Q&A: Investment and finance for solar and storage


Financier Worldwide Magazine

October 2019 Issue

FW moderates a discussion on investment and finance for solar and storage between Dino E. Barajas at Akin Gump Strauss Hauer & Feld LLP, David Peill at BSR Energy, and Christian Hellmund at DWF Law LLP.

FW: Reflecting on the last 12-18 months, how would you describe interest levels and investment activity in the solar and storage space? What are some of the key trends shaping this market?

Barajas: Investments in solar production facilities are currently at a high level as construction costs continue to compete head-to-head with fossil fuel facilities. Pricing has become challenging for developers as competition for quality off-takers is at a premium. Public utilities in the US, which had government-imposed renewable energy standards to satisfy, are now in the driver’s seat as they have met their initial required installed production levels and now only sign up highly priced competitive projects which augment their production portfolios. Corporate off-takers have also become highly sophisticated corporate consumers and, on occasion, co-investors or outright facility owners. The ‘greening’ of corporate America has moved beyond being a good corporate citizen, to buying green energy because it makes economic sense.

Peill: In order to consider the last 12 to 18 months in the UK, one needs to look at the sectors in isolation. Interest in the solar space has continued unabated, however as there have been no new projects the activity has mainly focused on the secondary market. There has been much interest, debate and discussion about the storage sector, but only limited transactions have taken place. Solar developers saw battery storage as the market to enter after the withdrawal of solar subsidies in the UK, but as fast as the market started, the revenue figures supporting the business case collapsed to the extent that there are now over 3GW of unimplemented planning consents with little prospect of many of them ever being built. Those projects that have moved forward have predominantly been coupled with now historic high capacity market or enhanced frequency response (EFR) contracts, though, in recent months, we have seen the emergence of some niche, well-capitalised storage investors with a deep understanding of the power markets building out new developments based on multiple revenue streams.

Hellmund: In the last 12 to 18 months, solar and battery storage markets in the UK have been far less buoyant than in previous years as renewables subsidies for commercial solar projects have disappeared, with investors looking carefully at rate of returns considering current project development and financing costs as well as available revenue streams. Recently, however, the UK is seeing increased activity in these markets and is likely to join other countries such as Spain, Portugal and Italy, which have been at the forefront of subsidy-free utility-scale solar photovoltaic (PV) installations.

FW: Have any recent, high-profile deals caught your attention?

Peill: There have been a number of substantial portfolio sales which have hit the headlines. But it has been the collaborations being forged between developers, contractors and investors that have caught my attention recently. This indicates how the market will evolve. Examples include Solar Century linking up with Encavis AG, Next Energy funding a number of subsidy-free solar developers and Gresham House working with Noriker Power.

Barajas: The Macquarie Capital build out of battery storage facilities in key Southern California markets has been one of the market movers in the renewable energy industry. Macquarie has now positioned itself as a key market player by strategically positioning itself in the storage space and driving the market going forward as it continues to grow its portfolio.

The Solar Trade Association (STA) expects the pipeline of large-scale solar projects to grow significantly in 2019, partly due to a global surplus of PV panels.
— Christian Hellmund

FW: What makes solar and storage projects attractive to prospective investors? How does solar compare with other renewables, as well as conventional energy generation?

Hellmund: Over the years, project development and financing costs for solar have come down significantly and are likely to fall further in future. The industry is likely to see a similar trend relating to battery storage projects. Solar projects combined with a storage solution have the potential to help smooth demand peaks. There is an increase in the development of localised energy grid solutions, such as micro grids, with an interconnection to the wider grid networks which, if structured correctly, will be interesting to certain investors.

Barajas: The pricing, both construction costs and energy pricing, of solar projects, and the ability to ‘up-size’ facilities over time, makes solar build outs attractive to both developers and consumers alike. Given the increasing efficiency of solar panel technology, solar projects are continuing to become more competitive in markets even when developers are not able to position large utility-scale projects which depend on economies of scale for their competitive edge. Now, smaller scale projects located in higher energy priced markets are becoming attractive to corporate and industrial consumers who are looking for new methods of controlling costs.

Peill: Solar in the UK remains the most predictable form of renewable energy generation. The volatility of energy generation on an annual basis is usually within a plus and minus 5 percent range, providing significant certainty of output which is highly attractive to prospective investors. Compared to the generation volatility of on-shore wind at plus and minus 30 percent, one can see why the investment yields for solar are so strong. The attraction of storage is for an altogether different reason. Here, the investors coming in see an early mover advantage for those brave and knowledgeable enough to move into this niche space. These investors see the clear market direction of increasing levels of intermittent generation being connected, which will create greater power price volatility and require a greater level of balancing. For the right team of forecasters and energy traders, this represents a very interesting and potentially very lucrative business.

FW: Have any notable legal and regulatory developments had an impact in this space?

