The traditional model for generation, transmission and distribution of electricity has been the regulated utility, either as a publicly or privately owned company.   In many countries, restructuring and deregulation of the electricity sector has unbundled (or is in the process of unbundling) the traditional utility into its generation, transmission and distribution components.  One objective is to achieve cost savings through competition in electricity generation.  Typically, transmission is turned over to operation by an independent system operator, and the distribution component can either remains a regulated monopoly.  

The following business models are characterized by the type of entity that owns and operates the power generating station.  They determine how the electricity power projects get developed, and they define the market approaches for the development of grid-based renewable energy systems. 

	Regulated Utilities
	Independent Power Producers
	Cooperatives

Regulated Utilities

Traditional regulated utilities have not been the major adopters of renewable energy, except large hydropower and geothermal.  Therefore, a variety of promotional policies have been used to stimulate utility acceptance of renewable energy. 

The traditional regulated utility develops new power generating stations on the basis of integrated resource plans and with the approval of its regulating body, which determines the portion of the project investment cost that is included in the utility rate base.  

Rate-base regulation incentivizes utility managers to be conservative in their technology choices and to prefer low capital costs power plants even if future fuel prices are likely to be very volatile.  Therefore, regulated utilities have not typically been strong adopters of renewable energy, with the exception of hydropower and in a few cases geothermal. 

Independent Power Producers

Independent power producers (IPPs) are the dominant developers, owners and operators of renewable energy power plants.  Therefore, both legal access to the grid and standardized mechanisms for power contracting and grid interconnection are necessary to a functioning market and business community.

Project development costs for IPPs are at risk, and so they require a reasonably favorable market environment, and the availability of a long-term Power Purchase Agreement (PPAs) is a necessity.   Reasonably credible assessments of the renewable energy resource are also needed before most developers will commit development funds.

IPPs prefer to use non-recourse project financing, which requires that the IPP be able to contractual determined all the project cash flows and risks - from construction through fuel supply – in order to obtain project financing.

In many developing countries, local developers cannot access non-recourse financing because the local financial institutions are unfamiliar with this type of financing or are unwilling to consider it for renewable energy technologies that are new to them.  In these cases, the IPP developers must rely on balance sheet financing.

In either case, the most essential item that a project developer must obtain in order to secure financing is a long-term power purchase agreement with creditworthy purchaser.

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Cooperatives

Cooperatives are not typically developers of grid-connected renewable energy power stations.  They are more active in the development of community-based mini-grid systems.  However, one exception is where the cooperative already exists for another purpose and has control of a renewable energy resource that can be developed as a by-product of the cooperative’s main business purpose.  The clearest example is the case of sugar cooperatives in India, which exist to assure sugar cane farmers of a stable, long-term market for their cane and to allow the farmers to capture some of the value added from sugar production.   

In India between the years 1995 to 2000, sugar mill installed cogeneration capacity for expert to the grid grew from zero to 260 MW with another 450 MW under construction.   An important fraction of this important increase in the generation of grid-connected renewable electricity was developed by cooperative sugar mills.  However, the majority of the sugar mills that implemented projects were privately held.  The cooperative mills that implemented projects were the larger and better organized of this sector of the sugar industry.  In general, the private mills were better able to manage the technical and financial issues associated with these projects.