Solar ROI calculator: the expert method to value profitability
Computing solar project ROI rigorously needs more than a simple Wp/m² ratio. Profitability depends on a constellation: P50/P90 yield, calendar degradation, temperature coefficient, performance ratio, realistic OPEX, debt leverage, CPI indexation, sale or self-consumption tariff, and tax regime. This guide lays out VoltWatt's method used across 600+ MW of projects, gives 2026 assumptions by segment, and exposes pitfalls in DIY simulations.
1. The bricks of a profitability model
A bankable solar ROI model has four blocks: revenue (production × price), CAPEX with detailed line items, recurring OPEX, and financial structure (equity, debt, tax). The main outputs are project IRR (unlevered) and equity IRR (post-debt), with NPV at a target discount rate and simple/discounted payback.
On revenue: multiply annual P50 yield by average sale price after applied cumulative degradation. A 12-year PPA at €70/MWh + post-PPA merchant at €55/MWh yields a 30-year discounted average of €62/MWh.
2. Yield: P50 vs P90 and capacity factor
P50 is the median yield. P90 is the unfavourable yield (achieved 9 of 10 years). P50/P90 gap typically 4–7% in mainland France. Lenders use P90 for DSCR; sponsors use P50 for IRR.
Capacity factor (CF = annual yield / nameplate × 8,760) is the cleanest indicator: 17% CF in zone 3 = 1,489 kWh/kWp/year. Multiply by PR (~82%) for net AC at meter.
3. CAPEX: do not skip
A 100 MWp France 2026 utility CAPEX breakdown: modules 25–28%, mounting/trackers 15–18%, inverters 6–8%, electrical BoS 12–15%, grid 6–10%, civil works 12–15%, dev/study 4–6%, insurance/contingency 3–5%, financial fees during construction 2–4%.
Common DIY mistake: underestimating grid (12–15% in saturated zones) and structuring fees (1.8–2.5%). Always include 5–8% contingency.
4. Realistic OPEX
OPEX = preventive + corrective O&M (€5–7/kWp/yr), land (€1.5–4), insurance (€0.8–1.2), management/billing (€1.5–2), local taxes/IFER (€1.8), monitoring/SCADA (€0.5–1), PMO if collective. Total €14–18/kWp/year.
Classic mistake: flat 1% of CAPEX OPEX assumption. Always line by line with CPI indexation (1.5–2%/year).
5. Financial structure and IRR
A typical 100 MWp / €90M CAPEX / 70% debt / 30% equity yields project IRR 7–9% (unlevered) and equity IRR 11–14% over 30 years. Longer indexed PPAs lift DSCR, debt support, and equity IRR.
NPV at 7% discount on 30 years: 18–28% of CAPEX positive. Equity payback 9–11 years for industrial sponsors.
6. Quick simulation method
For an off-model first estimate of a 100 MWp France zone 3 in 2026.
- P50 yield: 1,380 kWh/kWp/year (PR 82%).
- CAPEX: €850–950/kWp all-in.
- OPEX: €16/kWp/year, 1.8% indexation.
- Sale price: €65/MWh 30-year average.
- Degradation: 1% year 1, then 0.5%/year.
- Leverage: 70% at 5.2% nominal over 18 years, refinanced 2x.
- Project IRR: 8.2%, equity IRR: 12.4%.
Frequently asked questions on solar ROI
- Project IRR vs equity IRR?
- Project IRR (unlevered) is the IRR on total cash flow before debt service / total CAPEX. Equity IRR (levered) is the IRR on dividends after debt service / equity invested. Spread comes from financial leverage.
- P50 or P90?
- P50 is median; P90 is achieved 9 of 10 years. Lenders fund on P90 (DSCR); sponsors evaluate on P50. Gap 4–7% in France.
- Discount rate?
- 7% for industrial sponsor utility 2026 France. 5.5–6% for an infra fund. 9–10% for a developer without bankable PPA.
- Include residual value?
- Yes but cautiously. A 30-year plant may be repowered or decommissioned. Net residual typically 0–5% of initial CAPEX over 30 years.
- How to handle inflation?
- Three distinct: OPEX (CPI ~1.8%/yr), sale price (PPA cap +25% max over tenor; merchant: spot forecast), CAPEX in reinvestment fees (inverter swap, BESS augmentation). Always specify constant vs current euros.
- Does it change for self-consumption?
- Drastically. Avoided cost (€130–160/MWh) replaces sale price. Project becomes profitable faster (payback 6–9 years) and equity IRR can exceed 16%. Model must factor self-consumption rate and surplus value.
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