BUSINESS MODEL: HOW TO GO THE SOLAR WAY?

Solar energy power plants (both utility and rooftop scale) have seen tremendous amount of growth in last few years. With such growth in conjunction with the country’s ambitious target of 100 GW, the market is to achieve new heights. However, acting as a hitch to such target (from consumer’s perspective) may be selecting the correct investment plan (or more commonly business model) by which a consumer can get desired return. Additionally the prices of solar power plant have seen a huge downshift (Figure 1) due to various (positive and negative) reasons. Such downshift of prices has led to a round of curiosity among the investors on the profit margins from the system. With the advancement of technology it is now possible to have various alterations (both technical and commercial) in a solar power plant. A business model in simple terms may be defined as a plan which would deliver a particular product or service and earn profits in return. With reference to solar power plant a business model is the method by which either revenue is generated by selling the generated energy or savings are made by consuming the generated electricity. From a consumers and/or investors prospective it is important that he chooses the right business model to minimize his risks and maximizes his returns. This article aims to educate its reader on the various types of business models he could possibly choose from. 

Figure 1: Recent trends of Utility scale solar energy price (Source: Mercom Capital Group)

Customer owned business model

As the name suggest, self owned business model are the ones which require the consumer to invest themselves in the solar rooftop system. They can be further sub categorized as follows:

1)      Gross metering: Metering is an important aspect for financial settlement in the solar power plant. The number of units exported to and imported from the grid is recorded in the meter. Gross metering (from the two types of known metering arrangement models) uses two separate meters for recording the export and import of energy (Figure 2). While connected to the grid, the energy is fed into the grid at a tariff known as Feed in Tariff (FiT) and the consumer buys the energy at his normal applicable tariff. Prevalent in the areas with good grid reliability, this model would ensure a minimum (guaranteed) amount of return to the consumer. 

Figure 2: A typical gross metering arrangement (Source: Google images)

2)      Net metering: The second type of metering arrangement is known as net metering. Indirectly promoting captive consumption of energy, “net” metering uses the net difference between the export and import of energy measured by a bi-directional net meter (Figure 3). This type of arrangement does away with the need of storage as the energy (when needed say at night) is imported from the grid. Such model is suitable for few categories of consumer whose tariffs are higher then cost of generation from solar plant. Most utility/regulators tend to limit the size of the power plant such that the annual energy generation is less that the customer’s demand. Prevalent in the areas with good grid reliability, this model would generate revenue through potential savings for consumer and sale of excess energy to the utility (in few cases). An additional advantage to the utility is that the financial settlement is done at a tariff much lower than the FiT. From a customers view point, he would always consumer more than his generation capacity. This means that if he has his FiT lower than the utility tariff.

Figure 3: A typical net metering arrangement (Source: Google images)

Let’s say a consumer’s consumption is 150 units (tariff of 10 Rs/kWh) and the generation is 100 units (with FiT of 6 Rs/kWh). By using gross metering one would pay the utility 900 Rs while by using net metering he would pay only 500 Rs. This means that a customer who is (almost always) consuming more than his generation, he would always tend to pay more in gross metering if his FiT is less than his tariff while compared to net metering where he would be paying for the net import of energy.

Figure 4: Cost benefit analysis of gross and net metering

3)      Captive consumption (off grid route):  Off grid captive consumption (Figure 5) kind of power plants are set up where the consumer has almost poor or no access to the grid. Such plants are set up with an intention to either consume or store all the energy generated by the plant. This plant can replace the old age Diesel Generator (DG) which could reduce both the cost and pollution however it would require a storage source (battery) to be integrated with it for continuous supply of energy. The only limitation of such system is that they (and the storage) are designed to supply energy only for particular number of days. Hence if there is no sun for a stretch, it may result in intermittent supply of energy.

Figure 5: Flow of energy in captive consumption (Source: Google images)

Third party owned business model

The business model requires third party (who is not the consumer) to invest in and own the power plant. This reduces the investment risk of the end consumer while they enjoy clean energy at cheaper rates. There are two basic types of such models:

      1)      Solar leasing: Leasing has been one of the most important tools for offsetting risk. In solar leasing (primarily followed in USA) the rooftop owner leases a rooftop system from a company. The rooftop owner pays a pre agreed rent for such system while using the energy generated from the rooftop system. This would reduce his dependence on grid and reduce his overall energy usage cost. An added advantage is that both the company and the end customer are free to choose different party once the lease period is over. Both the parties here get a fixed amount of savings over the same asset.

      2)      Solar Power Purchase Agreement (PPA) or Renewable Energy Service Company (RESCO) model:  The most commonly known model in solar industry is the Solar PPA or RESCO model. In this model, the developer constructs the power plant and sells the generated energy to the end consumer. The end consumer simply pays for the energy usage without worrying about the technical and financial aspects of the plant as per the PPA. Such model is prevalent in government bodies where their rooftop can be utilized to generate solar energy.  The developer on the other hand, does not have to land acquisition based problems but directly install the solar system.

Community shared business model

While the first two types of business model have dominated the market, community shared business model have been emerging in small urban centres and rural areas. Here the generated energy (from various sources) is utilized by the entire community as per their energy needs. They can be connected to the grid or completely disconnected from the grid based on grid availability. The customer themselves or third party investor coupled with subsidy from the state and/or central government is generally used to set up such communities. The energy mix from various power plants can be used by all the consumers. Such community may be connected to the grid and hence could utilize the grid power when power deficit. Such plant may also be off grid mandating the usage of storage technology. A variation to such model is also possible when instead of centralized generation each house has a distributed generation. In such cases few houses, if have increased power requirement can obtain excess energy from other houses which has low power demand. The house supplying power can be paid for this extra energy while maintaining the balance in the grid. Such innovative and disruptive business models are in place and more variations of such models may be added in near future. Additionally they would enable rural electrification along with improved quality of power at a cheaper cost (when compared to the primitive methods of generation).

Figure 6: Micro-gird (on left) and a Mini-grid (on right)

Waaree is committed to deliver Avant grade products and services to its consumers. The group has more than 10 years of experience in the solar business and is a trusted name for solar modules and EPC service. We have executed more than 300 MW of solar EPC projects under various business models. We have assisted our customers on the optimal system and the business model for maximizing their returns. Additionally, we are also capable of performing O&M of the solar plant to realize its life time and maximize the energy output from the plant.

Let us all pledge to make solar energy the primary source of energy in the near future.

"RAHE ROSHAN HAMARA NATION"