Renewable Energy, Vol.109, 422-433, 2017
Quantifying economic risk in photovoltaic power projects
Risk analysis is essential for attracting investment to solar projects. This paper measures risk as the variability in internal rate of return (IRR) and estimates it from the uncertainty in (i) future systems prices, (ii) operations costs and (iii) revenues based on energy yield, irradiance and electricity prices. We quantify these risks for photovoltaic (PV) and concentrated photovoltaic (CPV) projects starting in 2016, 18 and 20 for customers selling solar-generated electricity under a fixed feed-in tariff (FIT) and for large business customers displacing electricity loads that they would pay for according to variable market rates. An international comparison of results is provided. Uncertainty in future systems prices causes on average 45% (PV) and 93% (CPV) variation in IRR, which is important to a developer's planning process but is resolvable with negotiated system prices from suppliers. Uncertainty in future operations costs impacts the IRR by on average 17% (PV) and 20% (CPV). Uncertainty in revenues impacts the IRR by at most 3.6%. Furthermore, the analysis shows that overall percentage variability in a project's IRR is much less than the percentage variability in operations costs and revenues, which are the two factors at play once the system is operating. (C) 2017 Elsevier Ltd. All rights reserved.
Keywords:Photovoltaics;Concentrated photovoltaics;Internal rate of return;Risk;Monte Carlo analysis;Bankability