Negative NPV in PPA

Hi,

I'm new to SAM and third party Power Purchase Agreements for Solar PV.

Is there anything else than the first year PPA price which would change the NPV of a project to be negative? Currently my NPV is -$145,000 with $0.125/kWh. If I bring the 1st year PPA price to $0.06/kWh NPV is $32,311.

I'm also confused why there is no simple payback.

Please Help

Thanks!

Hello,

For the third party financing model, the NPV is the present value of the project's after tax cash-flow, which depends on the agreement cost and value of electricity bill savings.

For a given system size and load, the NPV should depend on both the PPA price (which determines the agreement cost) and the rate structure on the Electricity Rates page. Changing either of those should change the NPV.

We did not to include a payback period metric for this financial model because it does not involve an initial investment by the homeowner that is recuperated by electricity bill savings. Instead, the homeowner makes lease or PPA payments in exchange for a reduction in the electricity bill. If the payments are higher than the reduction, the NPV is negative and indicates the project is not in the homeowner's interest. If the bill savings are higher than the lease or PPA payments, then the NPV is positive, indicating that the project is worthwhile from the homeowner's perspective.

Best regards,
Paul.

Hi Paul,

Just want to add some questions under this thread. If I want to calculate the cost saving from this situation, then the difference between the PPA price and LCOE is the cost saving per unit electricity generated? Then, can I use this cost saving to be divided by the net capital cost to calculate the simple payback period?

Hope to hear from you soon and stay safe!

Best regards,
Weng Pin.

Hi Weng Pin,

I usually think of the difference between the PPA price and the LCOE as representing the profit margin of the project expressed in dollars per unit of electricity delivered to the grid.

Best regards,
Paul.

Hi Paul,

Thanks for your reply!

If the difference is the profit margin, then in your opinion can I divide the capital cost by this difference to calculate the simple payback period? I tried for a case, but the payback period is too large. Or is it in this case, the net capital cost should be divided by some other values before I use it to calculate payback period?

"Instead, the homeowner makes lease or PPA payments in exchange for a reduction in the electricity bill."

Referring to the sentence above mentioned by you, does the SAM financial model include the lease in the calculation? Actually I get a bit confused on this statement, hope that you can elaborate this in details if possible?

Best regards,
Weng Pin.

Hi Weng Pin,

There are different ways to calculate the payback period, and I am not sure what method is best for what you are trying to accomplish. See the sample spreadsheets at the bottom of this page for examples of how SAM calculates the payback period for the Residential and Commercial financial models: sam.nrel.gov/financial-models/residential-and-commercial .

You can include the cost of a lease payment for either the Residential or Commercial financial model in the operation and maintenance costs on the System Costs page. My comment about the lease or PPA payment below is about SAM's Third Party Owner - Host financial model.

Best regards,
Paul.