Energy and resources (3 of 6)

Power and renewables

About 10 minutes to read in full, or 1 minute for the short version belowFacts checked 30 September 2026

In one minute

Companies make electricity from gas, coal, nuclear, sun, wind and water, carry it over wires to homes and businesses, and bill customers for it.

The big idea: Electricity is hard to store, so supply must match demand every second, and the whole industry is built around that. Each part earns money differently: gas and coal plants are fuel businesses, solar and wind farms are financing businesses (almost all the cost is paid before they produce anything), and the grids are regulated monopolies that earn an allowed return on what they have built. Find which part you are in before you pick a driver.

One unit, in numbers: One MWh from a new utility-scale solar plant: USD 50 comes in, and USD 14 (28%) is left after its own costs.What is left is the unit's contribution, before the costs of the whole company. See the worked example
Typical margin: 15 to 25 percent for generators and grids; under 5 percent for retail supplyRoughly how much of every 100 of sales (or income) is left as profit after the running costs. More on margin
Capital intensity: Very highVery large sums must be tied up before the business earns anything, so the cost of that money weighs heavily on profit. More on capital intensity
The number to watch: Capacity factorThe energy a plant actually produces in a year divided by what it would produce at full power all year.

Ask this first in a case

Which part of the chain are we in: generation, grid, storage or retail, and is the market liberalized or a single buyer?

Words used above (2)

MW and MWh:: MW is how much power a plant can make at one moment; MWh is the energy made over time (1 MW for one hour).
Capacity factor:: Actual yearly output divided by output at full power all year.

The industry's other words are explained in Words to know (12).

On this page (17 sections)

How money is made

Generators sell each MWh into a wholesale market, where the last plant needed each hour sets the price for everyone (the merit order).
Solar and wind farms usually sell under long power purchase agreements (PPAs) at a fixed price per MWh, often won in a government tender.
Grid companies earn a return set by a regulator on the value of their network (the regulated asset base), plus allowances for running costs.
Retailers earn the gap between the tariff and the cost of power, network charges and billing, and must collect what they bill.
Some plants are also paid simply for being available when needed (capacity payments), and batteries earn fees for keeping the grid stable.

Worked example: one unit

Unit economics means the money in and out for one unit of the business. Start from the revenue, take away the unit's own costs, and what is left is its contribution. More on unit economics

The unit: One MWh from a new utility-scale solar plant, sold under a 20-year power purchase agreement at USD 50. Illustrative, rounded figures.
Line	Amount	ShareShare of revenue
Contract price for one MWh	USD 50	100%
Minus Debt repayment and interest on the build cost (lenders funded most of it)	USD 24	48%
Minus Operation and maintenance: cleaning, repairs, monitoring	USD 6	12%
Minus Land lease, insurance and grid charges	USD 4	8%
Minus Tax	USD 2	4%
What is left (contribution)	USD 14	28%

Check: USD 50 minus USD 36 of costs leaves USD 14.

So what: About USD 14 of each MWh is left for the equity investors, and the biggest cost is not fuel but repaying the money used to build. So the lever is the cost of capital and the capacity factor: the same plant can cost about a third more per MWh where investors demand a higher return.

Key measures(8)

Key measures (also called KPIs, key performance indicators) are the numbers people in this industry track. Ask for the first one or two early in a case.

Capacity factor
The energy a plant actually produces in a year divided by what it would produce at full power all year. Glossary: Capacity factor
Typical: Global averages for new plants in 2024: about 17 percent for solar, 34 percent for onshore wind, 42 percent for offshore wind[2]
Levelized cost of electricity (LCOE)
The average cost of each MWh over a plant's life, including building and financing it, so solar, wind and gas can be compared on one number. Glossary: Levelized cost of electricity (LCOE)
Typical: Global averages for new plants in 2024: about USD 43 per MWh for solar and USD 34 for onshore wind, with large differences by country[2]
Regulated asset base (RAB, or RAV)
The value of the network a regulator lets a grid company earn a return on. Grow the approved network and the allowed profit grows.
Typical: For April 2026 to March 2031, Britain's regulator allowed owners a return on equity of about 5.7 percent a year for electricity transmission and 6.1 percent for gas networks, measured after inflation (CPIH-real: on top of consumer price inflation)[5]
Cost of capital (WACC)
The yearly return lenders and owners demand on the money used to build. For solar and wind it is the biggest driver of cost per MWh. Glossary: Cost of capital (WACC)
Typical: IRENA's 2024 assumptions ranged from about 3.8 percent in Europe to 12 percent in Africa[2]
Heat rate
The fuel a gas or coal plant burns to make one MWh. Lower means more efficient, so less fuel cost per MWh.
AT&C losses (India)
Aggregate technical and commercial losses: power lost in the wires, stolen, or billed and never paid for. Glossary: AT&C losses (India)
Typical: About 16 percent nationally in India in the year to March 2025, down from about 22 percent in the year to March 2021[6]
Curtailment
Solar or wind power that is available but switched off because the grid cannot take it. Glossary: Curtailment
Peak demand and availability
The highest demand of the year, which sets how much capacity the system needs, and the share of time each plant is ready to run.

