5 Perspectives on the Cost of Solar Power Plants and Loan Repayments

Table of Contents

• Evaluate the price of a solar power plant including loan repayments

• Perspective 1: Look at the cash remaining after repayment, not electricity sales revenue

• Perspective 2: Incorporate the stability of actual power generation into the repayment plan

• Perspective 3: Deduct fixed costs, operation and maintenance costs, and repair costs first

• Perspective 4: Confirm the balance between the remaining period and the loan term

• Perspective 5: Check local risks and collateral value before purchase

• Pitfalls to avoid when assessing price with loan repayment in mind

• Summary: Organize the basis for repayment, including on-site information

Assess the cost of a solar power plant by including loan repayments

When considering the purchase of a solar power plant, it is dangerous to judge whether the quoted price is high or low based solely on that price. Especially when purchasing with a loan, you need to check not only the purchase price but also whether the income from the plant will allow you to continue monthly or periodic repayments without strain. A solar power plant is a business asset that generates electricity and earns revenue from selling power, and only when operation after purchase becomes stable does it become easier to forecast loan repayments.

Many practitioners who search for "solar power plant price" are likely looking not only for a sense of market prices but also to organize their purchase decision, internal approvals, explanations to financial institutions, and projections for investment payback. Even a plant that appears cheap will have weaker ability to repay if its power generation is unstable. Even if feed-in tariff conditions look favorable, a short remaining period, advanced equipment degradation, planned repairs, or heavy land management burdens will affect the repayment plan.

When considering loan repayment, what matters is not the total amount of revenue from electricity sales but whether there will be sufficient capacity to make repayments after deducting necessary expenses. Operating a power plant incurs maintenance and management, inspections, generation monitoring, grass cutting, cleaning, insurance, tax and administrative procedures, land-related burdens, equipment repairs, and emergency responses. If you plan repayments without deducting these costs, the plan may look feasible on the surface but in reality be one without any margin.

Also, because loan repayments extend over a long period, you must not judge based only on the first year’s cash flow. Solar power plants are outdoor facilities, and as time passes they may experience equipment degradation, vegetation growth, clogged drainage channels, changes in the surrounding environment, and malfunctions of monitoring devices and power conversion equipment. Even if problems appear minor at the time of purchase, if repairs or replacements become necessary after several years, they can affect your repayment plan.

This article outlines five perspectives for considering the cost and loan repayment of solar power plants. Rather than specific amounts or terms, it focuses on the way of thinking that operational personnel should check before purchase. Don’t be misled by price alone; use the plant’s revenue potential, expenses, timeframe, risks, and on-site conditions as decision criteria to verify the basis for repayment.

Perspective 1: Focus on the net proceeds after repayments, not on income from electricity sales

When considering loan repayment for a solar power plant, the first thing to check is not the electricity sales revenue itself but how much leeway remains after loan repayments. Project documents may show projected annual electricity sales revenue and past electricity sales performance. However, electricity sales revenue is the entry point of income, and you need to confirm whether, after deducting maintenance and management costs, fixed costs, repair costs, insurance, administrative procedures, land-related expenses, and so on, there will be enough left to allocate to loan repayment.

Even if a power plant appears to generate large revenue from electricity sales, heavy operation and maintenance costs can reduce its repayment capacity. For sites close to forests with frequent mowing, those requiring cleaning of drainage channels, remote locations that make on-site responses time-consuming, facilities with significant equipment deterioration requiring repairs, or projects with large burdens from insurance and administrative procedures, there will be a gap between the apparent revenue from electricity sales and the actual net proceeds. When it comes to loan repayment, overlooking this gap can easily lead to regret.

Conversely, even for projects where power sales revenue does not appear particularly large, if generation performance is stable, operation and maintenance costs are predictable, equipment is in good condition, and land conditions are favorable, it can be easier to establish a repayment plan. What matters is not the size of the power sales revenue, but whether there is sufficient leeway after deducting necessary expenses from the income to continue making repayments.

