At Solar Finance and Investment Europe, a number of themes emerged in discussion: hybridisation is increasingly a key component of a successful operating model, with issues relating co-location, the grid and a carefully calibrated approach to offtake central to resilience and value creation.

Published: 12 February 2026
Author: Graham Knight

Renewables investment continued to grow across the US and Europe in 2025, but with differing forces behind that growth. In the US, accelerating digital demand from AI, data centres and electrification is reshaping the load curve and pulling new capacity forward. In Europe, the concerns are hybridisation and extracting more value from existing assets as developers and investors face grid constraints and market volatility.

The sector is moving beyond simple capacity expansion. Investors are looking for assets that are resilient to volatility.

Market fundamentals and investor priorities

Certain European investors remain cautious about entering the US. Tax complexity, repatriation constraints and political uncertainty continue to weigh on confidence. Regulatory consistency is increasingly decisive on both continents. Europe still faces friction from slow smart meter rollout, green power taxation and cancelled interconnectors.

Institutional capital is moving toward hybrid platforms that combine solar, wind and energy storage. Geographic diversification is increasingly used to manage weather and regulatory exposure. Inflation concerns are driving more active hedging across interest rates, FX and commodities. As PV module lifetimes extend, investors are reassessing manufacturing economics and supplier stability.

Evolving revenue models in a volatile solar market

Renewables revenue stacks are becoming more complex as developers combine contracts for difference (CfD), power purchase agreements (PPA) and merchant exposure based on market dynamics, technology type and risk appetite. While diversified revenue streams can increase resilience, they introduce challenges around hedging, basis risk and optimisation.

Co located solar plus storage continues to grow, but optimisation is critical. Revenue cannibalisation is a material concern and careful management of the interface between solar output and battery energy storage systems (BESS) revenues is needed, in particular during negative price periods when generators must consider the economics of importing power to charge from the grid  against charging on site.

Merchant exposure remains a point for discussion. Lenders and contractors favour the certainty of fixed PPA cashflows for the financing and build of such substantial assets. While merchant cashflow may restrict leverage, it also allows operational optimisation and value capture in volatile markets– although there are arguments that there are less capital ways of doing this! Over time, value is shifting toward flexibility, shaping capability and ESG related attributes.

Distributed solar is racing toward institutional funder scale, attracting capital from major funds already. Its appeal includes reduced commodity exposure, clear decarbonisation impact and the ability to bypass grid bottlenecks. Storage improves load management, although portfolios may struggle where high self-consumption limits surplus energy for charging. Some early-stage assets are now experiencing pressure from negative pricing clauses in PPAs, which highlights the need for robust revenue design.

Bankability, financing and the shifting PPA landscape

Bankability concerns are rising as PV modules become fully commoditised and global oversupply places pressure on some manufacturers. This is prompting deeper scrutiny of supplier stability and quality assurance. Higher interest rates have increased demand for green labelled debt, although pricing advantages remain limited.

Traditional financing models are under pressure as revenue structures grow more complex. Portfolio financing is becoming more common. Banks favour operational assets with contracted revenues, while credit funds are taking more mezzanine and HoldCo risk. Development premia have compressed, and diverse BESS PPA structures are complicating due diligence. Leverage improves when cashflows are contracted or portfolios are diversified.

PPA structures are rebalancing. Buyers are less able to shift risk onto developers. Negative price periods are often excluded, sellers frequently absorb balancing costs and storage is increasingly used for shaping. Typical contract terms now run for five to seven years. GO only deals are rising, and hourly matching rules may limit cross border PPAs. Merchant PPAs are increasingly used alongside fixed arrangements.

Policy volatility remains a major concern. Retroactive interventions in France and Italy, along with the UK shift from RPI to CPI indexation, have put increased pressure on required returns. Hybridisation can mitigate market risk but cannot fully compensate for regulatory unpredictability.

M&A and platform growth

Solar M&A is being shaped by larger institutional platforms, which continue to pursue consolidation and vertical integration. Perceived activity slowed last year due to valuation uncertainty, pushing developers toward HoldCo/ portfolio/ warehouse type financings. Scaling remains difficult because of grid and permitting constraints, and many existing assets require optimisation.

Grid constraints and the role of digitalisation

Grid constraints remain one of the sector’s biggest challenges. Queue reform must be aligned with procurement, financing and due diligence timelines. Shared connections and private wire solutions can relieve congestion. Over time, grid optimisation will increasingly rely on digital tools such as real time forecasting, power flow control and AI driven balancing. Adoption is slow in areas where revenue models and regulation limit capital recovery.

Electricity demand outlook to 2027

European electricity demand has been largely flat for nearly two decades. Data centres may add around 1% by 2027, although this growth will not be evenly distributed. EV adoption adds marginal net demand, which is offset by energy efficiency improvements and weaker industrial output. Negative pricing events are becoming more common across Europe, including in the UK. As a result, co located solar and storage is gaining prominence.

Resilience as the new imperative

Resilience will define the market in 2026. Leading portfolios will combine diverse technologies and geographies and developers will work towards structures that enable portfolio/platform level financing and ownership. Revenue strategies must be carefully calibrated, and BESS must be integrated, in all senses, to maximise its impact on revenues, stability and grid connection. Capital efficiency and returns will, as always, also depend on policy and regulation – with a stable and considered approach across generation, transmission, distribution and the consumer.

The industry is shifting from building capacity to building resilience. The most successful in the sector will treat this as a fundamental design parameter.