07 Dec 2023 4 min read

Where next for the European rooftop solar market?

By Marija Simpraga , Yilin Wang

Despite macro headwinds, we see significant growth potential - but how transferable is the American model?


The EU has ambitious decarbonisation goals.

However, when it comes to residential rooftop solar installation, European households tend to have fewer financing options than their American counterparts. In our view, closing this gap will require private capital, creating potential investment opportunities for long-term investors.

In the past, European households have relied heavily on direct subsidies to install rooftop panels. While these have grown less generous, energy bills have risen considerably over the last two years, which means many homeowners are likely to look to solar panels as a way of managing energy bills. There is a long way to go: only a fraction (~1-6% depending on market) of eligible households in Europe currently have rooftop solar systems installed.

According to BNEF data, the region is set to add around 150 gigawatts of solar capacity by the end of the decade. This translates to a requirement of more than €200 billion capital investment for solar rooftop systems alone[1]. Many households choose to attach a battery to the rooftop solar system, which in turn adds to the overall system cost. If we assume 30% of installations include a battery storage system[2], investment spend could be considerably higher.


So far, most installations have required homeowners to purchase the panels outright. However, despite the decline in costs over the last decade, upfront costs remain an obstacle for many families. An outright purchase of a typical system (excluding the battery) would likely cost upwards of €10,000 in most markets – a sizeable investment for many households.

In the absence of subsidies, solar panel financing options are becoming a popular solution. These schemes usually involve no upfront payment, with customers subscribing to pay a monthly fee over a long-term lease period (generally 20 years for solar systems and 10 for batteries).

The monthly fees commonly represent a 20-30% discount on the average monthly electricity bill. Despite the headwinds from rising interest rates, rooftop solar companies such as Norway-based Otovo have reported a steady increase in installations using subscription models over the last three years.  

As the economics of rooftop solar become increasingly appealing, solar developers are starting to turn to capital markets to secure financing for pipeline expansion. As the industry develops, investors will likely be curious what opportunities there will be to deploy capital in this nascent market segment.

The American model

In the US, residential solar installers have used securitisation as a means of funding growth. Solar developers lease the panels to customers, then package portfolios of these loans into securities which are then sold to investors. This model has worked well, with issuance of solar asset-backed securities exceeding $15 billion over the last five years.

The securities are well understood, broadening the investor pool and ultimately reducing financing costs for developers. There is a relatively long track record of underlying performance, and customer payments have remained within the structuring parameters.

Applying the US model to Europe could launch a significant new renewable investment market, but it will not be without challenges. The EU’s installation and financing markets are more heterogenous than those in the US. This fragmentation results in a lack of consistency and standardisation across loan and lease terms, adding complexity to investors’ due diligence processes.

Nevertheless, the main hurdle is likely to be on the developer side. The residential solar investment market is most likely to grow if there is a consolidation in the developer market. A market dominated by a handful of large developers with strong pipelines, large portfolios and solid operational track records is one where we believe investors could most likely be able to deploy capital at scale.

Prospects for consolidation

Market consolidation could take place in various ways, especially if returns in rooftop solar exceed those available in the competitive utility project finance space. There are some encouraging signs of consolidation as more developers emerge targeting EU-wide deployment.

In the current early stages of market development, we believe opportunities to deploy capital will likely emerge in both equity and debt markets. Equity investments will likely become available as more developers scale up their pipelines and seek additional capital to fund further growth.

While the growth opportunities remain exciting in our view, investors will need to find ways to become comfortable with considerable uncertainty regarding interest rates, regulation and adoption rates – all factors key to any developer’s ability to build a portfolio.

For investors wishing to increase exposure to this theme, but with a lower risk appetite, we believe securitised debt opportunities will initially come via the private credit markets. This gives private credit investors an opportunity to get an early look at an asset class in which we see notable potential.


[1] Source: EUPD Research, LGIM Research

[2] Reported attachment rates vary widely, e.g. between 5% reported in Poland in 2022 to around 70% attachment rate in Germany in 2022

Marija Simpraga

Infrastructure Strategist

Marija is the Infrastructure Strategist in LGIM's Real Assets division. She is passionate about infrastructure as an asset class that underpins sustainable economic development. Marija joined LGIM in 2017 from Bloomberg Intelligence, where she covered the European utilities sector. When not pondering the energy transition, Marija can be found wondering around London's vintage furniture markets.

Marija Simpraga

Yilin Wang

Graduate Investment Analyst

Yilin joined LGIM in September 2022 as a graduate investment analyst. Prior to LGIM, she studied MSc Risk Management and Financial Engineering at Imperial College. 

Yilin Wang