The utility-owned model and the developer-owned (or private ownership) model differ notably in cost implications for consumers, with each model offering distinct potential savings depending on various factors.
Cost Savings Comparison
Utility-Owned Model Benefits:
- The utility ownership model can offer up to 14% customer cost savings compared to the private ownership model under conditions such as high wholesale power prices and high cost of capital for private developers. Utilities often have lower financing costs and can leverage tax incentives effectively, which can translate into lower prices for consumers.
- Utilities typically finance, own, and operate the project, which can result in decreased risk and overhead related to construction, operation, and maintenance, potentially passing savings on to customers.
- Utilities’ legal, financial, and program management infrastructure often supports efficient project delivery, enabling them to capitalize on economies of scale and regulatory benefits that reduce overall costs to consumers.
Developer-Owned Model Characteristics:
- The developer-owned model, where a third party finances and operates the system, can provide immediate savings from day one because the utility pays nothing upfront and avoids the financial risks related to construction, performance, or maintenance.
- However, the developer-owned model may deliver less long-term savings because the private developer needs to recover costs plus profit, possibly resulting in higher prices over time compared to utility ownership.
- In some scenarios, such as when utilities act as Option 2 taxpayers or where wholesale power prices are low, the developer-owned model could result in consumer savings up to 11% due to specific tax credit structures and cost factors.
Summary Table of Cost Saving Potential
| Factor/Scenario | Utility-Owned Model | Developer-Owned Model |
|---|---|---|
| Upfront capital cost | Utility finances, bears risk | Developer finances, utility pays nothing upfront |
| Long-term customer savings | Up to 14% savings in favorable conditions | Up to 11% savings in certain scenarios |
| Risk | Utility bears construction and operational risk | Developer assumes financial and operational risk |
| Immediate savings | Gradual savings over time | Immediate savings from day one |
| Tax incentives | Utilities can capture investment tax credits effectively | Varies, depending on contract structure |
Conclusion
Cost savings for consumers depend on market conditions and ownership specifics. The utility-owned model generally offers greater potential long-term savings, especially in high power price environments and when utilities can leverage lower cost capital and tax benefits. The developer-owned model provides lower upfront costs and immediate savings but might not match utility-owned savings over time. Utilities with limited capital may prefer contracting to avoid upfront risk, though this can be less cost-effective in the long run.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-utility-owned-model-compare-to-the-developer-owned-model-in-terms-of-cost-savings-for-consumers/
