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Risk Assessment
Section 4 of 5
Investment Models
Financial Modeling & Returns
Building comprehensive investment models to evaluate renewable energy project profitability and risk-adjusted returns
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Section 4 of 5Investment Modeling Fundamentals
Financial modeling for renewable energy projects involves projecting cash flows, calculating risk-adjusted returns, and determining project viability. Key metrics include Net Present Value (NPV), Internal Rate of Return (IRR), payback period, and various coverage ratios that ensure debt repayment capacity.
Models must account for renewable energy specifics: performance degradation over time, inflation-adjusted revenues and costs, tax benefits, depreciation schedules, and the time value of money. Conservative assumptions and sensitivity analysis are crucial for bankable projects.
Key Financial Metrics
NPV: Net Present Value - measures absolute profitability
IRR: Internal Rate of Return - measures percentage return
Payback Period: Time to recover initial investment
DSCR: Debt Service Coverage Ratio - debt repayment capacity
Interactive Investment Return Calculator
$100M
$18M
$3M
8%
25 years
0.5%
NPV
$80.0M
Net Present Value
IRR
15.9%
Internal Rate of Return
Payback
7 years
Payback Period
Profit Margin
83.1%
Average Annual Margin
Cash Flow Projection
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Positive Cash Flow
Negative Cash Flow
Investment Analysis Summary
Total Revenue (25 years)$444.4M
Total Operating Costs$75.0M
Net Operating Income$369.4M
Return on Investment369.4%
Annualized ROI5.4%
✓ Investment Attractive
Meets hurdle rates and generates positive returns