CitiGroup has joined Deutsche Bank, Morgan Stanley, Barclays, and others in predicting a solar revolution, calling for an “increasingly bright” long-term outlook for the solar industry. According to the recent CitiGroup report, solar will see continued growth in energy generation market share and will become more competitive with fossil fuels, led by (i) favorable economics, (ii) required fuel diversification by utilities, and (iii) advantageous emerging financing structures and vehicles.
The full report can be found here, but a few highlights regarding these three particular markets drivers are described below.
- Solar manufacturing costs have plummeted as efficiencies improve, the market matures, investments in manufacturing increase, and volume growth creates lower per unit costs.
- The global solar market is now supported by a greater number of countries, both in established markets (United Kingdom, China, Japan, United States) as well as emerging markets (Middle East, India, Latin America).
- Distributed, or on-site generation – both in the commercial and industrial and residential markets, not just large utility-style projects, will increasingly become a significant growth driver.
Required Fuel Diversification:
- Utilities realize that they must diversify their energy generation portfolio to hedge against fossil fuel price volatility and the likelihood that today’s low-priced gas environment will not be permanent due to economics and tighter pollution regulations. For example, in the July 21, 2014 issue of Forbes, David Crane, CEO of NRG Energy discusses the company’s expansion into alternative energies to hedge against its heavy exposure to coal and increasing regulations of coal-fired power plants.
Advantageous Emerging Financing Vehicles:
- Solar financing has seen additional challenges with the increase in smaller projects and portfolio approaches, which necessarily have reduced efficiencies. On the other hand, the maturing market has brought access to lower cost capital, both in equity and through the emergence of YieldCo investment vehicles, as well as debt through an asset backed securities market.
- Cash flow stability for renewable assets has also improved by the development of innovative financial and tax equity structures.
The report’s researchers believe that the global solar industry projections from the International Energy Agency – 662 GW of installed generation capacity from 2012-2035 – are conservative. The report continues, stating that even using these conservative numbers, solar energy would represent 11.2% of all newly installed generation in that timeframe and would require $1.3 trillion in investment. Such investment and market growth spawns substantial opportunities over the next few years if you can capture the market efficiencies and take advantage of new markets created through this growth and maturation.