Solaria’s potential datacenter royalty model could unlock +€4/share in incremental value

Overview

This report focuses on the valuation impact of a potential adjustment to Solaria’s datacenter strategy. Goldman Sachs believes that the company has historically monetized its assets primarily by selling land suitable for datacenter development, grid connection points, and long-term power supply agreements; moving forward, a shift toward a PPC-like integrated model—providing land, grid connection, power supply, and equity ownership in datacenter projects—could create a lower-risk royalty income stream.

Core views

The core view is that the value of Solaria’s datacenter resources is not fully reflected in its current valuation. The company already has approximately 3.4GW of approved grid connection points, while rising European datacenter demand and grid connections becoming a key bottleneck make its land and power resources scarce. Goldman Sachs maintains a €25 price target in its base valuation, but in its scenario analysis believes that a structure involving 10% ownership in a single 1GW datacenter project and an IRR of approximately 12%-14% could add approximately +€4/share in value, bringing the potential upside-case value to approximately €29/share.

Analysis framework

The report combines fundamental company forecasts, SOTP/DCF, M&A valuation frameworks, and datacenter JV scenario analysis. In the base price target, 70% comes from fundamental valuation, of which SOTP accounts for two-thirds and existing asset valuation for one-third; the remaining 30% comes from theoretical M&A valuation. The new datacenter business model is quantified separately as an incremental scenario and is not included in current earnings forecasts.

Methodology notes

• Valuation methodsSOTP/DCF

  Sum-of-the-parts and discounted cash flow valuation

  The core RES & Storage business is valued using DCF, with the model extending through 2035E and using a 6.6% cost of capital; the infrastructure business uses an 8x EV/EBITDA multiple; the datacenter business is based on the existing pipeline and probability weighting.

• Valuation methodsM&A framework

  M&A scenario valuation

  30% of the price target comes from theoretical M&A valuation, based on the base DCF model and a 6.1% WACC, reflecting the stronger balance sheet and lower beta/credit spreads that a potential buyer could bring.

• scenario_analysisDatacenter JV royalty scenario

  Datacenter JV royalty upside scenario

  This assumes that Solaria holds a 10% stake in a 1GW datacenter project, provides land, grid connection, and long-term energy supply, and constructs the project only after it is fully contracted with a hyperscaler, thereby avoiding utilization or AI demand risk; the scenario is estimated to generate approximately €200mn of incremental EBITDA and approximately +€4/share in incremental valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Solaria (SLRS.MC) equity

  Covered company, Buy rating

  Strengths

  Approximately 3.4GW of approved grid connection points, potential datacenter sites near solar parks, long-term PPA capabilities, and a resource base that could be expanded into an integrated datacenter model.

  Weaknesses

  Free cash flow remains negative during the forecast period, primarily due to substantial investment plans; recent equity financing led to lower EPS forecasts.

  Comparison

  The report compares the potential datacenter model with PPC and notes that Solaria trades at a double-digit percentage discount to peers on a 2026-30E P/E basis.

  Risks

  Electricity and commodity prices below expectations, execution delays, lower-than-expected returns on new capacity, rising sovereign rates, and a weakening macroeconomic environment.

• Solaria datacenter business/pipeline

  Potential source of incremental valuation

  Strengths

  Grid connection is a bottleneck for datacenter development, and Solaria’s grid connections and energy supply could accelerate third-party datacenter development; if the 3.4GW site pipeline is fully converted, the potential value is approximately €3-3.5bn.

  Weaknesses

  The new integrated business model remains at a potential transition stage, and the report explicitly excludes it from current earnings forecasts.

  Comparison

  The PPC model serves as a reference; PPC has proposed that combining land, connection points, energy, and construction could achieve an IRR of approximately 14%.

  Risks

  Full hyperscaler contracting is required to reduce AI/utilization risk; project development typically takes 2-3 years, with authorization and grid preparation taking substantial time before construction.

Key data

• RatingBuyGoldman Sachs reiterates its Buy rating, believing that the recent pullback provides an attractive entry point.
• 12-month price target€25.00The price target was reduced from €26 to €25, primarily reflecting equity financing and new forecasts.
• Current price€17.96Price disclosed on the report cover.
• Price target upside39.2%Based on the €25 price target and the €17.96 current price.
• Datacenter upside-case valuation€29/shareApproximately +€4/share in incremental value under a potential integrated datacenter model.
• Incremental EBITDA in the 1GW datacenter scenarioc.€200mnEquivalent to approximately a 60% uplift to Goldman Sachs’ 2026 clean EBITDA forecast.
• Approved grid connection pointsc.3.4GWSolaria has secured approved grid connection points near its solar parks, with a further approximately 5GW under application.
• Cumulative datacenter services contributionc.€700mn over 2026-30EBased on Solaria’s previous CMD guidance; approximately €50mn of related infrastructure revenue was already recognized in 1Q26.
• 2026-30E EBITDA CAGRc.15%Driven by increases in solar/BESS capacity and profit growth in the infrastructure business.
• 2026-30E clean EPS CAGR+18%The report states that current forecasts do not include potential incremental contributions from a change in the datacenter strategy.

Impact & implications

If Solaria successfully shifts from monetizing assets and connection points toward deeper participation in datacenter development, its valuation narrative could expand from that of a pure-play renewable energy developer to that of a diversified platform combining power, land, scarce grid connections, and datacenter infrastructure earnings. The key investment implication is that the datacenter upside scenario is not currently included in Goldman Sachs’ earnings forecasts, but it could materially strengthen market recognition of the value of the company’s resource pipeline and its medium- to long-term EBITDA optionality.

Risks

• Electricity and commodity prices below expectations.
• Delays in project execution or capacity development.
• Lower-than-expected returns on new capacity.
• Rising sovereign rates increasing the cost of capital or valuation pressure.
• A weaker-than-expected macroeconomic environment.
• If the integrated datacenter model fails to secure sufficient hyperscaler contracting, it could create utilization or demand risk.

What to watch

• Whether Solaria formally confirms a shift in its datacenter strategy at its next CMD or in management communications.
• Commercialization progress for the 3.4GW of approved grid connection points and approximately 5GW of connection points under application.
• New transactions with Merlin and other potential hyperscalers/datacenter developers.
• The pace of revenue recognition after long-term PPAs begin power sales in 2028-31.
• Progress in infrastructure business profits, EBITDA CAGR, and free cash flow over 2026-30E.
• Changes in EPS forecasts and balance-sheet financing capacity following equity-financing dilution.