It is the best of times and the worst of times for the solar energy business.
Using the language of the oil patch, Recurrent Energy CEO Arno Harris says that while the “upstream” part of solar – manufacturing solar panels – is suffering amid the cost compression and reduced appetite for technology risk represented by the failure of Solyndra and other solar firms in 2011; at the same time, the “downstream” part of solar – installations to generate power – are thriving.
Recurrent is closing out 2011 with a spate of deals that would be attention-getting in any year: Not many firms can claim investments by Google and private equity behemoth KKR only days after signing a major financing deal with Mizuho for international expansion. KKR and Google will be investing in four solar facilities in California that serve the Sacramento Municipal Utility District.
Harris called the KKR and Google investment in 88 MW of solar power a “clear demonstration of solar’s ability to attract private capital” in announcing the deal, but acknowledged that it is the downstream part of the business that is garnering investor interest. Recurrent was purchased by Sharp in 2010, but is still operated as a separate firm.
For an in-depth interview with Arno Harris and to get his take on the solar industry, read “Surfing The Accelerating Wave Of Solar Adoption.”
Despite the uncertainty surrounding the potential end of the 1603 tax credit program at the end of 2012, Harris told Breaking Energy that there “remains a lot of interest in solar project financing.” Private equity firms with infrastructure funds are able to garner reasonable yields at a relatively low credit risk when projects are fulfilling either utility feed-in-tariffs or renewable portfolio standards, and are prioritizing stability of returns and controlled credit risk over the kind of returns that customarily are expected from traditional private equity investments.
“The years ahead are going to be a little bumpy for everybody,” Harris said, as firms continue to struggle with pricing shifts and potential dangers to tax financing. In the case of the Sacramento Municipal Utility District solar project invested in by Google and KKR, Recurrent’s original bid into the utility’s RFP was seen as potentially difficult to hit, but shifting solar power economics have allowed it to build a profitable project while diminishing the rate impact for ratepayers.