Since the year 2000 the cost of solar energy power generation
has declined by 80%, while the cost of a barrel of oil has more
than doubled. The incredible cost declines in solar energy power
installations have been terrible for solar energy stocks, which trade
on the public markets, but conversely have been very beneficial
for private infrastructure investment in solar power generation.
This divergence will continue for the foreseeable future as global
manufacturing in the solar energy sector continues to consolidate.
While the public markets for solar investments, and many
other sectors, have performed poorly, private infrastructure
growth in solar energy power generation is booming. But investors
interested in participating in solar energy power generation need
to educate themselves on how to make a successful investment
in a private infrastructure opportunity.
What should investors consider before making an investment
in solar energy power generation opportunities?
1. Predictable Revenue Stream
The largest growth of solar energy infrastructure investment
has been stimulated by Feed-in Tariff program (FIT). A FIT
program guarantees the rate paid for power to those who invest
and build solar energy power generation installations and sell
the energy produced into the electricity grid. In most cases a
FIT rate is provided under a 20 year Power Purchase Agreement
(PPA), which provides the basis for certainty of power generation
revenue. Germany, under its Federal Energy Act (EEG), has
installed more solar energy power under its FIT program than
twice the amount of energy that the Province of Alberta consumes
on an annual basis. As the global leader in installed solar energy
power generation Germany’s FIT program has been adopted by
many other regions of the globe including Ontario with its Green
Energy Act passed in 2009.
Under a 20 year Power Purchase Agreement revenue streams
for solar energy investments are both predictable and stable. The
20 year Power Purchase Agreement carries with it the rating of
the underlying issuer and in the case of Ontario that means AA-.
The term ‘bankability’ refers to the quality of the underlying
equipment and equipment warranties that make up the aggregate
solar energy installation. Recently Enbridge and TransCanada
have made over $1 billion of acquisitions in the solar energy
power generation sector in Ontario. This is the equivalent of
approximately 160 Megawatts of solar energy power generation
investments. These investments are supported by selecting proven
technologies which are considered bankable both from an equity
and debt perspective. Both Enbridge and TransCanada selected
solar panels and inverters from leading global manufacturers with
top rated equipment and warranties. The better the equipment
and the warranties provided by the manufacturers the more
bankable the solar energy project is considered.
3. On-going Operating, Maintenance and Monitoring
After a solar energy installation is built it will require ongoing
operations and maintenance to ensure that the annual energy
production is maximized and the revenue generation remains stable.
Typically solar panels will degrade
in performance by approximately
0.5% per annum (or by 10% over
20 years). This revenue degradation
will vary with the quality of ongoing
operations and maintenance. A
strong preventative maintenance
program and consistent monitoring
By Stephen Freedman, President, Sloane Capital Corp.
Turning Green Energy into Green Wealth:
How Investing in Solar Energy can
Enhance Your Portfolio