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Ways of Financing Solar Projects

Solar Projects - Are They Cost Effective?

Photovoltaic solar power plant projects could not compete in today's business environment with other energy projects on equal footing without taking into account environmental factors. The common tragedy (in this case environment) is a dilemma in economic theory and also in practice arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone's long-term interest for this to happen, like we did with some fisheries and pollution. Therefore we need an organization to make sure that polluters pay and that is what we have in United Nations Framework Convention for Climate Change (UNFCCC).

Solar Projects - Carbon Certificates

Some clean technology projects by themselves are not feasible by a small margin. A correction factor for such projects can be carbon certificates issued by UNFCCC. If we replace for example 1 MWh of energy produced in a coal fueled power plant with 1 MWh of electricity from photovoltaic solar power plant we also save close to 2 tons of CO2 that is not emitted into environment as solar power plants do not emit greenhouse gasses at all. On the market prices of carbon certificates vary between $10 and $25 per ton of CO2. So in essence, a solar power plant owner can get paid up to $50 dollars more per 1 MWh than an owner of coal power plant.

Solar Projects - Certificates of Origin

Some utilities pay more for electricity produced in certified renewable plants like a solar photovoltaic power plant than in facilities run on fossil fuels. Premium can rise up to 60% over market price. Utilities are able to sell energy from renewable sources to conscious consumers who want to pay higher price to lower their carbon footprint for altruistic reasons and the mechanism is controlled by independent auditors.

Solar Projects - Subsidies

Solar projects are subsidized in many countries. Subsidies are usually bigger for smaller projects and can be expressed as percentage of the price of projects or subsidies per Watt installed. Through subsidies governments support projects that are beneficial in the long run over projects that look cheaper in the short run.

Solar Projects - Feed-In Tariff

Another way of subsidizing projects in renewable energy sector is with feed-in tariff regime. With feed-in tariff governments pay investors higher than the market price for limited period of time. If market price of 1 kWh is 10 cents the government may decide that they will purchase all solar electricity produced at 30 cents per kWh for the next 15 years. Sometimes governments pay more for electricity from micro units (less than for example 50 kW units).This has an advantage over subsidies as better projects pay back to investors more than not-so-good projects. Another great feature of feed-in tariff is project financing. Namely, as soon as the project is finished and the contract with governmental agency responsible for feed-in tariff signed, cash-flow becomes very sure and banks love to finance such devices as loans are more or less self liquidating.

Solar Projects Are the Best Option in Faraway Places

While above paragraphs are true for grid connected consumers solar photovoltaic power plants may be the cheapest option for remote regions. At its cheapest a low voltage grid line would cost upwards of $20.000 per kilometer. Remote areas without a grid in a circle of 50 kilometers can build a photovoltaic solar power plant with no need to bring in fuel or the grid. They just add some battery units to store energy for days without enough sunlight and for use during the night.

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