» Economics

Cash Flows of a Solar Project

When making the decision to finance a project, investors and lenders look at the cash flows of the project and their timings. A project that is "economically viable" needs to satisfy lenders, investors as well as the buyer.

In - Flows
  • Main incoming cash flow is from the sale of energy to an offtaker, usually under a power purchase agreement
  • There may be second revenue stream from selling carbon credits, renewable energy certificates or other green attributes
  • If the solar energy is consumed on the premises, the resulting savings may also count as positive cash flow.
Out - Flows
  • Capital expenditure for the development and construction of the plant.
  • Operations & maintenance costs.
  • Costs for land
  • Administrative overhead, insurance
  • Replacement of equipment (most likely the inverter)


The diagram below shows a typical cash flow profile for a solar photovoltaic power project with a large capital outlay at the start followed by stable cash flows over the next 20 years.

The capital outlay for the project sponsor can be reduced by adding debt to the project ("levered"). Due to the cpaital intensity, payback periods, i.e. the time it takes to get the original investment back, are relatively long. In the example below it is between 8-9 years.

A detailed financial model is required to assess individual projects.


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