Wind Solar and Energy Storage Project Profits

These projects will have long-term predictable revenue streams. In addition, lenders may be willing to finance merchant cashflows, but with less leverage and subject to detailed market studies and cash sweeps. These trends for solar and wind projects also apply to energy storage projects.

In the end, though, the net profitability of wind and solar farms is the outcome of two opposing forces: technological progress reducing cost and revenue decline reducing income. Which of these two forces is stronger? We analyzed this in a recent paper published in Renewable Energy.

The rapid growth in the energy storage market is similarly driving demand for project financing. The general principles of project finance that apply to the financing of solar and wind projects also apply to energy storage projects.

Interconnection enables movement of renewables over larger spatial scales, allowing renewable energy to find its way to distant markets where prices are higher. In the end, though, the net profitability of wind and solar farms is the outcome of two opposing forces: technological progress reducing cost and revenue decline reducing income.

Where a profitable application of energy storage requires saving of costs or deferral of investments, direct mechanisms, such as subsidies and rebates, will be effective. For applications dependent on price arbitrage, the existence and access to variable market prices are essential.

Without changes, it may be more difficult for future renewables projects to make a profit. Dramatic reductions in the cost of wind and solar have led to optimism that they can be primary contributors to low-carbon electricity grids. But there's an important obstacle to their profitability: revenue decline.