US solar investments doubled in 2013

Mercatus has released its year-end analysis of commercial solar project investment and development trends for 2013. The report is based on data from over 1400 solar projects from over 50 financiers and 300 developers over the last two years, estimated to cover greater than 40% of the US market.

The report found that investor interest in commercial solar projects has more than doubled in the last 12 months. There has been growth of more than 200% in the number of projects evaluated for investors and developers from 2012 to 2013 and over 150% in Q4 2013 vs Q4 2012 alone.

According to the quarterly report, the west continues to be the largest market for solar in the US for a variety of reasons, including high electricity rates in California and Hawaii; strong incentive programs like the 35% Hawaii State Tax Credit and the California Solar Initiative; strong solar resources in states with mid-average electricity rates like Arizona and New Mexico; and local utilities offering standardised programs to promote lower-cost development and higher cash flows.

The Northeast US market is also on the rise, showing gains for the last three quarters and making up 41% of new evaluations in Q4 2013. Haresh Patel, CEO of Mercatus, explained that the Northeast market “has moved back and forth for a variety of reasons”.

“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,” Patel said. “SREC programs, however, are volatile and highly susceptible to market forces of supply/demand.”

Other US markets typically ebb and flow based on incentives offered, but none have created staying power yet, according to the report.

The report also indicates that US investors are shifting towards 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 showing the highest internal rate of return (IRR) at 9.2%, although these returns dropped 420 basis points during the past year.

“IRR has decreased in many markets despite the fact that installation and manufacturing costs have dropped significantly,” said 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.”

The 2013 Year-End Commercial Solar Project Trend Analysis Report can be found at http://info.gomercatus.com/2013-year-end-analysis.