While large-scale solar projects are still somewhat dependent on tax credits and other financing mechanisms, increasingly they’re attracting more traditional project financing, which includes syndication among multiple financiers and project bonds.

That’s partly because some projects are realizing higher-than-expected returns on investment (ROI), said one analyst.

In the past, a coal-fired power plant could attract syndicated financing, which helps spread the risk over a number of investors, but a solar plant wasn’t likely to attract such financing.

But that’s changing, said Morningstar, Inc. investment analyst Stephen Simko.

“They have syndicated [solar] projects in Europe,” he said.

SunPower, for instance, issued the solar industry’s first commerical-grade bond in Italy last December to support development of the 44-megawatt Montalto di Castro Solar Park. At the time, the company predicted that the funding mechanism could become a standard in the future.

Still, the funding mechanism and expected return for investing in coal is different than it is for solar.

“The capital cost would be different. The coal plant would be cheaper. I think there’d be price tag difference and return rate difference,” Simko said. The issue is that solar is still newer. With coal, you know what you’re going to get in terms of ROI, he said. “With solar there’s still some variability.”

Future investments in solar could be aided by higher-than-expected returns on investment.

“There are absurd returns in some markets,” Simko said. He said some returns have been in the double-digits.

The investor market for solar is limited, Simko said. Prior to the economic meltdown, investors like Lehman Brothers and AIG were relying on the tax-equity market for ROIs.

The recession squelched that, but companies like Morgan Stanley, PNC and US Bancorp are today’s big players in the solar tax-equity market, according to “U.S. solar growth hinges on big cash infusions,” as reported by Reuters.

While the market recovers, the government’s 1603 Treasury Grant Program has been instrumental in making sure these projects still get funding, by allowing financiers quicker access to incentives.

“I do think the tax-equity market is going to recover. Will it recover and coincide with the [retirement of the] 1603 program? The answer would seem to be no,” Simko said.

Photo Illustration by Chris Meehan / CleanEnergyAuthority.