April 14, 2007

by Paul Gipe

My thanks to Simon Boone of Generation Solar Renewable Energy Systems for calling my attention to a simple spreadsheet function for calculating the rate of return. This is a very simple technique that can be used to quickly gauge the quality of a project or the claims of developers.

The @IRATE function in Quattro Pro is equivalent to =RATE in Excel.

Despite it’s simplicity, IRATE is a powerful tool. You can use the Solve For function in Quattro Pro to work backwards and find the tariff needed to reach a desired rate of return.

By using the numerical features of the spreadsheet, the rate of return can be calcualted for a range installed costs and annual expense rates. These calculations reveal that without substantial subsidies of some kind, it is very difficult for any reasonable installed cost of solar PV for a project to produce a return competitive with other investments of similar risks.

Using this simple calculation, after subsidy installed cost must be less than $5,000 CAD/kW to generate a reasonable rate of return.