Financial Analysis

Abstract

Until now, the profitability of a PV system was evaluated according to the common project indicators, the Net Present Value and the Internal Rate of Return. They give really useful information and they have the advantage of being simple to calculate and to interprete. In short, they are a very good first approximation of the project’s profitability and most of the time they offer enough information for the client to take the decision to invest or not. However, the NPV does not take into account the variability of some parameters and in some cases does not reflect all the possibility of investment. In particular, basing the decision of starting a project only on the value of its NPV is most of the time equivalent to forget the possibility of postponing the project and not to consider that the different variables may change in the course of the project’s life time. For long-term investment with uncertain variables it can be a problem. The investment in solar energy corresponds to this case, as it is a project over 25 years with a great uncertainty on the evolution of electric prices. This is why the purpose of this chapter is to include in our financial evaluation hypothesis about changes in the electricity tariffs and see if it could change the decision about the investment.