Path-Q Solar
What financial risk comes from relying on long-term electricity price increases in a solar forecast?
Answer
The risk is that actual electricity prices rise more slowly, remain flat, or change in ways the forecast does not capture, reducing future savings and lengthening payback. Escalation should be treated as an uncertain scenario, not guaranteed return.
Key points
- Higher assumed price growth increases modeled future savings and can materially improve projected ROI.
- Savings are also affected by changes in rate structure, fixed charges, export value, and consumption.
- A robust decision should remain acceptable under conservative or flat-price assumptions.
- Present-value analysis can show how much of the return depends on distant future savings.
What it depends on
- Starting electricity price and rate structure
- Escalation assumptions and forecast period
- System production and degradation
- Ownership period, financing, and discount rate
Risks and trade-offs
- Aggressive escalation can create a false sense of certainty.
- Conservative assumptions may understate possible savings but reduce forecast dependence.
- Unexpected rate design changes can matter as much as the average price level.
Information you may need
- Proposal's escalation assumptions
- Flat-price and alternative-scenario results
- Actual bill structure and export treatment
- Expected ownership period
Your next step
What to do next
Recalculate the forecast with no escalation and several alternative cases, and identify whether the project still meets your return requirement in the conservative case.
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SQ02693