First questions to ask

When a case lands in this industry, these questions get you to the numbers that matter.

Which part of the chain are we in: generation, grid, storage or retail, and is the market liberalized or a single buyer?
Who buys the power, under what contract, and how reliably do they pay?
What is the cost per MWh, and what cost of capital does it assume?
When is the power produced, and what is it worth at those hours?
Can the grid take the power: is there a connection, and how much is curtailed?

Value chain: where the margin sits

The value chain is the steps a product or service passes through, from the first supplier to the customer. Each step below shows how much of the value it keeps. More on value chains

Step 1: Fuel and equipment: gas, coal and uranium; solar panels, turbines, batteries, transformers
Margin varies
Gas suppliers and LNG sellers; LONGi, Jinko Solar, Vestas, Siemens Energy, CATL, Sungrow
Most solar panels and much battery equipment are made in China; transformers and cables have long waiting times.
Step 2: Project development and construction: find land, win permits and a grid connection, then build
Medium margin
Developers such as ACWA Power, Masdar, Adani Green, Iberdrola; engineering, procurement and construction contractors
Value is created by winning the site, the connection and the contract; the grid queue is often the slowest step.
Step 3: Generation: gas, coal and nuclear plants, and solar, wind and hydro farms
Fat margin
NTPC, EDF, Enel, RWE, independent power producers (IPPs) such as ACWA Power
US power generators averaged about 21 percent operating margin in January 2026 data; thermal plants swing with fuel prices, renewables with the contract price and financing cost.
Step 4: Storage: batteries and pumped hydro that shift power from cheap hours to expensive ones
Margin varies
Utilities, developers, battery makers
Earns the gap between off-peak and peak prices plus fees for grid services; depends on how wide and frequent the price gaps are.
Step 5: Transmission: high-voltage lines that carry power over long distances and balance the system
Medium margin
National Grid (UK), Power Grid Corporation of India, State Grid Corporation of China, national grid operators
A natural monopoly: a regulator sets an allowed return on the value of the network, so profit is steady but capped.
Step 6: Distribution: low-voltage wires, substations and meters to homes and businesses
Medium margin
Distribution companies, in India called DISCOMs; Kenya Power; E.ON's networks in Europe
Also regulated. In India many state DISCOMs lose money because of losses, theft, unpaid bills and tariffs below cost.
Step 7: Retail and supply: buy power, sell it to customers, meter, bill and collect
Thin margin
Octopus Energy, British Gas, E.ON, DEWA (Dubai), state DISCOMs
In Great Britain the price cap allows suppliers a profit (before interest and tax) of under 3 percent of a household bill.

Profit pool: who keeps the money

Where in the value chain the profit ends up, which is often not where most of the sales are. More on profit pools

The steady profit sits in the regulated grids, which earn an allowed return on a large and growing network, and in low-cost generation with a reliable contract or a good position in the merit order. Retail supply earns thin margins. Much of the new value is created early, by whoever secures the site, the grid connection and cheap financing.

Cost structure(6)

The main costs, each as a share of revenue (the money from sales).

Wholesale energy (buying power and gas, including support contracts for low-carbon plants): About 44 to 47 percent of a household bill[3]
Networks (transmission and distribution charges): About 24 to 25 percent[3]
Supplier operating costs, bad debt and industry costs: About 17 percent[3]
Policy costs (support for clean energy and help for poorer households): About 6 percent[3]
Supplier profit before interest and tax (allowed margin): About 2.6 to 2.7 percent[3]
VAT: 0 to 5 percent (zero on electricity from October 2026 to March 2027)[3]

Benchmarks(7)

Typical figures for the industry, to check a client's numbers against.

Operating margin, US general utilities: About 23 percent[1]High margins, but on a very large asset base.
Operating margin, US power generators: About 21 percent[1]
Operating margin, US green and renewable energy companies: About 20 percent[1]
Installed cost of new solar and onshore wind, 2024 global average: About USD 690 per kW for solar and USD 1,040 per kW for onshore wind[2]
New renewable capacity cheaper than the cheapest new fossil option, 2024: About 91 percent[2]
Allowed profit for a household energy supplier in Great Britain: About 2.6 to 2.7 percent of the bill[3]
Allowed overall cost of capital (WACC) for British grids, 2026 to 2031: About 5.2 percent for gas and 5.5 to 5.7 percent for electricity transmission[4]The regulator calls these semi-nominal: part of the debt allowance includes inflation, while the return on equity is set after inflation.

Typical cases(7)

Case prompts you might hear in this industry.

Should we bid in a 1 GW solar tender in Saudi Arabia, and at what tariff?
A state distribution company in India loses money every year. Fix it.
Should a European utility add batteries to its solar parks?
Our gas power plant runs fewer hours every year. Keep it, change it or close it?
How can a country in Africa give electricity to everyone by 2030?
A data centre operator needs 500 MW of clean power. How should it buy it?
A household energy supplier in the UK is losing customers and margin. What should it do?

