Economic modelling of solar PV

Vertu Motors PLC asked us to advise on the economic feasibility of using on-site solar photovoltaic panels. Their aim was to reduce their reliance on grid-imported electricity and protect them against rises in the wholescale cost of electricity.

Solution

The viability of on-site solar PV self-generation is determined by a combination of physical and economic factors, alongside routine requirements for Planning and Distribution Network Operator (DNO) consents. We provided Vertu with preliminary economic modelling to guide future feasibility and underpin a process to screen-out non-viable sites at an early stage, helping them avoid incurring unnecessary abortive costs later in project development.

In this instance, the success or failure of the business case hinged on there being a reasonable prospect of the client achieving net cash savings from solar self-generation, the present value of which significantly exceeds the likely CapEx for each installation. We produced a discounted cashflow (DCF) analysis indicating a likely break-even point of approximately 11 years and an overall 15-year return on CapEx of 55%—meaning the net present value of the projected cost savings would equate to 155% of the original capital investment by year 15.

Ahead of committing to any spend, our economic modelling also made provisions to anticipate potential fallout from the project pipeline. A high fallout rate of 80% was factored into the business case to provide a conservative assessment of how the targeted cost savings could be expected to vary in unfavourable project scenarios.

Vertu was able to proceed with an informed perspective, making decisions on spend that target meaningful reduction in energy costs while gauging a range of risk scenarios.