How this PPA price calculator works
A developer bidding into a corporate PPA tender or a utility auction has one number to find: the lowest price per MWh that still earns the required return. This calculator finds it with a project-finance cash-flow model and a solver.
You enter the project (technology, MW, capex and opex per kW, net specific yield, degradation, life), the contract (PPA term, indexation, merchant capture price afterwards) and the financing (gearing, interest rate, tenor, tax, depreciation). In “price for my target IRR” mode the calculator searches for the PPA price at which the after-tax equity IRR exactly equals your target. Switch to “IRR from a given price” and it reports the equity and project IRR a price would deliver.
Two cross-checks sit next to the main answer:
- Price for DSCR ≥ 1.30: the minimum price at which the assumed debt is bankable in every loan year.
- Price for a 7% project IRR: an unlevered benchmark that ignores financing.
The method
Tax is levied on revenue minus opex, straight-line depreciation and interest, with losses carried forward. Debt is a level annuity over the tenor.
Worked example: a 50 MW solar park
The defaults describe 50 MW of solar at 600 per kW (30 million capex), opex 12 per kW-year, a net yield of 1,350 kWh/kWp (67,500 MWh in year 1, a 15.4% capacity factor), 30-year life, a flat 15-year PPA, a 45 per MWh merchant tail, 70% debt at 5.5% over 18 years, 20% tax and a 10% target equity IRR. The results:
- Required PPA price: ≈ 48.8 per MWh (4.9 cents per kWh)
- Project IRR at that price: ≈ 7.2%; LCOE at 6% WACC: ≈ 45 per MWh
- Minimum DSCR: ≈ 1.20, below a 1.30 covenant. Meeting it with the same gearing would take ≈ 52.7 per MWh
- Price for a 7% unlevered project IRR: ≈ 47.8 per MWh
The gap between 48.8 and 52.7 is what the bank’s safety margin costs. The developer either takes less debt (more equity, lower equity IRR) or bids higher.
How to read the results
- The IRR vs price chart shows how sensitive returns are to the tariff. For this solar park each extra 1 per MWh adds roughly 0.4–0.5 percentage points of equity IRR.
- “Where the PPA price goes” splits the year-1 price into opex, interest, principal, tax and the residual to equity.
- The cash-flow table shows the step change when the PPA expires and the plant switches to merchant prices.
Typical inputs
| Input | Solar PV | Onshore wind | Offshore wind |
|---|---|---|---|
| Capex (per kW) | 450–800 | 1,100–1,700 | 2,500–4,000 |
| Opex (per kW-yr) | 8–18 | 30–50 | 60–110 |
| Net yield (kWh/kW) | 1,000–2,200 | 2,200–4,000 | 3,500–4,800 |
| PPA term | 10–15 yrs | 10–15 yrs | 15–25 yrs (CfD) |
| Gearing | 60–80% | 60–80% | 60–75% |
| Target equity IRR | 7–12% | 8–12% | 9–13% |
Tips
- Use P50 yield net of all losses (availability, curtailment, degradation), then test P90 for DSCR.
- Be conservative on the merchant tail. Solar capture rates of 60–80% of baseload are common in high-penetration markets.
- Model the profile risk. A baseload or shaped PPA needs firming; add balancing costs (1–5 per MWh for pay-as-produced, more for baseload) to opex.
- Work on the debt terms. A longer tenor and a lower interest rate cut the required price more than small capex savings do.
- Compare with LCOE. The PPA price must exceed LCOE by the margin equity investors expect.
Limitations
The model ignores construction period and development costs, debt sculpting, reserve accounts, inflation of capex replacements, guarantee-of-origin revenue, grid fees and curtailment. Real bids also price in credit risk of the offtaker, currency and change-in-law risk. Treat the result as a solid first estimate, not a bid price.
Method & assumptions
The model builds yearly cash flows: energy = kW × specific yield × (1 − degradation)t−1; revenue = energy × PPA price (indexed) during the term, merchant price afterwards; opex escalates; the loan is an annuity; tax is charged on EBITDA − depreciation − interest with losses carried forward. Equity IRR is the discount rate that makes the equity cash flows (−equity at year 0, then cash after debt service and tax) sum to zero. In "solve for price" mode a bisection search finds the PPA price where the equity IRR equals your target.
Frequently asked questions
What is a PPA price?
What are typical solar and wind PPA prices in Europe?
How is the break-even PPA price calculated?
Why is the price needed for DSCR sometimes higher than for the target IRR?
What is a merchant tail?
Should a PPA be indexed to inflation?
Sources & references
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