Yes, there are considerable similarities between owning real estate and a solar energy plant.
Both are dependent on right location, provide an easy to forecast income with little fluctuation, and have a high income/cost ratio – that is to say, a high margin.
Solar energy plants have a peak – or maximum – capacity, often expressed as megawatt peaks. Depending on the location, technology and not least, a possible sun tracker system, they also have a plant specific radiation coefficient – i.e. the amount of full hour equivalents that plant can produce with its maximum output. In reality, the plant more often than not produces below the maximum capacity, but for calculation purposes the coefficient serves us well. These two numbers give us the output of the plant, and combining this with price, we have the revenue of the plant.
For example, if we have a 1 MWp plant that has 1-axis tracker system with an annual production of 2 000 hours, our plant produces 2 000 MWh of energy. If the energy is sold at $ 100/MWh, then our revenue for the year is $ 200 000.
Just like owning real estate, running a solar energy plant comes with some costs. The plant needs maintenance, insurance, cleaning, grass-cutting, reserve parts and security – all costs you would find with real estate as well. In the case of an older plant, considerable improvements may be needed, or key components replaced. As a rule of thumb, a new plant would spend about 15 % of its revenue in operational costs, leaving for a profit margin of 85 %. The high profit margin with a relatively low annual fluctuation that make solar energy plants interesting investment targets. An annual revenue of at least ten percent (10%) of the initial investment can be extracted from the plant, meaning that after ten years, funds have been returned, and the owner is in possession of a productive asset that will keep working for another twenty years. Tear and wear take their toll on plants, but even after twenty years, a solar energy plant is expected to put out 80 % of the output on year one.
The annual revenue, as compared to rental income, is or at least, should be, considerably higher. The plants are designed to work for 25 to 30 years, but eventually the moment will come when the plant comes to the end of its life cycle, and possibly even the rental period of the plant. If the plant owner also owns the land, he may of course choose to rebuild the plant with modern technology, but this requires a considerable investment. Hence, a fair comparison would be to compare the plant to a factory, a senior citizen care home or some other building that has a limited life span.