Negative NPV in PPA

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TymB
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!

Paul Gilman

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.

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