Markets & Investments

The cost of solar PV has fallen by 90% since 2009, making it a very attractive investment, competitive with fossil fuels. Further, solar combined with storage now outperforms gas peaker electricity.

Reaching 1 TW of solar by 2030 will require massive investments in new solar capacity. Unlocking these investments will require tailoring the regulatory frameworks accordingly. These frameworks must provide the right economic signals to attract long term investments in the right solar technologies for the system, and for electricity consumers.

EU electricity and carbon markets create the central electricity price signal, and are the basis of the investment signal. The design of the EU electricity market must provide the right demand and supply signals to encourage flexibility, both from the generation and from the demand. Long-term electricity markets, such as capacity markets or forward markets, must be developed to allow for investments in the required clean technologies for a 100% renewable energy system. Preserving this central, market-based functioning is critical, and interventions on its mechanisms must be avoided.

State Aid has been instrumental in deploying solar PV and driving down costs, and will likely play a key role in the coming years for meeting the increased solar objectives set out by the European Commission in their EU Solar Strategy. As solar projects are CAPEX-intensive projects, it provides necessary remuneration insurance for project developers, allowing them to minimise market uncertainty and make their investments with confidence. This is the model of two-way Contracts for Difference, which complement the market price where the latter does not reach the strike price.

In parallel, market-based and subsidy-free projects are being developed. Power Purchase Agreements - long-term renewable energy sourcing contracts agreed on directly between the renewable energy producer and a consumer or a supplier - have been thriving in Europe. They provide a necessary hedging solution for energy intensive consumers, and allow corporates to meet their ESG goals.

The financial sector will equally need to be ready to provide the right financing solutions to project developers and companies to meet the pace of development. This will require strong cooperation with public and private banks or investors, alongside the development and implementation of strong, sustainable finance standards.