Solar farm: The rough economic model As you may know, I’m hoping to build a solar farm. In fact we are pretty far down the road of doing it. The current status of the farm is: Grid connection quote accepted and £50k deposit paidLease agreed and waiting on final signature by landownerPlanning application applied for, currently being edited, waiting for final approvalPanels ordered and 10% deposit paid To recap: This is hopefully a 1.2MWP solar far, (about 3,000 panels) in England, with a small element of battery storage (likely 256kwh or maybe 512kwh of battery). It will be grid-tied, and will sell electricity to the grid using a power purchase agreement (PPA). So how do the economics of all this work? Well basically you spend a huge amount of money up front (maybe £1.2million) and then recoup that investment, with hopefully some profit, over the farms lifetime, which is often calculated at 25 years but is likely to be 40+. Thus the spreadsheet for the whole project looks like a catastrophic loss, easing gradually over time into a decent profit as the years tick by. Here are some rough numbers (but not *that* rough, as I actually have paid some of this now… Up front Costs: All the various bureaucratic nonsense involved in a big planning application: ~£30,000A quote for a grid connection: £3,600Initial fee to landowner (one-off) £10,000Solar panels, inverters and installation: ~£680,000Grid connection: ~£150,000Battery: ~£240,000Total up-front cost: ~£1,200,000 Yikes. Now lets look at the ongoing costs: Ongoing Costs (per year) Rent to landowner: £5,000Insurance: £2,000Maintenance: £4,000 There are also some other costs that its easy to forget such as… Accountancy for the company £660Energy trading software subscription: £420Cost to replace all the inverters once: £1,200 The Economics So is this profitable? Well… it depends. Hopefully! Basically its a bet on the long term wholesale price of energy. In the UK we have an ‘energy price cap’ which a rather economically illiterate government introduced as a popular measure to prevent people’s fuel bills going too high for their political comfort. Of course, we could invest in more infrastructure and better insulation but…nah. Anyway, this is thankfully not a concern in the world of energy generation because the wholesale price is uncapped, and has been skyrocketing. In normal years, the fact that the price of solar panels has shot up and labor costs have shot up too…would be devastating to the economic case for solar farms, but luckily wholesale energy prices have been crazy high too. This was BEFORE the Russia-Ukraine war, which has pushed them up even further. The bad news is… the figures I have may all have to go up because of rampant inflation. However, assuming they do not, the break even point is now: 13 years at a wholesale cost of £60/MWH9 years at £1006 years at £140 Right now, PPA (purchase power agreements) are super-high at around £200, but this is unlikely to last, especially with so many big new energy generation facilities coming online. The situation is very complex because supply side we have these factors: Closure of old nuclear plantsOpening of new nuclear at Hinkley pointPotential new small nuclear powerNew wind farms coming onlineNew large-scale solar coming online Meanwhile on the demand side we have: Rollout of electric cars in the UKPhase-out of gas boilers in favor of air source heat pumpsPhase out of gas-for-power as we strategically move away from foreign gas reserves to home-generated power.The push for Net Zero / Climate change concerns. So when it comes down to it, this is a BIG BET, that the demand side outweighs the supply side. I think this is a good bet, but its still a risk. if it pays off well, it might be a very profitable investment, but if that happens, I’m not going to feel guilty about it. It could easily go wrong, and actually LOSE money, so there has to be a risk-premium attached to locking up this money for 25-40 years (effectively the rest of my life). I’ll do an updated post once I have more information, especially if we actually get planning permission, and a signed lease and then firm battery quotes (because that means the rent is definitely fixed, and I have a real battery quote, not a guess).