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Energy finance calculator

Energy project NPV & IRR calculator with debt, tax and DSCR

A compact project-finance model for any power plant: revenues, opex, loan, tax and depreciation year by year, giving project and equity IRR, NPV, payback and debt-service cover ratios.

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Results

Bankable: equity IRR 14.1% vs 10% required (equity NPV +1,752,354 €), project IRR 9.2%, minimum DSCR 1.49.
Equity IRR
14.1%
after tax, 70% debt
Project IRR
9.2%
unlevered, after tax
Equity NPV @ 10%
€1,752,354
Project NPV @ 6.5%
€3,462,999
Equity payback
8 yr 3 mo
Min / avg DSCR
1.49 / 1.51
lenders want ≥ 1.20–1.35
Annual energy (yr 1)
26,280MWh
1,314 full-load hours
Revenue (yr 1)
€1,708,200
EBITDA margin (yr 1)
84.8%
Debt / equity
9,100,000 / 3,900,000
annual debt service 936,961 €
LCOE
55.4€/MWh
at 6.5% WACC
Capex per MW
€650,000
Yearly cash flows (€)
Cumulative equity cash & DSCR

Cash-flow statement

YearMWhRevenueOpexEBITDAInterestPrincipalTaxEquity CFDSCR
0-3,900,000
126,2801,708,200260,0001,448,200546,000390,96150,440460,7991.49
226,1491,725,154266,5001,458,654522,542414,41957,222464,4701.5
326,0181,742,276273,1631,469,114497,677439,28464,287467,8651.5
425,8881,759,568279,9921,479,577471,320465,64171,651470,9641.5
525,7581,777,032286,9911,490,040443,382493,57979,332473,7481.51
625,6301,794,669294,1661,500,503413,767523,19487,347476,1941.51
725,5011,812,481301,5201,510,961382,375554,58695,717478,2821.51
825,3741,830,470309,0581,521,412349,100587,861104,462479,9881.51
925,2471,848,637316,7851,531,853313,828623,133113,605481,2871.51
1025,1211,866,985324,7041,542,281276,441660,521123,168482,1511.51
1124,9951,885,515332,8221,552,693236,809700,152133,177482,5551.52
1224,8701,904,229341,1431,563,086194,800742,161143,657482,4681.51
1324,7461,923,128349,6711,573,457150,271786,691154,637481,8581.51
1424,6221,942,215358,4131,583,802103,069833,892166,147480,6941.51
1524,4991,961,492367,3731,594,11853,036883,926178,217478,9411.51
1624,3771,980,959376,5581,604,40200190,8801,413,521—
1724,2552,000,620385,9711,614,64900192,9301,421,719—
1824,1332,020,477395,6211,624,85600194,9711,429,885—
1924,0132,040,530405,5111,635,01800197,0041,438,015—
2023,8932,060,782415,6491,645,13300199,0271,446,106—
2123,7732,081,235426,0401,655,19500331,0391,324,156—
2223,6542,101,892436,6911,665,20000333,0401,332,160—
2323,5362,122,753447,6091,675,14400335,0291,340,115—
2423,4182,143,821458,7991,685,02200337,0041,348,018—
2523,3012,165,099470,2691,694,83000338,9661,355,864—
  • Nominal yearly model: capex in year 0, mortgage-style (annuity) loan, straight-line depreciation, tax losses carried forward, no construction-period interest or reserve accounts.
  • Equity IRR uses cash to equity after debt service and tax; project IRR uses unlevered after-tax cash flows (tax computed without the interest shield).
  • DSCR = cash flow available for debt service ÷ debt service. Real lenders size debt so the minimum DSCR stays above ~1.2 (contracted) to ~1.4 (merchant).

How this NPV & IRR calculator works

Most “energy ROI” calculators stop at a simple payback. Investors and banks look at something else: the cash flows year by year after opex, tax and debt, and three numbers derived from them: net present value, internal rate of return and the debt service coverage ratio. This calculator is a compact version of the project-finance models used for solar parks, wind farms and thermal plants.

You describe the plant (capacity, capacity factor, degradation, life), the economics (capex, fixed and variable opex with escalation, electricity price with escalation, residual value) and the financing (gearing, interest rate, tenor, tax rate, depreciation period, cost of equity and WACC). The model then builds a full cash-flow statement and solves for:

  • Equity IRR and equity NPV at your cost of equity, i.e. what the sponsor earns;
  • Project IRR and project NPV at the WACC, which measures the asset itself before financing;
  • Minimum and average DSCR, which tell you whether the debt is bankable;
  • Equity payback and LCOE.

The formulas

Energy_t = MW × 8,760 × CF × (1 − deg)^(t−1) EBITDA_t = Energy_t × Price₁ × (1 + esc)^(t−1) − Opex₁ × (1 + opex esc)^(t−1) − VOM × Energy_t Interest_t = Debt balance_(t−1) × rate Debt service = annuity(Debt, rate, tenor) Tax_t = max(0, EBITDA_t − Depreciation_t − Interest_t − losses carried forward) × tax rate Equity CF = EBITDA_t − Tax_t − Debt service_t DSCR_t = (EBITDA_t − Tax_t) ÷ Debt service_t NPV = Σ CF_t / (1 + r)^t IRR: the r at which NPV = 0

Worked example: a 20 MW solar park

The defaults model a 20 MW solar park at a 15% capacity factor (26,280 MWh in year 1) costing 13 million (650,000 per MW), with 260,000 per year opex escalating 2.5%, selling at 65 per MWh escalating 1.5% a year. Financing is 70% debt at 6% over 15 years, 20% corporate tax and 20-year straight-line depreciation.

