Profit Model Analysis of Large-Scale Solar Photovoltaic Power Generation

2025-01-24

The advocacy for sustainable development and pursuit of clean energy have raised more and more attention and emphasis on solar photovoltaic power generation as a green and environmentally friendly form of energy. Large-scale solar photovoltaic power generation projects attract investors' attention to profitability, not only in terms of project feasibility and sustainability but also for promoting the development of the solar industry. Therefore, it begs the question: How can large-scale solar photovoltaic power generation make money? The following are detailed discussions from several perspectives.

The profit is realized through the difference in the price of electricity.

 

Taking a company in Beijing that installed a 5-megawatt photovoltaic power plant on its roof as an example, you can intuitively understand how large-scale solar photovoltaic power generation can achieve profitability with the difference in electricity prices. With an investment of about 35 million yuan, the project can generate 6 million KWH of electricity per year, part of which is used to meet the needs of the enterprise itself and the other part is sold to the State Grid. Under such a model, the main part of income comes from the two parts, namely, self-used part and surplus electricity.

 

(1) Part for Spontaneous Self-use

In the first five years, the photovoltaic power station generated electricity sold to their own use at a price of 1.52 yuan per degree, probably more advantageous compared with the price of electricity purchased from the grid, can directly save the enterprise a lot of electric cost, the cost saved is equal to the income of the enterprise. In the following 15 years, while it was declined to 1.22 yuan per kilowatt-hour, still much more cost savings would be realized by the enterprise.

 

(2) Residual Electricity Connects to the Internet

 

It sold at 1.11 yuan every kilowatt-hour in the first five years and became 0.81 yuan in the next 20 years. The selling of surplus power to the grid allows companies to make extra money on top of the already increased earnings from the project. Combining the two parts-self-use and surplus electricity online-in the first five years, the annual income of the enterprise is about 7.89 million yuan; in the following 15 years, the average annual income will fall to 6.09 million yuan. These revenue figures fully take into account the subsidy policies provided by the national and Beijing municipal governments, as well as the differences in electricity rates over different time periods, intuitively demonstrating the key role that electricity price differences play in profitability.

 

Second, cost considerations in the profit model

While huge revenues are gained by large-scale solar photovoltaic power generation projects, it still has to face a series of cost factors binding the final profitability of projects. The following can be included:

 

(1) Equipment Aging

In the case of long-run usage of the solar panels, the efficiency will gradually drop 0.05% each year. This means that with more time passing, the power generation of the photovoltaic power plants will gradually drop, which in turn affects the revenue of the project. Besides, there is one more problem concerning linear depreciation of equipment, which should be considered in cost accounting.

 

(2) Changes in the economic environment

Inflation rate fluctuation, adjustment of tax policy, and some other economic environmental changes will make an impact on project cost and profit. For instance, inflation may cause increases in cost, such as equipment maintenance and raw material procurement, while some changes in tax policy may have a direct influence on the profit margins of projects.

 

(3) Maintenance costs

Photovoltaic power stations need to go through regular maintenance and maintenance in the operating process to ensure that equipment operates normally and the efficiency of power generation. This includes inverter replacement, equipment insurance purchases, and operating costs such as cleaning services. Although these costs account for a relatively small proportion of the total cost of the project, they are also an expense that cannot be ignored over the long term.

 

(4) Lease costs

If the company uses other people's roofs to install a photovoltaic power plant, then extra rent needs to be paid. The annual rent is generally between 250,000 and 500,000 yuan, which will undoubtedly raise the cost of the project and lower the profitability of the project.

 

Third, return on investment (IRR) analysis

Return on investment is an important index to measure the profitability of a project. Under the above conditions, if an enterprise fully owns and uses its own roof resources, then the internal rate of return of the whole project in the 20-year cycle of the investment of its own capital is around 16-18%, which means that the project has high investment value and profitability. However, in the case of a roof lease, the IRR could drop to between 14 and 15 percent because of the higher rent. It thus follows that the method by which the roof resources are obtained makes a big difference in project returns on investment, with the investors required to put this factor into consideration when making investment decisions.

In the meantime, the scale of the PV project has a great influence on the cost. There is a big difference in cost between small projects like 500 kW and large projects like 5 MW or more. Because of the scale effect, large projects can often obtain more favorable prices in equipment procurement, construction, and installation, thereby reducing unit costs and improving project profitability. Therefore, in considering the economic benefit of any particular projects, the economies of scale must be fully considered.

 

Fourth, market prospects

From the point of existing guiding policies, depending on selling electricity alone, the prospect of distributed photovoltaic power generation is facing some challenges. But with the profound reform of the power system in the future, new profit opportunities might come up. For example, with the gradual break of the monopoly of the power grid, distributed power can directly enter the electricity sales market, which will provide more sales channels and profit space for solar photovoltaic power generation projects, expected to become an important direction to improve earnings. More importantly, with advances in technology that continuously improve while the cost continuously decreases, the competitiveness of photovoltaic generation in the power field will further raise the immense market prospect.

 

In a word, though there exist so many factors of uncertainty and challenge in the course of large-scale solar photovoltaic power generation, such as the impact of cost factors and policy changes, through reasonable planning and strategy, making full use of the price difference, grasping policy opportunities, and controlling costs, investors can achieve good economic benefits in the sector of solar photovoltaic power generation. Under the general trend of global energy transformation, solar photovoltaic power generation is a clean and renewable form of energy with great development potential and investment value.

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