020. The EU is expected to reach 50 GW of annual capacity growth by 2025. SolarPower Europe is nonetheless pushing for member states to upscale more drastically, calling for a target of 870 GW of solar by 2030. 

The annual deployment of solar energy in Europe needs to be at least “quadrupled” agrees Seda Orhan, Renewable Energy Campaign Coordinator at NGO Climate Action Network (CAN) Europe. 

Accelerating the EU’s transition to renewable energies has become increasingly important to investors and policymakers following Russia’s invasion of Ukraine and the ongoing energy crisis. With gas prices skyrocketing, and Russian President Vladimir Putin’s hand hovering over the gas tap, there are opportunities for capital to be redirected into upscaling clean energies like solar and wind. 

“There’s likely to be a huge escalation in solar capacity over the next few years, given the tremendous run-up in gas prices and the geopolitical situation,” says Rob Barnett, Senior Analyst at research firm Bloomberg Intelligence (BI).  

Investments in solar capacity shouldn’t be limited to financing new projects, experts say. They must bolster the full lifecycle, from investing in the production of solar panels to connecting to power grids. 

Regulators also have a part to play in smoothing the way for investors in solar.  

While there is “plenty of potential” in solar across EU member states, “some countries are a bit further along than others”, notes Richard Braakenburg, Head of Equity Investments at Swiss-based infrastructure fund manager SUSI Partners. 

EU policymakers must therefore keep a finger on the pulse of progress, holding all 27 member states to account if they are not matching the ambitions of the EU’s decarbonisation targets, experts say.  

Turning up the heat 

Recent events, ranging from the Covid-19 pandemic to war in Ukraine, have emphasised the need to make the transition to renewable energy “a resilient one”, Javier Sanz, Thematic Leader of Renewable Energies at EIT InnoEnergy, tells ESG Investor. This has to be done through regulatory support, he says. 

In July 2021, the European Commission launched a raft of climate-related legislation called ‘Fit for 55’ (Ff55). It includes a proposal to amend the 2009 Renewable Energy Directive to increase its target for renewables to 40% of its overall energy mix by 2030.  

To reduce EU demand for Russian gas, earlier this month the Commission published the REPowerEU plan, which outlines how it intends to diversify gas supplies and speed up the roll-out of renewable energies, including solar. Nearly two-thirds of the gas currently provided by Russia will be replaced by the end of this year, the Commission said. 

REPowerEU includes a proposal for a European Solar Rooftops Initiative, which will identify barriers to upscaling rooftop solar energy capacity and generation, proposing measures to overcome them and accelerate widespread adoption. The Commission has estimated that increasing the usage of rooftop solar PV systems by up to 15 terawatts an hour (TWh) in energy generation could save an additional 2.5 billion cubic metres (bcm) of gas.  

In the REPowerEU Q&A, the Commission noted that the full implementation its Ff55 proposals will also lower the EU’s gas consumption by 30% by 2030. 

“There needs to be more stability in regulation, with clear signals and supporting mechanisms in place for the industrial players that want to come back to Europe,” Sanz says. 

There are also calls for the EU to raise its ambitions even higher.  

Co-founded by the EU, sustainable innovation platform EIT InnoEnergy teamed up with other stakeholders to launch the European Solar Initiative in 2021. It aims to scale up the solar PV industrial ecosystem in Europe, reaching a 20 GW annual manufacturing capacity by 2025. This follows other initiatives co-launched by EIT InnoEnergy, including the European Battery Alliance. 

EIT InnoEnergy took part in a meeting between solar industry stakeholders and EU policymakers earlier this month, outlining how solar energy can address both climate-related and energy security issues.  

SolarPower Europe also urged the Commission to raise its target for the reworked Renewable Energy Directive to at least 45% renewables by 2030. 

“Regulation is really important to the renewables transition, particularly on a national level,” says Christiane Kuti, Senior Director of Global Infrastructure and Project Finance at Fitch Ratings.  

Spain is a market leader, almost doubling its 2019 solar generation from 15 TWh to 26 TWh, according to a recent report by energy think tank Ember. Solar is set to provide nearly 30% of Spain’s electricity generation by 2030, up from current levels of 10%, Ember said. Although northern Europe has less exposure to sunlight, countries like the Netherlands are also upscaling their solar capacity, the report added, demonstrating a 115% growth in solar capacity since 2019, with almost 10% of its energy power demands met by solar in 2021. 

However, other members states, such as the Czech Republic and Romania, are “notable larger countries with almost no growth in solar since 2019, and little over the last decade”, Ember said. 

The Commission is currently consulting on the status of the transition to solar energy in the EU, as part of its preparation of a new solar strategy to be published in June. It covers potential policy measures from three different objectives: accelerating deployment through demand-side measures, ensuring secure supplies of affordable and sustainable solar energy products through supply-side measures, and maximising the socio-economic benefits, potential and value of solar energy for wider society.  

