Renewable Energy Projects - Business Model

What is the basic business model of a renewable energy power plant or project? The key elements of business models for electricity generators from renewable sources are the revenue streams, cost structure and the way it is financed. With the exception of biomass and biofuels, working capital considerations are not as important (once in operation) due to low fuel and maintenance requirements.

Revenue Model

The most significant revenue stream comes from selling electricity to the grid, either at a fixed price (guaranteed feed-in tariff) or a market price. If the installation is not grid-connected, the savings from not having to purchase electricity from other sources improve net income in the same way.

The project may also be able to generate and sell renewable energy certificates or carbon emission reduction certificates, depending on the country.

A second income stream comes from tax benefits. They can take the form of

Production Tax Credits: An amount for every kWh produced over a fixed time period.

Investment Tax Credits: The opportunity to offset some or all of the initial investment over a certain number of years against pre-tax profits.

The value of the tax credits depends on the tax capacity of the investor. In general, homeowners will not be able to benefit from that stream. As a result, the revenue stream is not constant over the years, especially if early years see high interest payments.

Operating Model

There are few operational expenses, as maintenance fees tend to be low, although some technologies may require major maintenance half way through the lifetime of the plant - for instance inverters in solar plants may need to be replaced well before the modules.

Tax only needs to be paid after the investment has been fully depreciated.

All other flows are dependant on the way the project has been financed.