Generating returns on renewable generation: How manufacturing economics will impact investments in wind, solar and ocean power

DUBLIN, IRELAND: Research and Markets has announced the addition of the "Generating Returns on Renewable Generation: How Manufacturing Economics will Impact Investments in Wind, Solar, and Ocean Power" report to its offering.

Annual financing transactions for wind, solar, and ocean power technology suppliers will surpass $5 billion in 2010. But as government's share of funding declines, manufacturers and investors alike will increasingly depend on production economics, not global politics, to achieve high returns on invested capital. And the cost characteristics of these three generation technologies will continue to diverge.

Many of the differences in underlying cost structure get glossed over by LCOE, or levelized cost of energy calculations, which by placing all cash flows into an NPV analysis, hide key fixed/variable cost relationships that determine industry structure, and investor willingness to fund specific generation technologies.

While utilities have long used this measure to compare natural gas to coal to nuclear and other sources, its value is limited when looking at modern renewables, particularly when traditional utilities own less than 15 percent of wind, wave, and solar's total output.

Additionally, key financial metrics for wind, solar, and ocean vary greatly, with wind producing far more revenue per dollar invested in manufacturing capacity than solar does, while solar's cost of goods sold benefits from inventory cycles that are 50 percent shorter than wind's.

These manufacturing cost relationships flow down to electricity purchasers, and also determine what type of funding best suits each technology category. And while venture capitalists and IPOs get most of the press, the renewable electricity manufacturing industry depends heavily on more mundane types of financing, including syndicated bank loans and large convertible debt issuances. The average listed solar manufacturer, for example, receives less than a quarter of its public financing from its IPO.