Business models for renewable energy applications on islands

There are many different business models how island off-takers can profit from renewable energy. As many island off-takers do not considered electricity generation as one of their core competencies, opportunities for external investors or for rental / leasing models occur.

Factors influencing the renewable enery application on islands

Various factors are influencing the optimal electricity generation on islands. Some of these are external factors such as sun and wind conditions, grid-availability or grid stability. Some are directly related to the island community, e.g. environmental sustainability policies, availability of capital and whether or the island state directly in charge of the energy generation. Other factors are rather related to the island off-takers. Amonst these are load-profiles, availability of space directly next to the main off-takers and current electricity generation.

Complex decision space for renewable energy projects on islands
Complex decision space for renewable energy projects on islands

Depending on several internal or external factors an island off-taker may apply various business models for renewable energy:

  1. Self-consumption (plant ownership)
    The power plant is constructed on-site and a specific island off-taker consumes the electricty
    • optional: selling excess electricity to the microgrid or to adjacent  consumers
  2. Power Purchase Agreement (standard PPA)
    The island off-taker purchases the electricity at a predefined price from an Independent Power Provider (IPP)
    • off-grid or grid-connected
    • might contain flexible mechanisms such as link to diesel price or spot market price etc.
  3. Synthetic PPA
    The IPP sells at market price, power marketers provide a guaranteed price and compensate from certain deviations on. This business model requires a grid-connection and a functioning spot-market, which is not the case in the vast majority of islands.
  4. Co-ownership (joint venture)
    The island off-taker and a third-party investor found a joint venture, which then acts similar as an IPP and sells under an PPA energy to the island off-taker
  5. Leasing or rental agreements
    The island-off-taker has no investment costs, pays a leasing rate, operates the renewable energy plant and consumes (or sells excess energy) that is produced by the power plant

Especially at remote locations which are diesel-powered there is often an excellent business case. So called hybrid-power plants generate solar or wind energy when the conditions permit. If there is not much wind or sun diesel gensets contribute to a larger extend to the total electricity generation. For more details see the hybrid power plant section.

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Dr. Thomas Hillig Energy Consulting
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