Sun chasers

The Spanish solar market has gone through a dramatic change in the past six months. In 2008, enticing feed-in tariffs, abundant amounts of unused land, and most importantly sunshine, made Spain the most popular solar destination in the world. Solar PV (photovoltaic) plants were being constructed at such a phenomenal rate that the country had met three quarters of its 2010 renewables energy target by last September.

Despite the success of the sector, the Spanish government believed the growth rate of the market was unsustainable and that it would eventually overheat (pun intended). This led to the controversial reduction of the feed-in tariff by 35%, effectively grinding solar PV building to an unexpected halt. What has been left after this dramatic shift is a wave of solar plants that have been brought into the market – driving prices down – making it the perfect environment for private equity acquisitions.

UK-based private equity firms have been the most eager to take advantage of the new buyers market and have been clambering to buy-up solar PV plants since the beginning of 2009. Platina recently took over production of three solar projects which involved a €134m investment in the project, and UK alternative assets investor Foresight Group jumped on the sunshine bandwagon and acquired a 9MWp Spanish solar PV plant from Banco Santander for an undisclosed sum.

Alexandre Labouret, partner at Platina, has spent much of 2009 looking at the Spanish solar sector and believes that acquiring ready made solar projects is the best option. “There is a backlog of Spanish companies coming to the market so rather than freezing money into construction, you can acquire something that has already been built. The prices have come down so it makes sense,” he says.

Jens Thomassen, associate director of UK mid-market private equity house HgCapital, agrees: “There is little difference in terms of the cost of building and acquiring a solar plant in Spain but acquiring a ready-made solar plant that already has financing in place is definitely easier.”

HgCapital has acquired five solar PV plants in the region which began with the acquisition of three of AIG’s plants. All projects were bought for €300m and qualified for the Spanish PV tariff between May and July 2008.

Although the solar market in Spain is receiving a lot of interest from the private equity industry there is a worry that without incentive to build, the acquisition market will eventually dry up and Spain will no longer be the destination of choice for solar.

In the long term, rumblings regarding development of the US solar industry are drawing some attention but for now Italy looks like the next stop-off for solar investors.