Solar Energy Incentives: Gauging the Investment Climate and Chasing Grid Parity

Existing research on solar energy has focused on the technical requirements or economic effects of attaining grid parity. In this paper we gauge the current investment climate and determine if current risk adjusted returns are attractive enough to carry the solar market to 2014 when The Union Bank of Switzer-land (UBS), Deutsche Bank, and Macquarie Group predict that grid parity demand will take over from government incentives as the driving force behind the panel manufacture market. We explore the attractiveness of solar energy investments by taking on the role of an infrastructure private equity investor and comparatively modeling all worldwide, 10 megawatt (MW), 20 year, solar energy investment opportunities. We draw conclusions on market attractive-ness by comparing return outputs to risks in each region and determining a po-tential for attractive risk adjusted returns. Our findings show that: all predicted national and state level investment return outliers can be explained by abnor-mal risks and by strict contractual obligations. The market for solar energy in-frastructure investments is competitive, but remains attractive for investment. Finally, this attractive investment climate will continue to drive global energy markets towards the ultimate goal of these incentive schemes – grid parity. 1 This paper was completed under the guidance of Professor Suzanne Coshow with additional guidance from Professors Priyank Gandhi and John Stiver. The authors would also like to thank Matt O’Connor of GE capital, Foresight Group LLP, and Paul Zubrinich of PV magazine. The author