The Volta Factor

For a short while now I have been posting about The Solarity - the point at which the utility auction bid price in $/MWh by a Solar PV operator is matched by the price of SolarCoin when also priced in $. Please see previous ramblings here, here and here.

One thing that I didn't realise, until it was patiently pointed out to me by Nick Gogerty, one of the founders of SolarCoin, is the following (hopefully correctly summarised) important idea:

From an investor's POV, it's not necessarily the point at which The Solarity is reached that is most important but the point at which the price of SolarCoin equals, or is greater than, the investor's expected return on investment.

For example, say a fictitious energy company thinks they can build, operate and supply solar generated electricity at a rate of $20/MWh on which they expect to make 10% return on investment (ROI).

On winning the auction in their country of choice and, being savvy operators, they decide to apply for SolarCoin as ..."hey what they hell... it's just a little bonus, right"?

So, if their winning auction price per MWh is $20 and the company expects to make 10% return i.e. $2.00.... then at SLR = $2.00 they are making a total return of $4.00, effectively doubling their expected ROI. We can see this very easily in the following chart:

Another way to think of this is that claiming for SolarCoin for each MWh produced (and it being priced at $2 of course!) has a multiplying factor of 2 on their expected original return of $2.00. (i.e $2 (expected) + $2 (SLR claim) / $2 (expected) = 2).

But, and this is the kicker, at $2.00 the SLR price is still only 10% of the way to their auction bid price of $20, i.e. just 10% of the way to The Solarity in their country of operation!

At the risk of labouring the point, for a SLR price at $4, the effective return is $6 ($2 + $4), at $8 it is $10 ($2 + $8) - multiplying factors of 3 and 5 respectively. Even at today's price (~$1 at the time of writing) claiming for SolarCoin would mean a 50% increase on the company's expected ROI.

For a range of values of SolarCoin, we can take the same imaginary installation priced at $20/MWh, again with an expected ROI of 10%, and instead plot the amplifying factor that claiming for SolarCoin will have on the company's ROI for the installation:

As you can see, if the $ price of SolarCoin does actually reach their auction price of $20 (i.e Solarity!) they are then making a whopping 11 times return on their expected original investment, i.e. $2 (expected) + $20 (SLR claim) / $2 (expected) = 11.

If instead the company's expected return was lower at 5%, say, then their ROI "at Solarity" would be an enormous 21 times greater!

Gulp.

Get me a field.

Just as the idea of The Solarity seemed like a useful hook on which to pin ideas, it also seems like this amplifying factor concept could do with a name too. Maybe we could use James Pryor’s (@jcepryor) other suggested term - so meet the Volta: a misappropriated word for the point at which the price of SolarCoin is equal to or greater than a solar PV operator's expected return on investment.

In summary, if you are a solar PV operator claiming your free SolarCoin grants could make a significant contribution to your ROI... so get claiming!

... and if you would like to support the future development of my nascent SolarityTracker project at no cost to yourself please consider using this referral address 8RNBSM4HrUkYSMfRSjNdDwjWcWGs1JpH6J when registering a solar PV system with the SolarCoin Foundation. Thank you.