| Example Input | Illustrative Value | Unit | Why It Matters |
|---|---|---|---|
| Plant size | 25 | MWdc | Larger plants lift revenue and capex together. |
| Capex per watt | 0.85 | $/Wdc | Lower installed cost usually improves project IRR. |
| Upfront incentive | 30 | % | It reduces the net capital burden. |
| Annual generation | 1600 | kWh per kW-year | Higher yield directly expands annual sales. |
| Initial tariff | 0.055 | $/kWh | Revenue starts from this energy price. |
| Year 1 opex | 300000 | $ | Ongoing cost pressure lowers net cash flow. |
| Debt ratio | 60 | % | Leverage changes equity exposure and equity IRR. |
| Replacement year | 13 | year | Large one-time costs can reshape midlife returns. |
1) Gross and Net Capex
Gross Capex = (Plant Size × 1,000,000 × Capex per Watt) + Fixed Development Cost
Net Capex = Gross Capex − Upfront Incentive
2) Annual Energy Output
Energyt = Size in kW × Annual Generation × (1 − Degradation Rate)t−1
3) Revenue and Opex
Revenuet = Energyt × Tarifft
Tarifft = Initial Tariff × (1 + Tariff Escalation)t−1
Opext = Year 1 Opex × (1 + Opex Escalation)t−1
4) Operating Cash Flow
Operating CFt = Revenuet − Opext − Replacement Costt + Salvage Valuet
5) Debt Service
Annual Debt Payment = P × r / [1 − (1 + r)−n]
6) Internal Rate of Return
IRR solves this equation: Σ [Cash Flowt / (1 + IRR)t] = 0
Project IRR uses unlevered project cash flows. Equity IRR uses equity contribution at year zero and subtracts annual debt service afterward.
- Enter project life, plant size, capex, and fixed development cost.
- Add incentive assumptions to reduce net capital requirement.
- Input annual yield, degradation, tariff, and tariff escalation.
- Enter opex, opex escalation, replacement timing, and salvage rate.
- Define debt ratio, debt rate, and debt tenor.
- Choose a discount rate for NPV reporting.
- Click the calculate button to see IRR, NPV, payback, chart, and yearly cash flows.
- Use the CSV and PDF buttons to export the detailed results table.
1) What does project IRR mean?
Project IRR measures the return generated by the asset itself. It ignores financing structure and focuses on capital cost, revenue, opex, replacement costs, and salvage value.
2) What does equity IRR mean?
Equity IRR measures returns to the sponsor after debt financing. It starts from the equity contribution and subtracts annual debt service from operating cash flow.
3) Why include degradation?
Solar modules slowly produce less energy over time. Degradation reduces future revenue, so it should be included when estimating long-horizon cash flows and IRR.
4) Why is tariff escalation important?
Escalation can offset inflation and degradation. A higher tariff path often improves later cash flows, while flat pricing can compress lifetime returns.
5) Should replacement costs be modeled?
Yes. Inverter swaps, transformer work, or major component replacements can create large one-time cash outflows. Ignoring them can overstate project economics.
6) What does DSCR tell me?
Debt service coverage ratio compares operating cash flow with annual debt service. Higher values usually indicate stronger ability to support lender payments.
7) Why can equity IRR exceed project IRR?
Leverage can amplify sponsor returns when project cash flows comfortably exceed debt obligations. It also increases downside risk if cash flow underperforms.
8) Can I use this for merchant projects?
Yes, but use realistic price assumptions. Replace the contracted tariff with your forecasted average sale price and escalation pattern for each year.