The Accounting-And-Finance of a Solar Photovoltaic Plant: Economic Efficiency of a Replacement Project
4th International Conference on Energy and Environment: bringing together Engineering and Economics, Guimarães, Portugal, 16-17 May 2019
7 Pages Posted: 3 Apr 2019 Last revised: 22 Jul 2019
Date Written: March 12, 2019
In this work we illustrate a simple logical framework serving the purpose of assessing the economic profitability and measuring value creation in a solar photovoltaic (PhV) project and, in general, in a replacement project where the cash-flow stream is nonnegative, with some strictly positive cash flows. We use the projected accounting data to compute the average ROI, building upon Magni (2011, 2019) (see also Magni and Marchioni 2018), which enables retrieving information on the role of the project’s economic efficiency and the role of the project scale on increasing shareholders’ wealth. The average ROI is a genuinely internal measure and does not suffer from the pitfalls of the internal rate of return (IRR), which may be particularly critical in replacement projects such as the purchase of a PhV plant aimed at replacing conventional retail supplies of electricity.
Keywords: Energy project analysis, investment evaluation, value creation
JEL Classification: Q42, G11, G31, M41
Suggested Citation: Suggested Citation