Economic Analysis Tools

It requires a significant capital investment to develop a photovoltaic solar system that should undergo a detailed financial analysis. In many cases, project developers will presentcustomers with a summary sheet that shows a simple payback calculation for the project. However, using a simple payback calculation to assess the economic feasibility of a PV solar project has major limitations. The simple payback calculation ignores critical investment factors such as the time value of money, variations in energy prices and alternative investment options.

Photovoltaic solar proposals are wide-ranging, complex, and challenging to evaluate in terms of performance and probability. A good practice is to review the proposal with an accountant or financial advisor who can assist in utilizing multiple financial analysis tools (e.g., net present value, Discounted Cash Flow, Internal Rate of Return) to help accurately forecast the future financial performance of a project. In addition, the National Renewable Energy Laboratory of the U.S. Department of Energy has developed financial analysis models to help calculate the levelized cost of energy, net present value, payback period, and other financial metrics related to a renewable energy project.