1st Year PPA Price

The first year PPA price is the electricity sales price for projects with Utility and IPP or Commercial - Third-Party Ownership financing as defined in the Technology and Market window. Solar Advisor assumes that such projects sell electricity through a power purchase agreement (PPA) at a fixed price over the life of the project with an optional annual escalation rate.

The first year PPA Price and annual escalation rate (PPA Escalation rate on the Financing page) determine the project's annual revenues. Solar Advisor calculates the annual revenues to meet the minimum requirements of the internal rate of return (IRR), debt service coverage ratio (DSCR), and positive cash flow, which are defined as constraining assumptions on the Financing page. Because of the way the first year PPA price, IRR, and minimum DSCR interact, Solar Advisor uses an iterative algorithm to determine the values of these variables.

For projects with Utility and IPP financing, the constraining assumptions defined on the Financing page are the Minimum Required IRR and the Minimum Required DSCR, and a positive cash flow requirement:

Find First Year PPA such that

IRR ≥ Minimum Required IRR, and

Min DSCR ≥ Minimum Required DSCR, and
Cash Flow in Year n > 0 (when the cash flow requirement is positive)

For projects with Third-Party Ownership financing, there is a single constraining assumption defined on the Financing page, the Minimum Required IRR:

Find First Year PPA such that

Actual IRR ≥ Minimum Required IRR

The following equations show the calculations used in the iterative algorithm to determine the IRR and minimum DSCR, which are both reported as results with the 1st Year PPA Price in the Metrics table.

The internal rate of return is the discount rate, IRR in the equation below, that corresponds to a project net present value, NPV, of zero:

Where,

NPV ($)	The net present value of the project over its life.
N	The number of years in the project life, defined by the analysis period on the Financing page.
Rn ($)	The required revenue in year n, shown in the Revenues row of the cash flow. The revenue in year 1 (Rn=1) is equal to the first year PPA price. The revenue is subsequent years (R1<n≤N) is equal to the first year PPA price adjusted by the PPA escalation rate defined on the Financing page.
CAfterTax,n ($)	The after tax cash flow in year n, equal to State Tax Savings + Federal Tax Savings + PBI Incentives - Operating Costs - Debt Total Payment + Revenues in the project cash flow.
IRR	Internal rate of return, calculated by systematically trying different values until the NPV is equal to zero.

The debt service coverage ratio in each analysis year (DSCRn) is the ratio of operating income to expenses in that year:

Where,

DSCRn	Debt service coverage ratio in year n shown in the PreTax Debt Service Coverage Ratio row of the cash flow.
Rn ($)	The required revenue in year n, shown in the Revenues row of the cash flow. The revenue in year 1 (Rn=1) is equal to the first year PPA price. The revenue is subsequent years (R1<n≤N) is equal to the first year PPA price adjusted by the PPA escalation rate defined on the Financing page.
COperating,n ($)	The total operating costs in year n, shown in the Operating Costs row of the cash flow.
CInterest,n ($)	The loan interest payment in year n, shown in the Debt Interest Payment row of the cash flow.
CPrincipal,n ($)	The loan principal payment in year n, shown in the Debt Repayment row of the cash flow.

The minimum DSCR is the lowest value of the project's debt-service coverage ratio that occurs in the life of the project:

Where,

minimum DSCR	The minimum debt service coverage ratio, reported as a result in the Metrics table.
DSCRn	Debt service coverage ratio in year n shown in the PreTax Debt Service Coverage Ratio row of the cash flow. (The symbol min represents the function that searches for the minimum value of the DSCR in the cash flow.)