Common traps(6)

Mistakes candidates make in this industry, and what to do instead.

Mixing up MW (capacity, the size of the plant) and MWh (energy, what it produces). Compare plants on energy produced.
Using LCOE alone. Solar at noon can be worth much less than power in the evening peak.
Forgetting the cost of capital, which can change a renewable project's cost per MWh by a third.
Assuming a regulated grid can raise prices freely. Its return is set by the regulator.
Treating a state buyer as risk free when it has a history of paying late.
Reaching for a generic framework instead of the real driver of this industry. Instead, compare projects on cost per MWh (capacity factor, capex and cost of capital), or for a grid on the regulated asset base and the allowed return.

What changed, 2024 to 2026(7)

Recent changes a case could turn on.

Solar is growing fastest: solar generation rose about 30 percent in 2025 and renewables supplied about 34 percent of world electricity, slightly more than coal for the first time.[8]
In the EU, wind and solar made about 30 percent of electricity in 2025, more than fossil fuels (about 29 percent) for the first time, and batteries began to cover some of the hours when gas plants used to set the price. When sun and wind are strong, prices fall, which makes batteries and evening power more valuable.[9]
India passed 50 percent non-fossil installed capacity in 2025, reaching about 267 GW of 514 GW at the end of 2025, towards a target of 500 GW of non-fossil capacity by 2030.[7]
The 2026 Gulf disruption pushed LNG and gas prices up, which raises power prices wherever gas plants set the price. In Great Britain the wholesale share of the household price cap rose to about 47 percent for October to December 2026, and the government removed VAT on electricity bills until March 2027.[3]
Batteries became cheap enough to pair with solar at scale: packs for stationary storage averaged about USD 70 per kWh in 2025, 45 percent less than in 2024 and the cheapest of any use.[10]
Solar can now run around the clock with enough batteries: Masdar and EWEC broke ground in 2025 on 5.2 GW of solar with 19 GWh of batteries in Abu Dhabi, designed to supply 1 GW day and night from 2027.[11]
Grids are investing heavily as demand grows, including from data centres: Britain's regulator says its networks could need over GBP 70 billion of upgrades in the five years from April 2026.[4]

Players by region(8)

Well-known companies in each region. You do not need to learn them by heart; they help you picture the market.

Global: Enel
Iberdrola
EDF
Engie
ACWA Power
Siemens Energy and Vestas (equipment)
Europe: EDF (France)
Enel (Italy)
Iberdrola (Spain)
RWE and E.ON (Germany)
Orsted (Denmark)
National Grid (UK)
Octopus Energy (UK retail)
Middle East: ACWA Power (Saudi Arabia)
Masdar (UAE)
EWEC (Abu Dhabi single buyer)
DEWA (Dubai)
Saudi Electricity Company
India: NTPC (state owned)
Power Grid Corporation of India
Adani Green Energy
Tata Power
ReNew
JSW Energy
State DISCOMs
Southeast Asia: Tenaga Nasional (Malaysia)
EGAT (Thailand)
PLN (Indonesia)
Sembcorp (Singapore)
United States: NextEra Energy
Duke Energy
Southern Company
Constellation (nuclear)
China: State Grid Corporation of China
China Three Gorges
LONGi and Jinko Solar (panels)
CATL (batteries)
Africa: Eskom (South Africa)
KenGen and Kenya Power
IPPs backed by development banks

Words to know(12)

Linked words have a fuller entry in the glossary.

MW and MWh: MW is how much power a plant can make at one moment; MWh is the energy made over time (1 MW for one hour).
Capacity factor (glossary entry): Actual yearly output divided by output at full power all year.
LCOE (glossary entry): Levelized cost of electricity: lifetime cost divided by lifetime MWh.
Merit order (glossary entry): Plants are used from cheapest to dearest running cost; the last one needed sets the price.
PPA (glossary entry): Power purchase agreement: a long contract to buy power at an agreed price.
IPP (glossary entry): Independent power producer: a private company that builds and runs plants and sells the power.
Regulated asset base: The value of a grid that a regulator lets the owner earn a return on.
DISCOM: A distribution company in India, usually owned by a state government.
AT&C losses (glossary entry): Power lost, stolen or never paid for, as a share of power supplied.
Curtailment (glossary entry): Switching off available solar or wind because the grid cannot take it.
Capacity payment: Money paid to a plant for being ready to run, whether or not it runs.
Round-trip efficiency (glossary entry): The share of energy a battery gives back compared with what it took in.

Business model patterns

The ways of making money this industry follows. Spot the pattern in a new industry and you already know the first questions to ask.

Moves common in this industry

Sources(13)

Facts checked on 30 September 2026. Worked examples are illustrative, shaped by these sources rather than one company's figures.

Go deeper and practise

Go deeper

The full lessons behind this brief, with sources and worked cases.

Practise it

Same pattern elsewhere

Industries that make money in a similar way. What you learned here carries over.

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