Investor interest in commercial solar projects has more than doubled in the last 12 months according to a report by Mercatus, Inc., the leading enterprise level investment analysis and decision making platform serving as the core “operating system” for solar energy investors. Mercatus’ year-end analysis of commercial solar project investment and development trends revealed that exploration – and investment dollars – for solar projects is skyrocketing.
Among the report’s findings, Mercatus reports growth by more than 200% in the number of projects evaluated for investors and developers from 2012 to 2013 using their industry leading platform, and over 150% in Q4 2013 vs Q4 2012 alone. The Mercatus Year-End Solar Investment Analysis (www.gomercatus.com/analysis) is based on data from over 1,400 actual solar projects from over 50 financiers and 300 developers over the last two years, estimated to cover greater than 40% of the US market.
“There are many factors that make an investment attractive and improve cash flows, and as incentives change, so does the focus of investors,” said Haresh Patel, CEO of Mercatus. “Investing in solar requires staying on top of local market knowledge. The key is that the market moves fast; Investors need to be nimble to succeed.”
According to the quarterly report, the West continues to be the largest market for solar in the U.S. for a variety of reasons, including high electricity rates in California and Hawaii (with two of the nation’s highest averages); strong incentive programs like the 35% Hawaii State Tax Credit and the California Solar Initiative, a state rebate program with step downs allotments; strong solar resources in states with mid-average electricity rates like Arizona and New Mexico; and progressive local utilities offering standardized programs to promote lower cost development and higher cash flows.
Perhaps coming a bit as a surprise, the Northeast U.S. is on the rise, showing gains for last three quarters and making up 41% percent of new evaluations in Q4 2013. “The Northeast is a strong secondary market that has moved back and forth for a variety of reasons for investors,” commented Mr. Patel. “Northeast markets are driven largely by high electricity rates and strong Solar Renewable Energy Credits (SREC) programs, which allow electricity suppliers to effectively supply a portion of their electricity from solar generators even if they don’t own the generators. SREC programs, however, are volatile and highly susceptible to market forces of supply/demand.”
Other U.S. markets typically ebb and flow based on incentives offered, but none have created staying power yet, according to the report.
As the large scale utility project pipeline growth has slowed investors are looking at residential and commercial segment. In other interesting findings, the report indicates U.S. investors are shifting somewhat strategically toward International projects to diversify and find new markets that might yield better returns on investment, including Japan, India, the Middle East and the Caribbean.
International investments are still showing the highest Internal Rate of Return (IRR) rates at 9.2%, according to the Mercatus report, although these returns dropped 420 basis points during the past year. The Northeast ranked second at 9% IRR, up 120 basis points in 2013. The Southern U.S. saw the lowest rate of return at 5.7%, down 300 basis points from the end of 2012.
“IRR has decreased in many markets despite the fact that installation and manufacturing costs have dropped significantly,” said Mr. Patel. “Investor returns still fluctuate by region, primarily due to state and local incentives that reduced over time, lowering the yield to investors; and lower contracted electricity rates to investors, as some of these lower cost savings are passed to the off-taker of the electricity.”
Since its 2009 inception, Mercatus has assessed over 11 GW of solar projects, and currently serves 40% of the U.S. commercial and utility solar markets. Mercatus counts the industry’s top global developers, institutional investors and independent power producers as customers, and subscribers to the Mercatus platform currently represent $1.2 billion in dedicated capital deployment for commercial solar investment in 2014.
The Mercatus software enables an efficient platform for screening, standardizing, marketing and consolidating portfolios of projects between these entities. A typical investor uses Mercatus as their core operating system to facilitate sound decision making for resource allocation and budget prioritization with repeatable performance measurements. Mercatus provides fast, accurate project resolution and clarity to speed investment decisions, allowing executives to make their organizations more nimble to drive top line growth.
To view the entire Mercatus Year-End Commercial Solar Project Analysis, visit: www.gomercatus.com/analysis
— Solar Builder magazine