Your Guide to Running Financial Analysis for Solar Energy Projects


November 01, 2015   |   Alaeddine Mokri

In this step by step tutorial you’ll learn a great deal about:

-      how to run financial analysis for a solar energy project;

-      how to generate a solar proposal and detailed financial report for a solar energy project;

1- Create a Project

First, create a new project page if you don’t have one already. You can do so here.

create project 

2- Enter Basic Project Information

Now click the Financials tab where all the financial analysis happens: the section in red is where outputs (returns and savings) go, and section in blue is where inputs go.

basic project information 

Please note that whenever you change any value in the input section, the returns in the output section will update automatically. 
 

2.1. Calculate System Size and Production:

At this stage, you can see that all the input fields are filled with default values. Now you can replace these with your specific project information. To estimate the values of system size and annual production you can use PowerTools:  http://villagepower.com/powertools/project-size/

project size 

2.2. Estimate PPA Price and Avoided Cost of Energy:

Estimation of both PPA price and avoided cost of energy depend on the local electricity prices which are accessible in PowerTools:  http://villagepower.com/powertools/utility-rates/

utility rate 

3- Enter Advanced Project Information

When you are done with entering the basic information, you can start filling the advanced project information which we will do step by step:

3.1. Advanced PV fields:

These include Annual Degradation, Utility Escalator and PPA Escalator.

advanced fields 

Annual Degradation is the rate at which the output of the installation decreases from year to year. The industry standard is 0.5%.

Utility Escalator and PPA Escalator are the rates at which the price of power from the electric utility and PPA price increase yearly.

3.2. Project Construction and Setup:

At this stage you can enter construction costs (interconnection costs, land costs and all other costs) and legal fees (state incorporation fees and certification fees). Note that legal fees only apply if your project needs to be setup as an LLC company.

construction setup 

If the project has any energy efficiency components, you can add their cost as well.

3.3. Development and Sales Fees:

At this stage you can enter sales and development related fees such as sales commission fees and all other non-construction expenses.

development and sales 

3.4. Incentives:

At this stage you can enter incentives, which are of four types: investment tax credit, performance based incentive, state rebate, or an SREC (state renewable energy credit).

If you don’t know which ones apply to your project, you can use the Incentives tool in http://villagepower.com/powertools

incentives

3.5. Operations:

At this stage you can enter expenses that will occur while the project is operating. These are divided to 6 sections: Insurance, Land Lease, Asset Management, Operation and Maintenance, Annual Reporting and Inverter Reserve. 

operations 

3.6. Project Finance:

At this stage you only left with selecting the federal and state tax incentive schedules. The federal and state tax rates are auto calculated already depending on the state you are in.

finance 

4- Optimize Returns and Savings

Now that you entered all inputs, you can see returns in the output section. To achieve optimal returns, you can simply change input fields and watch how returns change.

To save the model, you can simply click the “Update Page” button and you will see that the returns will be published to the right hand section of the page.

optimize savings 

5- Generate Financial Report and Proposal

Now that you have all the returns, you can click the View Report to see your detailed financial report and click “View Proposal” to generate your proposal which you can download and share with potential investors, colleagues, etc.

proposal 

6- Final Remarks

Finally, we’d like to remind you that generating the detailed financial report and solar proposal means that you are ready to start raising funds for your project.