Solar market prices: what is happening with Ukrainian solar projects?
Ukrainian renewable energy is a dynamic sector of the economy. Until now, the pace of construction of new solar and wind projects has been staggering. Now the rules are becoming more stringent due to green tariffs lowering, responsibility for imbalances, restrictions on the construction of new capacities.
By today, the market for renewable energy projects in Ukraine was represented by the purchase and sale of land plots for the construction of stations. Of course, today's processes negatively affect sales dynamics and prices. At the same time, requests to purchase projects continue to come to the GetMarket platform. With about 1,500 MW of perspective and 400 MW of operating solar projects in the database, we are able to directly monitor sales dynamics and prices in this segment.
Demand for ready-to-build projects with all the documents to begin construction, has fallen markedly since the beginning of the year. This is due to announcements from the authorities on the introduction of a cut-off date to receive a guaranteed tariff for projects with prePPA. But the prices for high-quality projects with good geography, reliable and inexpensive grid connection, have not fallen along with demand. Owners understand that even if the green tariff is not received, after a pause, these projects will have chances of success at the upcoming auctions. Now the price of high-quality ready-to-build solar projects is at the level of Euro 40-50 thousand per 1 MW (depending on capacity, cost of connection, location, and other factors). But one should note that far from all the projects are at the level where such prices can be offered.
For solar projects below 1 MW, the state promises to keep the green tariff, therefore, here we also see an increase in demand. Prices for such projects are around 55-80 thousand Euros. The peculiarity of this category is that the cost of grid connection and land lease can have a stronger effect on the payback of the project. Hence the price range.
There is still a category of projects that went only part of a path to "ready-to build” status. Prices for them fluctuate greatly and depend on the stage at which the project is located, and of course on the conditions of placement, grid connection, etc. In this segment, today it makes sense to be active for investors who want to enter the Ukrainian market or expand, and plan their activities for decades. Now there is an opportunity to purchase projects with which it will be possible to successfully work in the auction system, which is promised to finally be launched.
Demand has also grown in the segment of already operating solar stations. The vast majority of requests are from foreign investors. Why is there such an interest in supposedly unreliable working conditions?
In fact, many foreign companies know that there is an active renewable energy market in Ukraine, and they believe that its development will not be stopped. Therefore, they are looking for opportunities to enter it. Buying an operational solar or wind station is a good way to do this, bypassing the risks of finding a site, developing a project and connecting to grids.
On the other hand, Ukrainian renewable energy operators are in a situation where expectations regarding the financial performance of their projects can change significantly. Each project is unique, so if for someone the changes will not become a big problem, for other companies they can mean some issues.
Particularly worth mentioning are projects that have received refinancing from the banks (Ukrgasbank, Ukreximbank, Oschadbank, EBRD, NEFCO, etc.). When you have an obligation to pay a loan to a bank, a decrease in income may jeopardize its fulfillment. And this can end badly for both the project owner and the financing organization. Therefore, for owners of such projects, selling now is a good way to exit the business.
It is often not possible for a buyer to find funds for the entire project cost today. And projects with refinancing are an opportunity to take on the debt of the seller company, and pay a much smaller part of its value with live funds.
Now the cost of solar stations is estimated in two ways.
Some investors are looking for projects in which the IRR (internal rate of return) is higher than a certain value for the buyer. From our practice, it usually lies within 12-15%. The specific figures depend on the policy of the investing company.
More often, buyers name the sum per MW of installed capacity of the station they are willing to pay. In our experience with investors, the average price for operational solar stations today is 900-950 thousand euros for each megawatt station (meaning the solar module or DC, not inverter capacity).
Unstable working conditions and uncertainty in the near future hurt the construction of new solar capacities. At the same time, system players retain interest in the Ukrainian market. And they not surprisingly shift their attention to other segments. Therefore, the markets for operational solar projects, along with bioenergy, small solar and wind, energy storage systems, will definitely increase activity.