PPA Financial Model

There are a number of key inputs that go into building and pricing a solar PPA financial model.  They include but are not limited to the following:

Capital Expenditure and Installation Costs:

  • Price of the solar modules, inverters, wiring and mounting equipment (plus a myriad of other items such as permits, drawings etc.).
  • Price of the installer/integrator construction contract (for mechanical and electrical work). 
  • Both items are due in installment payments over the life of the development and construction period.


  • Federal Investment Tax Credit (FITC); currently 30% (of applicable expenses related to the solar project) can be claimed as a tax credit or cash rebate.
  • Solar Performance Based Incentive (PBI) or Expected Performance Based Buydown (EPBB); due once the project is in-service and paid either upfront or over a 1-5 year period (varies by state).
  • Renewable Energy Credits (RECs); if applicable, would be due over the life of the project. 


  • Array Production Hours or Insolation Data; total amount of annual sunlight/hours at the site of the solar array (along with the type of solar modules) determines total energy production capacity for the array.
  • Output Loss Rate; the array production data is reduced to reflect degradation of equipment over the life of the array and other environmental conditions.
  • The net production data is used to determine the ultimate $ value of the electricity produced by the solar array over the PPA period. 

Contract Pricing:

  • The Power Purchase Agreement (PPA) outlines the fixed or variable energy rate/amount that the customer pays to the third party owner over the life of the contract.  PPA's can be 5-25 years in length.


  • The bank borrowing rate or internal rate of return (IRR) required by the financial partners which might include commercial banks, specialty financial lenders or tax oriented equity investors.
  • Depreciation - Modified Accelerated Cost Recovery System (MACRS) 5-Year Accelerated Depreciation for solar assets.