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Report: Solar and Geothermal Projects Have Over 10% Returns, But Finance Remains Difficult

Ryan Hubbell

Despite healthy expected returns, finance-related challenges remain the largest barriers to renewable energy development, according to NREL's Renewable Energy Finance Tracking Initiative (REFTI).

Two recently released reports on solar and geothermal technologies show greater than 10% expected returns for both developers and tax equity investors. Yet roughly half of both geothermal and solar respondents (350 in total) reported financial issues (project economics, PPAs, creditworthiness, and raising capital) as the largest barriers to development. In light of this, only 11%-13% of respondents reported abandoning their projects.

project expected returns by

Figure 1. Expected returns on developer equity for all solar technologies and project sizes Q4 2009 – 2H 2011


Installed Costs
($/W net output)

LCOE ($/kWh)




Solar CSP



Small-Scale PV
(< 1 MW)



Large-Scale PV
(≥ 1 MW)



shows aggregate PPA term (years), PPA escalation rate and
first-year PPA price for geothermal, solar CSP,
large-scale PV and wind, Q4 2009 &ndash; 2H 2011

Figure 2. Average PPA term, escalation rate, and first-year price (measured in ¢/kWh and size of bubble) by technology, Q4 2009–2H 2011

Graph shows construction insurance, interest
during construction, debt set-up, engineering and legal
fees as a percent of total project costs for wind, small-
and large-scale PV, geothermal and biomass-electric, 2H

Figure 3. Project soft costs as a percent of total project costs by type and technology

Source: 2H 2011 REFTI data

Geothermal projects reported the highest returns among all technologies (Figure 1) with both developer and tax equity returns estimated to exceed 15% [1]. Returns were rather comparable between small- and large-scale solar, with concentrated solar power (CSP) reporting the lowest expected tax equity returns. Although some research suggests tax equity investors' returns can be much higher than developers', the rather tight spreads reported by REFTI participants indicate this may not necessarily be the case. Higher developer participation could also be influencing expected returns.

On the cost side, CSP reported lower estimated installed costs and LCOE than PV (Table 1), which could be due to a number of factors, including the timing of panel purchases, estimated nature of total CSP project costs, and storage capabilities. Prior to the second half of 2011, installed PV costs were declining faster than module prices [2], indicating balance-of-system costs were declining as well. This trend reversed in 2H 2011, however. Small PV, for example, reported a 60% increase from the prior period ($0.039 to $0.063/W). Conversely, LCOE reportedly dropped for both PV categories, but large PV is trending down and small PV is trending up over the entire timeframe. Geothermal reported the lowest LCOE, averaging $0.067/kWh from late 2009 through 2011.

In line with LCOE cost data, first-year power purchase agreement (PPA) prices for large-scale PV were also highest among the four utility-scale project sizes and technologies shown in Figure 2 (small PV excluded due to retail/wholesale price differences). Geothermal reported the longest PPA terms and second-highest year one PPA price at $0.098/kW. This is likely due, in large part, to its high capacity factor and dispatchability compared to wind and solar.

Additional insight into balance-of-system (or "soft") costs was gained from the most recent REFTI questionnaire, which asked participants to report various soft costs based on their percentage of total project costs. As illustrated in Figure 3, geothermal reported the largest total percentage of soft costs at 15%. Both PV scales reported lower soft costs with wind recording the lowest—at 4.5%. Combined, engineering and interest costs during construction accounted for the largest portion, ranging between 45% and 67%.

See these links for the reports:

Renewable Energy Finance Tracking Initiative (REFTI) Solar Trend Analysis

Renewable Energy Finance Tracking Initiative (REFTI): Snapshot of Recent Geothermal Financing Terms, Fourth Quarter 2009 – Second Half 2011

This article was first published on NREL's Renewable Energy Project Finance blog, and is reprinted with permission.


[1] Until 2H 2011, "N/A" was not an answer choice, creating a response that could slightly alter the weighted average calculations. For example, if respondents answered 0 – 6% when in fact there was no tax equity being utilized, a 3% value would be used in calculating the weighted average. Effects should be minimal, as approximately only 13% of PV respondents reported 0%-6% over the REFTI timeframe and it's likely only a fraction of those actually had no tax equity.

[2] Module prices as reported by SEIA / GTM's U.S. Solar Market Insights Reports, 2010 – 2011

was posted on AltEnergyStocks.com.

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