PPA Project Debt and Partial Grant Funding

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Achilles11
PPA Project Debt and Partial Grant Funding

Using PVWATTS Single Owner PPA, the scenario I'm trying to model is a municipally owned 1MW PV system selling power to an electric utility under a PPA. Being a public project, I assume the municipality wouldn't be taxed on revenue, and couldn't depreciate the system, etc. The project is half grant funded and half low-interest loan. I'm trying to figure out the PPA price break-point where the project still makes financial sense.

Do I specify the percent of total project cost covered by the grant in Incentives/Investment Based Incentive? When I do this, the analysis summary results in what seem like a bizarre number (i.e. Size o Debt is about $-14,000, but shouldn't it be half the capital cost?)

If I specify the project debt as a percentage of total capital cost in Financial Parameters/Project Term Debt (not selecting DSCR), without specifying grant funding, the results summary seems to produce reasonable values. But when I try to add the grant incentive the NPV becomes negative and for IRR results I get "NaN". What's going on here?

Seems like what I'm trying to model is straightforward, so wondering if there's simple way to model this scenario.

Thanks!

Paul Gilman

Hello,

Based on your description, "half grant funded and half low-interest loan," it sounds like this project has no initial cost to the municipality (who installs, owns, and operates the system). In SAM, the IBI percentage applies to the total installed cost, but the debt percentage (on the Financial Parameters page) applies to the total capital cost, which is the total installed cost minus the IBI and debt-related costs. You can see how the capital cost is calculated on the Cash Flow tab of the Results page. I think the way to model the project's cost is to set the total installed cost on the System Costs page to 50% of the actual cost to account for the grant, and to set the debt percent to 100% to account for the 50% debt size.

Then you can do a parametric study on PPA price to find where the NPV switches from negative to positive. That will tell you the PPA price that results in a project that breaks even over the analysis period. Note that the debt repayment costs dominate the cash flow for this project. You might want to remove the debt service and other reserve accounts if they do not apply to the project -- they cause a large positive cash flow in the last year.

The IRR is not really a meaningful metric for this project because the initial cost to the project is zero. In fact, SAM cannot calculate an IRR because the Year zero cost is not negative, so it reports "NaN" for "not a number."

Best regards,
Paul.

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