Peill: In the solar space, the demise of subsidies in 2017 was a hammer blow to the industry in the UK. The period subsequently was brutal and led to a significant decline in employment in the industry. For those with the aptitude and foresight to move to other, more favourable countries, developers, contractors and investors have continued to prosper, while we are pleased to see the emergence of unsubsidised projects in the UK becoming viable over the course of the next 12 months or so. As a headwind to investment in the storage space, there remains considerable uncertainty around when legislation changes will come into effect to catch up with technological advancements.

Barajas: Aside from US tax policy, one of the more important factors affecting the renewable energy sector has been policy shifts by the current federal government administration in promoting the increased use of fossil fuels. In the past, increasing regulatory requirements on air emissions made renewable energy projects more attractive as long-term alternatives to fossil fuel power generation projects in certain markets. Now, renewable energy project development is mainly driven or encouraged by state energy and environmental policies. California energy policies serve as a good example of a market attempting to position renewable energy projects as a preferred source of electricity generation.

Hellmund: Private wire or ‘behind the meter’ projects tend to develop more and more in the UK, similar to the grid parity projects already seen in countries like Italy. Well-structured private wire power purchase agreements (PPAs) will assist in this development. However, in years to come, there may be competition challenges to these arrangements as certain grid costs are currently not applicable to private wire arrangements. The characteristics and project economics of private wire arrangements are, however, different to a licensed electricity supply, hence the development of utility-scale solar and battery storage projects will be interesting to see in the future.

The pricing, both construction costs and energy pricing, of solar projects, and the ability to ‘up-size’ facilities over time, makes solar build outs attractive to both developers and consumers alike.
— Dino E. Barajas

FW: In what ways are cost of capital, energy, construction and equipment influencing project developments in the solar and storage space?

Hellmund: The Solar Trade Association (STA) expects the pipeline of large-scale solar projects to grow significantly in 2019, partly due to a global surplus of PV panels. Equipment and panel costs have come down significantly in the last few years and certain panel suppliers are even offering finance solutions for the first couple of years. For example, payment for panels is required only after the first two or three years of operation of the plant.

Peill: The cost of capital remains a barrier, particularly in the storage sector. As the market matures and grows, we expect this to fall to a level at which greater activity will take place. In the solar space, we are already seeing a fall in the cost of capital for non-subsidised projects resulting in the tipping point of viability shifting to within the next 12 months. With regard to construction and equipment, the majority of a project’s cost is physical equipment, predominantly sourced from overseas manufacturers. While global production efficiencies have helped drive a significant fall in the cost of both solar panels and lithium-ion batteries, the drop in value of sterling due to the ongoing Brexit uncertainty has eroded any headline cost savings in the near term. How long sterling will remain in the doldrums is unknown.

FW: Could you provide an insight into how deals are being structured and financed in this market? Are there any common themes or unique aspects of note?

Barajas: One of the most interesting markets for renewable energy development has been Latin America. As the US market has become increasingly competitive for renewable energy developers, many developers and renewable energy component manufacturers have focused on development opportunities in Latin American markets where energy pricing has historically been higher than in the US. In Mexico, large solar projects like the Aguascalientes solar project have been successfully developed and financed, despite changes in the overall structure of Mexico’s energy market under the Obrador administration. The Mexican energy market continues to attract interest from international developers looking for opportunities to enter the market and partner with corporate off-takers and the Mexican government. Even in challenging markets like Argentina, projects like the Cafayate solar project have been successfully developed and financed. The key to successfully financing solar projects in the current Latin American market has depended on the inclusion of development banks like Bancomext and NADBank, in the case of Mexico, and CAF in the case of Argentina.

Peill: After a hiatus in the UK since 2017, new solar developments are starting to take place again. The interesting evolution that started a couple of years ago is the appetite for long-term asset investors to undertake the development themselves. This appears to be for two principle reasons. First, to gain a competitive edge over investors who traditionally have only acquired constructed projects. And second, to ensure the project is constructed to the quality necessary to ensure the development will last for the projected life of the investment and hopefully beyond. This has led to an active market for the acquisition of project rights and an active market for forward funding where the developer has a construction team. This has led to a squeeze on some investors who have traditionally acquired permitted projects, built them out and subsequently sold on to a mainstream infrastructure investor. In addition, several investors seem prepared to deploy capital in early stage development in pursuit of greater returns and as a means to secure a future pipeline.

Hellmund: Funding structures of solar and storage projects depend on a variety of factors, such as project size, jurisdiction and location, as well as purpose of the project and investment appetite by the various parties involved. Larger storage deals, such as 30MW to 50MW, tend to be mainly debt funded, while smaller projects may see a mix of equity and debt as well as on balance sheet funding. Crowdfunding concepts for solar projects are becoming increasingly interesting, especially in developing countries such as in Sub-Saharan Africa with the development of microgrids and community lead projects.

We operate in an exciting market and this will not change as more people embrace renewables, both as the lowest cost of energy generation and because it is simply the right thing to do.
— David Peill

FW: What steps can investors take to optimise their solar investments, to mitigate risks and maximise expected returns?

