Assessing the Risks of Investments in On-Site Photovoltaic Systems : A Study on the Swedish Property Market

Abstract: One of the biggest challenges facing our world and our societies is climate change. The transition towards a society where our energy does not come from fossil fuels, but rather renewable energy, has proven to be one of the most powerful methods to reduce climate change. The real estate sector, an industry with a significant climate impact, faces an important task in the transition to renewable energy. Volatile electricity prices and declining cost per installed kilowatt have led investors to turn their attention to photovoltaic systems, both as a way to contribute to sustainability and also because of their increased attractiveness as an asset class. The aim of this thesis was to investigate the key factors that affect the risk assessment of investments in on-site photovoltaic systems, the impact these risks have on returns, and how on-site photovoltaic systems affect the value of the property and the risk of the underlying asset. A total of five respondents have been interviewed and a case study has been conducted to test how the return is affected when risk-related assumptions are adjusted. This thesis conclude that there are several central risk factors that affect the profitability of investments in on-site photovoltaics in the Swedish real estate market and constitutes a barrier for accelerating investments in on-site photovoltaic systems. This thesis has identified a number of key risks: political risks, restoration risks, risks associated with future electricity prices, and risks related to spatial differences. The political risks related to changes in energy taxes, views on energy declarations, building permits, and supply chain risks. The study underlines the importance of the fact that small changes in input, such as investment cost and electricity prices lead to large impacts on returns. The case study also clearly demonstrates that inputs such as operating costs, Feed-In-Tariffs, and energy tax have a significant role in the financial results. Higher values of these variables lead to reduced returns, while lower values have the opposite effect. Finally, the study demonstrates the indirect benefits resulting from an investment in onsite photovoltaics. The key benefits relate to lower operating costs, protection against volatile electricity prices, increased rental income, and lower vacancy rates. The increased demand for properties with on-site photovoltaics has a direct impact on the yield and thus the property value.