PPA Financial Model
There are a number of key inputs that go into building and pricing a solar PPA financial model. They include but are not limited to the following:
Capital Expenditure and Installation Costs:
- Price of the solar modules, inverters, wiring and mounting equipment (plus a myriad of other items such as permits, drawings etc.).
- Price of the installer/integrator construction contract (for mechanical and electrical work).
- Both items are due in installment payments over the life of the development and construction period.
- Federal Investment Tax Credit (FITC); currently 30% (of applicable expenses related to the solar project) can be claimed as a tax credit or cash rebate.
- Solar Performance Based Incentive (PBI) or Expected Performance Based Buydown (EPBB); due once the project is in-service and paid either upfront or over a 1-5 year period (varies by state).
- Renewable Energy Credits (RECs); if applicable, would be due over the life of the project.
- Array Production Hours or Insolation Data; total amount of annual sunlight/hours at the site of the solar array (along with the type of solar modules) determines total energy production capacity for the array.
- Output Loss Rate; the array production data is reduced to reflect degradation of equipment over the life of the array and other environmental conditions.
- The net production data is used to determine the ultimate $ value of the electricity produced by the solar array over the PPA period.
- The Power Purchase Agreement (PPA) outlines the fixed or variable energy rate/amount that the customer pays to the third party owner over the life of the contract. PPA's can be 5-25 years in length.
- The bank borrowing rate or internal rate of return (IRR) required by the financial partners which might include commercial banks, specialty financial lenders or tax oriented equity investors.
Depreciation - Modified Accelerated Cost Recovery System (MACRS) 5-Year Accelerated Depreciation for solar assets.