Peill: There has been a steep learning curve for investors, developers and contractors alike as the industry has grown over the last seven years. In the early days, little focus was placed on optimisation of the performance of assets, as investors and developers chased volume over quality. As the market has matured, we are pleased to see a greater emphasis on quality of build and quality of management. While there has been considerable downward pressure on headline operations and maintenance (O&M) charges over the last 24 months, there is an increasing appreciation of the work required and cost involved to optimise the output of the plant through high availability, panel cleaning and appropriate inverter hardware and software maintenance. Many asset owners have recruited specialist technical asset managers to oversee the optimisation of plants and efficiency of the work, which has helped drive these optimisation strategies through. To mitigate risks on the value of power, many asset owners are seeking to secure long-term off-take agreements either with energy suppliers or directly through a sleeved or virtual corporate PPAs. The corporate PPA market in the UK is still in its infancy, but is expected to grow exponentially in the coming years.

Hellmund: The level of risk and return will depend on the project stage at which an investor is looking to enter the project. Early development stages, where potential bridge financing may be required, tend to be riskier than projects which have been operational for a couple of years. In certain jurisdictions, it is not only a question of a stable political, regulatory and market environment, factors such as the condition of the grid, quality offtaker, geographical circumstances, project location and community benefit and engagement are key to a successful project.

Barajas: The inclusion of a strong team of advisers with extensive market knowledge is critical in mitigating risks and anticipating future market issues which may ultimately affect a developer’s or investor’s bottom line. Market knowledge and prior deal experience has been the Achilles’ heel of numerous projects where developers or investors approach development or acquisition opportunities without securing the advice of market experts and instead utilise shoestring adviser budgets to close deals only to later regret not hiring individuals with the necessary experience in a particular jurisdiction.

FW: Looking ahead, how do you expect investment activity in solar and storage to unfold in the months and years ahead? What general predictions would you make about the future of this market?

Barajas: Within the next few years, we expect solar projects to continue to gain market share in markets where the development of fossil fuel power generation projects are inhibited by environmental considerations, and in Latin American markets which are trying to achieve energy independence. There are numerous key markets which have yet to be fully developed.

Hellmund: Solar and battery storage investment activity is likely to continue in future, with project development and financing costs falling further. As decarbonisation continues by taking thermal generation plants such as coal off grid, it will be interesting to see whether the combination of solar projects with battery storage will be able to deliver balancing and frequency response services to prevent blackouts, as recently happened in the UK by a rare combination of an outage of a thermal generating plant and the tripping of an offshore wind farm.

Peill: We operate in an exciting market and this will not change as more people embrace renewables, both as the lowest cost of energy generation and because it is simply the right thing to do. We forecast that at some point in the near future we will see a merger of the solar and storage sectors, with new hybrid sites being developed that have storage integrated into a new solar park, as we have seen in the US and Australian markets. We are planning for this as best we can within the limitations of the UK local and national grid infrastructure. Investment activity will remain strong and we anticipate a wide array of new entrants entering the market through both direct acquisition of projects and via corporate activity. These will inevitably include a number of the major oil companies, following in the wake of BP’s investment in Lightsource. Other entrants could be significant power users themselves, who can effectively sell the power output back to themselves through a PPA arrangement. Tempering investment in the sector, to a degree, will be ongoing concerns that today’s favoured renewable technology will be tomorrow’s obsolete form of generation or storage.  Advancements in solar panel and storage technologies will inevitably advance and change and will have an impact on the market. We predict it will not be long before renewable technologies are an integral part of any new development, as opposed to a


Dino E. Barajas focuses his practice on domestic and international project development and finance, with particular emphasis on Latin American infrastructure projects, debt financings and mergers and acquisitions. Mr Barajas regularly represents lenders, investors and developers in a wide range of domestic and international project financings in the energy, power, infrastructure and commercial sectors, as well as in traditional banking, structured finance, mergers and acquisitions, corporate finance, asset finance, joint ventures and venture capital transactions. His clients include commercial lenders, institutional investors, investment funds, project sponsors, and public and private companies. He can be contacted on +1 (310) 552 6613 or by email:

David Peill has been with the BSR Group since early 2012, and his focus is growing the group’s energy storage and non-subsidised solar pipeline in the UK.  He has extensive experience in the promotion, planning, financing, development and disposal of solar park portfolios. Prior to joining BSR, he ran a commercial property fund and corporate finance boutique which he co-founded in 2005. Mr Peill is a qualified chartered surveyor, having spent the first 10 years of his career at Savills plc specialising in the appraisal and funding of commercial property assets. He can be contacted on +44 (0)1458 224 900 or by email:

Christian Hellmund is an experienced commercial lawyer specialising in national and international energy, renewables and infrastructure projects. He is a member of DWF’s Energy & Industrials Group and advises on a wide range of energy, renewables and infrastructure projects, including electricity and gas transmission and distribution, decentralised energy solutions, district energy (including CHP and smart infrastructure) projects and other energy projects, such as renewable energy, energy from waste and waste management, bioenergy (biomass, biogas and biofuels), anaerobic digestion (AD), wind and solar photovoltaic. His clients include utilities, public authorities, national and international project developers, energy management companies and funders. He can be contacted on +44 (0)113 261 6065 or by email:

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