13 Factors Impacting Growth for Solar Developers

Whether you manage or are developing utility-scale or community solar projects to produce electricity, it seems your workday is getting longer and longer. And depending on how the $550 billion infrastructure package recently agreed on in Congress is finalized, the renewable energy industry, particularly solar energy systems, will face new policies and regulations. Such entities will also enjoy ample opportunities. Several factors are impacting both solar energy business models, so the following can help you organize your approach for moving forward.

Utility Scale

Commonly known as “in front of the meter projects,” utility scale projects produce and deliver their power directly into the grid. While this business model seems relatively straight-forward, there are a number of considerations that can impact your bottom line, including:

1 Regulated vs. Deregulated Wholesale Power Markets: In regulated power markets, renewable energy projects typically deliver electricity directly to the utility through a power purchase agreement (“PPA”) — the utilities usually have more control over rates. Deregulated wholesale power markets are more competitive, and the power generated is traded just like any other commodity which can create more volatility.
2 Power Purchase vs. Virtual Power Purchase Agreements: In regulated markets, the process typically includes a PPA that sets a price and revenue certainty of energy output over a fixed set of years. In deregulated markets, many developers are entering Virtual Power Purchase Agreements thereby hedging against the price in wholesale markets.
3 Aging transmission networks: Part of the infrastructure package proposed by Congress is designed to upgrade energy grids and networks. How much of an investment utility companies make to these upgrades may also influence their appetite for buying power from utility-scale projects. A careful analysis of the transmission infrastructure where you are considering pursuing a project is recommended.
4 Lack of centralized policies: Requirements for renewable projects vary by transmission region (there are three in the continental U.S.), state, utilities, and by county. That means, with each project, you will have a different set of requirements and regulations.
5 Lack of standard components: As the demand for renewable energy has increased exponentially, so has the number of vendors for inverters, solar panels, components, and platforms – all critical for converting sunlight into electricity. There is always a possibility that each solar project could be supported by a different vendor or that you must find a new vendor for components of an established project. Without any consistency or standardization, managing project costs can be more difficult.
6 Labor: Like other industries, there is a labor shortage in the renewable energy sector. Experienced installers are demanding premium wages, especially in developing markets. And if you need skillsets to manage multiple components (see above), your labor costs will be higher.
7 Land: Especially in light of the Congressional infrastructure package, there will be a greater appetite for new solar projects, increasing the costs of suitable sites — costs that impact your profits. In new markets, you must also evaluate any pushback by local communities and how activists want to see renewable energy projects developed.

Distributed Generation Factors

Distributed generation, community solar, or behind-the-meter projects are still considered in their infancy, but demand is increasing. These programs are often smaller and focus on generating electricity to sell to end-users. That approach comes with a unique set of challenges, including:

8 Pricing: Retail market factors drive distributed generation prices and are typically set at the state level. Regulation varies from state to state, some requiring customers to buy power from the utility while others give customers more flexibility. By understanding the specific state legislation, the general electricity demand, and any possible damage fees; you can better determine costs. Additionally, in some markets, you may be competing with wholesale pricing and must adjust accordingly.
9 Local tariffs: If tariffs are involved, the customer pricing is set. By employing tariff timeframes, you better project your costs and profit potential.
10 Sales and marketing: Unlike utility-scale, many community-solar energy projects must employ sales and marketing strategies to engage prospects and encourage them to subscribe to the program. Depending on the scale and market, these are additional costs to consider as well as considerations of collectability from your subscribers.

Factors for All Business Models

In addition to the challenges specific to utility-scale and distributed generation business models, most renewable energy developers share several points that are informing how they design and adapt their business models:

11 Volatile climates: As more renewable energy projects are developed in new markets; the climate of those areas must be taken into consideration. Extreme weather can damage projects and increase risk for owners. Analysis of weather patterns and how to safeguard your project accordingly can help mitigate your risk and, possibly, insurance premiums.
12 Material costs: Like all industries, the rising costs of materials will continue to influence renewable energy projects. The variety of vendors alluded to above and the lack of consistent pricing prevents developers from scaling projects to save on materials.
13 Evaluating business performance: Because there are so many variables of a solar project, understanding just how well your business is doing can be complicated, but a thorough audit of your operations is critical as you look to develop future projects.

How DHG Can Help

In DHG, you gain a team of professionals with a comprehensive insight into the renewable energy space. By understanding your unique challenges, we can tailor a host of services and guidance for your specific needs, including:

  • Audit and Tax services
  • Cost certifications
  • Hypothetical Liquidation at Book Value calculations
  • Succession planning and transaction structuring
  • Forecasts and projections
  • Regulatory compliance
  • Relationship facilitation for developers, investors, and legal counsel

To learn how our renewable energy professionals can collaborate with you on strategies to help you successfully navigate the evolving challenges and opportunities of the industry, reach out to us at cre@dhg.com



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