Payback Period metric for PPA analysis

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Achilles11
Payback Period metric for PPA analysis

Hi,
Why doesn't my analysis of a commercial PPA system have payback period as a financial metric output? It does have IRR as an output. The project does involve debt.
Thanks!

Paul Gilman

Hello,

For the PPA financial models, the power price, net present value, internal rate of return, and size of debt (depending on how you model debt) are metrics that account for the initial investment, the time value of money, out-year costs that might vary from year to year, taxes, incentives and debt. A simple payback period does not provide very much useful information about such a project, so we omitted it from the metrics table for those financial models.

For a quick determination of whether a project is financially feasible (compared to a different investment), you can use the net present value: Negative indicates an infeasible project, and positive indicates a feasible project.

For the PPA financial models, we recommend that you consider the financial metrics as a set: The net present value, internal rate of return (or power price), and size of debt should all be reasonable for a project to be considered feasible.

For a basic overview of financial metrics for evaluating renewable energy projects, see Short (1995) "A Manual for the Economic Evaluation of Energy Efficiency and Renewable Energy Technologies," which you can download from the Financial Model Documentation page of this website:

https://sam.nrel.gov/financial

Best regards,
Paul.

Achilles11

Thanks for your help Paul!

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