Evaluate the Project Economics - American Cities Climate Challenge
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On-Site Solar

Evaluate the Project Economics

Once you have refined your list of prioritized sites, you will need to conduct a high-level economic assessment to get the internal buy-in necessary to move ahead with the project – i.e., decide on an ownership structure and move to the solicitation process. You could get the benefit of such an economic assessment by running an RFI, but if you perform the assessment yourself, you will need to gather the following information for each site:

  • System Size (MW)

    You will have determined this in the previous section after prioritizing the sites.

  • Up-Front Cost ($/W)

    This can be estimated using similar projects as reference points, NREL’s U.S. Solar Photovoltaic System Cost Benchmark report (page viii) or EnergySage.

  • Electric Usage and Rate Structure

    You will have gathered this in the previous section when requesting data from facility managers.

  • Available Incentives

    Applicable solar PV incentives can be found on the Database of State Incentives for Renewables & Efficiency (DSIRE) website.

  • Co-Benefits

    Although co-benefits will not directly impact the financial performance of an on-site solar installation, that does not mean they should not be considered as part of the overall evaluation. The economic benefits of any local jobs and subsequent tax revenue, or the financial savings associated with mitigated greenhouse gas emissions and reduced pollution can be modeled and help inform a final decision. See the Short-List and Prioritize Specific Renewable Energy Initiatives section in the Getting Started section, as well as the On-Site Solar Pitch Deck Template, for links to tools that can help quantify these benefits.

After gathering the necessary economic assessment inputs, you can use free techno-economic tools like NREL’s System Advisor Model (SAM) to perform the economic analysis. This will output key metrics, such as the project’s up-front cost, net present value (NPV), and internal rate of return (IRR). Some important questions to ask include:

  • Do you currently have the capacity to make this capital investment with a direct purchase?
    • If you do, you may want to identify any additional hurdles, such as voter approval.
    • If you do not, you may consider third-party ownership (TPO) for little to no up-front cost.
  • Does the IRR meet your economic threshold for municipal projects?
    • If it does, you can utilize that as a primary selling point in gathering internal buy-in.
    • If it does not, you may want to consider whether utilizing the federal investment tax credit (ITC) through TPO will increase economic returns, or sell the project on other merits, as discussed in the following section.
  • If pursuing TPO, what price point will you need to hit?
    • You can look at the levelized cost of electricity from the project to see how it compares to your marginal electricity rate.
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