Investing in photovoltaics: risk, accounting and the value of new technology

In Europe and the US, national energy planning agencies value resource alternatives using outmoded techniques, conceived around the time of the Model-T Ford. These models, long since discarded in manufacturing and other industries, bias in favor of riskier fossil alternatives while understating the true value of photovoltaics (PV) and similar low-risk, passive, capital-intensive technologies. PV and similar renewables offer a unique cost-risk menu along with other valuable attributes that traditional valuation models, conceived long before such attributes became technologically feasible, cannot “see” because they are steeped in the vocabulary and measurement concepts of a different technological era. Properly understood and exploited, the attributes of PV could undoubtedly form the basis for reengineering the electricity production and delivery process to deliver cost reductions in ways that can yet not be imagined. Lenders and investors likewise do not yet fully understand the unique financial properties of PV as differentiated from traditional resource alternatives. Policy makers have a responsibility to broaden the analytic horizons to include new valuation models and concepts that more properly reflect the unique attributes of PV.