Getting sunburned  

Solar is a viable cost-effective clean energy solution, but widescale deployment isn’t without its challenges. 

From the regulator’s perspective, the permitting process has to be “eased and sped up”, says Sanz.  

The current permitting process is causing an administrative “bottleneck” for solar projects, a SolarPower Europe report highlighted, noting that it typically takes between three to five years to develop a ground mounted solar project in Europe. 

A separate report by consultancy firm eclareon warned that delays and uncertainty around procuring permits inevitably “deters investors”. Given the increasingly fast pace of the renewable energy market and technologies, by the time the developer does obtain a permit, the project may be less economically viable, eclareon added. 

It’s expected that the finalised EU solar strategy will address issues with solar permits. In the meantime, however, individual member states are taking matters into their own hands. 

Earlier this month, the Italian government published a new package of measures which included new provisions to simplify the procurement of permits to install commercial rooftop PV systems with a capacity between 50 Kilowatts (kW) and 200 kW. The government will also be allocating €267 million in rebates for small- and medium-sized enterprises (SMEs) buying and installing solar PV. 

As investors continue to put pressure on investee companies to decarbonise their operations and products, there is an increasing focus being placed on nature-related risks and impacts 

With large solar farms cropping up in the countryside, biodiversity-related risks will need to be considered. 

Negative impacts can range from directly destroying natural habitat, affecting movement of wildlife species, increasing pressure of agricultural intensification and indirect land-use changes, according to a 2021 report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) and the Intergovernmental Panel on Climate Change (IPCC). 

“Developers need to have a responsible approach to solar development, which means that biodiversity-related risks need to be considered from day one,” says Macquarie’s Tilstone. “Project sites need to be chosen and built upon in a sustainable and responsible way.” 

SUSI Partners’ Braakenburg points out that productive agricultural use of land can co-exist alongside solar farms.  

In 2019, the University of Massachusetts Crop Research and Education Center researched the feasibility of agrivoltaics (the compatibility of agriculture and solar energy generation), noting that solar panels can be elevated above the farmland, with zero disruption to the soil, leaving gaps between the panels so sunlight can reach the crops below.  

Who loves the sun 

With EU policymakers making plans to increase member states’ exposure to solar energy, there are a growing range of investment opportunities for investors to consider.   

SolarPower Europe has launched the Solar Manufacturing Accelerator initiative, a platform designed to better connect investors with a variety of solar manufacturing projects across Europe. 

Asset managers are also launching solar-specific investment products. For example, Invesco’s Solar Energy UCITS ETF is investing in global companies involved in solar energy technology, ranging from batteries, inverters, raw materials and energy storage systems. 

Investors can choose to acquire a more direct stake in solar companies as they begin to grow their capacity.  

“There are big investment opportunities in solar across Europe generally, but Macquarie has identified France as a particularly interesting market,” says Tilstone.  

The asset manager recently completed its acquisition of green energy supplier Apex Energies, which is planning on massively upscaling its rooftop solar capacity. It develops and installs products such as solar PV agricultural sheds and greenhouses.  

Earlier this month, Macquarie announced its acquisition of French-headquartered Reden Solar. With a 762 MW operational portfolio and a 15 GW development pipeline, the company has recently expanded beyond its core markets in France and Spain into Greece and Italy. 

“Connection to the grid is also an essential component to consider,” emphasises Fitch Ratings’ Kuti. 

There is currently limited availability of sufficient grid capacity to connect new projects, thus limiting solar deployment, the SolarPower Europe report warned. To mitigate this, €59 billion a year needs to be invested in European power networks by 2030, which is three times more than the amount invested between 2010-2020. 

In the medium term, investors will also find opportunities in projects pairing solar with other sustainable technologies, BI’s Barnett points out. “After all, solar is an intermittent technology. It’s not sunny all the time,” he says. 

“There are therefore going to be a lot of conversations about energy storage and what kinds of technologies can be paired with wind or solar during the periods they are not generating power,” he tells ESG Investor. 

Nuclear energy, hydrogen and carbon capture and storage (CCS) technologies are all in the running, proving popular amongst investors, he notes, but they have yet to be successfully upscaled. 

Solar paired with batteries is also an attractive investment option. In the Philippines, a pilot 40 MW solar-plus-storage hybrid resources system was switched on at Alaminos Solar, a 120 MW solar PV power plant in Laguna. The solar plant charges the batteries when demand is low and the batteries are employed when demand rises.  

“I don’t think anyone right now has a clear sense of what the winning pairing technology will be,” says Barnett. “But a solution needs to be found in time for when we leave fossil fuels behind.” 

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