How to create value from solar energy
In a recent article on solar energy, McKinsey put together an overview of solar power worldwide installations as well a fine tutorial on some of the key success factors behind large scale deployment.
The same article also suggests an obvious business model based on two different entities, a developer company strong on cash for operations and a holding company with strong debt and stable yield.
Currently in Portugal, due to cash strapped public finances and huge solar irradiation (the southernmost part of the country has up to 3,000 sun hours per year) the government favors solar power for self-consumption, being rooftop photovoltaic the configuration of choice for business customers.
Knowing there is fierce competition among electrical contractors due to the construction downturn and that funding is largely available European-wide, we are seeing rooftop PV projects backed by private funds at highly competitive rates.
To better understand the value behind solar power, I would add two notes regarding value creation for the developer/holding companies and for the end customer:
Developer/holding companies: Due to the simplicity of the photovoltaic technology and the long-term duration of these projects (typically 8 to 15 years), the major contribution to value creation will arise to the financing partner, being its expected yield the key success factor of an integrated offer.
End customer: A typical industrial or services facility needs also thermal energy, which might be less expensive if generated from another primary energy (gas or biomass). Therefore, an integrated energy generation and management solution might provide a stronger competitive advantage for the self-consumption customer.