Project
Year 0 is the day the project is built and paid for. Year 1 is its first year of operation; each year’s money is counted at the end of that year.
Benefits
Savings are the yearly savings or revenue; energy is the energy produced or saved. Escalation is the yearly increase in the savings through the energy price. Output decline (degradation) is the yearly loss of output, for example 0.5 % a year for solar panels.
Costs
Operation and maintenance (O&M) cost a year. Enter it as a negative amount if the project lowers maintenance costs.
For example an inverter replacement in year 13 or battery augmentation in year 10.
Finance
The return you could earn elsewhere with the same money, or your cost of capital. Use it with escalation rates that include inflation.
Financing and MIRR rates
Share borrowed is the part of the capital cost paid with a loan. With a loan, the results are the owner’s: loan money in at year 0, loan payments out each year.
The modified IRR (MIRR) discounts the costs at the finance rate and grows the benefits at the reinvestment rate. Blank means the discount rate.
Sensitivity
“What moves the NPV” moves one input at a time down and up by these amounts. Output decline moves by ±0.5 point.
Cash flow by year
money in above the line, money out below
Running total
cash flow added up year by year
What moves the NPV
NPV at other discount rates
Sensitivity
NPV with one input moved at a time
NPV by discount rate
the IRR is where the NPV is zero
Cash flow by year
Basis of the numbers
Savings in year t are the year-1 savings × (1 + escalation)t−1 × (1 − output decline)t−1; O&M is the year-1 O&M × (1 + O&M escalation)t−1. Each year’s net cash flow is discounted by (1 + discount rate)t; the net present value (NPV) is the sum of the present values. The internal rate of return (IRR) is the discount rate at which the NPV is zero; when more than one rate does this, the one nearest the discount rate is shown. The MIRR discounts the costs to year 0 at the finance rate and grows the benefits to year N at the reinvestment rate.
Payback is when the running total turns positive, with each year’s cash flow spread evenly through the year; discounted payback uses the present values. The benefit-cost ratio is the present value of the benefits (savings, incentives, other income, salvage and any O&M saving) divided by the present value of the costs (capital, O&M, one-time costs and removal; with a loan, the owner’s share of the capital and the loan payments). The levelized cost of energy is the present value of the net costs before financing, less incentives, divided by the present value of the energy. Taxes other than the credit entered, depreciation and inflation adjustments are not modeled. Results are estimates for planning, not financial advice.
Estimates for planning only, not financial advice. Example values are illustrative, not quotes or market data. Nothing you enter leaves this page.