  • Year-1 revenue 1.71 million, EBITDA 1.45 million (85% margin)
  • Debt of 9.1 million → annual debt service of about 937,000; minimum DSCR 1.49
  • Project IRR ≈ 9.2%, project NPV at 6.5% WACC ≈ +3.5 million
  • Equity IRR ≈ 14.1% on 3.9 million of equity, equity NPV at 10% ≈ +1.75 million
  • Equity payback ≈ 8.3 years; LCOE ≈ 55 per MWh

The verdict calls it bankable: the equity return beats the 10% hurdle and DSCR stays well above the 1.20–1.35 that lenders ask for. Drop the price to 55 per MWh and the minimum DSCR falls to 1.25 while the equity IRR slides to about 9.3%. That is below the hurdle, so the equity NPV turns negative even though the project NPV is still positive.

How to read the results

  • Equity IRR vs your cost of equity: if the IRR is higher, the equity NPV is positive and the project creates value for shareholders.
  • Project IRR vs WACC: shows whether the asset is good on its own merits. A high equity IRR built on a weak project IRR is fragile.
  • DSCR below 1.2 in any year signals that a lender would cut the debt amount or lengthen the tenor.
  • The cash-flow chart stacks where each year’s revenue goes: opex, tax, lender and shareholders.

Typical financing assumptions

Parameter Contracted renewables (EU/US) Merchant / emerging markets
Gearing 65–80% 40–60%
Debt tenor 15–20 years 7–12 years
Interest rate (all-in) 4–7% 7–12%
Minimum DSCR 1.20–1.30 1.40–1.75
Cost of equity 7–10% 12–20%
Corporate tax 15–30% 15–35%

Tips

  1. Test the downside. Run a P90 energy case (−5 to −10% capacity factor) and a lower price; lenders size debt on these.
  2. Match tenor to contract length. Debt that outlives the PPA is exposed to merchant prices.
  3. Use the right capex. Include grid connection, development costs and contingency. Overruns hit equity first.
  4. Mind the tax shield. Accelerated depreciation (where allowed) raises equity IRR; set a shorter depreciation period to model it.
  5. Cross-check with LCOE. If the price you assume is below the LCOE at your WACC, the project NPV will be negative.

Limitations

This is a yearly model with an annuity loan, no construction period, no debt sizing or sculpting, no reserve accounts, VAT or working capital, and a single price curve. Real financial models run semi-annually, sculpt debt to a target DSCR and include P50/P90 cases, curtailment and balancing costs. Use it for screening and education; commission a full model before committing capital.

Method & assumptions

For each year: energy = MW × 8,760 × capacity factor × (1 − degradation)t−1; revenue = energy × price escalating yearly; EBITDA = revenue − fixed opex (escalating) − variable opex. Interest is charged on the outstanding loan balance; the annuity payment repays principal over the tenor. Taxable income = EBITDA − depreciation − interest (losses carried forward). Cash to equity = EBITDA − tax − debt service.

NPV = Σ CFt ÷ (1 + r)t; IRR is the r at which NPV = 0 (found by bisection). LCOE = PV(capex + opex) ÷ PV(energy) at the WACC.

Frequently asked questions

What is the difference between project IRR and equity IRR?
Project (unlevered) IRR measures the return of the whole investment before financing: capex out, operating cash after tax in. Equity IRR measures the return to the shareholders after the lender has been paid. When the loan costs less than the project earns, gearing raises the equity IRR above the project IRR, at the cost of more risk.
What is a good IRR for a solar or wind project?
In mature European and US markets, unlevered project IRRs of 6–8% (nominal, after tax) are typical for contracted solar and wind, and equity IRRs of 8–12%. Merchant exposure, emerging markets or development risk push required equity returns to 12–20%.
What is DSCR and what value do banks require?
The debt service coverage ratio is the cash flow available for debt service divided by the scheduled interest plus principal in that year. Lenders typically require a minimum DSCR of about 1.20–1.30 for contracted renewables and 1.40–1.75 for merchant revenues, and size the loan so the P50 or P90 case stays above it.
How do I calculate NPV for an energy project?
Project every year's cash flow (revenue minus opex, tax and, for equity, debt service), then discount each year by (1 + r)^t and sum, starting with the negative investment at year 0. A positive NPV at your required return means the project creates value.
Should I use real or nominal rates?
Be consistent. This model escalates prices and costs, so its cash flows are nominal and the discount rate and IRR are nominal too. If you set escalation to zero, interpret the rates as real.
Why is the equity cash flow jumping after the loan is repaid?
Once the tenor ends, cash that went to debt service flows to the shareholders. A second step often appears when depreciation finishes and taxable income, and with it tax, rises.

Sources & references

  1. IRENA (2024). Renewable Power Generation Costs in 2023 — cost of capital and financing assumptions
  2. NREL — System Advisor Model (SAM): financial models documentation
  3. IEA (2024). Cost of Capital Observatory
  4. Yescombe, E.R. & Farquharson, E. (2018). Principles of Project Finance, 2nd ed. Academic Press

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