Before purchase, organize income and expenses separately. On the income side, check electricity sales revenue based on past power generation performance, power sale terms, remaining contract period, and any output restrictions or shutdown history. On the expense side, check maintenance management, inspections, monitoring, grass cutting, cleaning, insurance, land-related costs, taxes and administrative procedures, equipment repairs, and emergency response. Additionally, it is important to distinguish between costs that occur annually and costs that may arise as significant lump-sum expenses in the future.

When assessing the cash remaining after loan repayments, it's important not to base your evaluation solely on good years. Solar power generation is affected by weather, seasons, and local site conditions. If you structure your repayment plan around years with high generation, you may have no margin in years when output falls or the system is offline. Check multiple years of generation data to make sure you can meet repayments not only in typical years but also in weak years.

Whether the price of a solar power plant is reasonable is not determined solely by the purchase price. What matters is whether you can continue operating after buying at that price by subtracting expenses and loan repayments from income. Checking the cash remaining after repayments makes it easier to judge the actual financial safety that cannot be seen from surface-level prices or yields.

Perspective 2: Reflect the stability of power generation performance in the repayment plan

When considering loan repayment, the stability of power generation performance is extremely important. The primary source of repayment for a solar power plant is the revenue from selling the electricity it generates. Therefore, whether generation performance is stable directly affects the reliability of the repayment plan. Instead of basing repayment solely on installed capacity or simulations, it is necessary to confirm how much electricity has actually been generated in the past.

When reviewing power generation performance, the annual total alone is not sufficient. Even if annual generation appears stable, a month-by-month view may reveal a significant drop in specific seasons. Possible causes include weeds growing in summer that cast shadows on the panels, surrounding trees or terrain casting longer shadows in winter, impacts from falling leaves or snow cover, or temporary shutdowns for inspections or faults. If generation consistently falls at the same time each year, you should suspect site-specific causes as well as weather.

Also check trends over multiple years. Even if a single year’s performance looks good, that year may simply have benefited from favorable solar irradiation conditions. By confirming whether output is stable over several years, gradually declining, or suddenly dropping at a certain point, you can more easily detect signs of equipment degradation or poor maintenance.

If generation is declining year by year, possible causes include dirty panels, vegetation growth, malfunctioning power conversion equipment, deterioration of cables or connections, and deterioration of the environment around the equipment due to poor drainage.

In loan repayment, it is important to check not only the average power generation performance but also the financial outcomes in poor years. You should verify whether there is sufficient headroom to make repayments even in years with low generation. If the repayment plan assumes years with favorable generation, cash flow can become tight when adverse weather, equipment outages, output curtailment, and repair periods coincide. The repayment plan must factor in the range of fluctuations in power generation.

We also check the difference between the power generation simulation and actual performance. If the simulation projects higher output than past performance, verify the basis for that. It is necessary to determine whether there was a past lack of management that can be improved going forward, whether faulty equipment has been repaired, or whether it is simply based on overly optimistic assumptions. When structuring a repayment plan on the assumption of generation higher than actual performance, especially careful verification is required.

Even a power plant that appears cheap carries a higher repayment risk if its generation performance is unstable. Conversely, even a power plant that appears expensive can be easier to consider over the long term if its generation performance is stable and it retains repayment capacity even in weak years. Reflecting the stability of generation performance in the repayment plan can greatly change how the price is perceived.

Perspective 3: Deduct fixed costs, operation and maintenance costs, and repair costs first

One aspect that is often overlooked when considering loan repayment for a solar power plant is the idea of deducting fixed costs, operation and maintenance costs, and repair costs first. Rather than immediately calculating repayment amounts from electricity sales revenue, you need to subtract the costs required to continue operating the plant and then confirm whether you can make the repayments.

Fixed costs include land-related charges, insurance, communications, monitoring, tax and accounting processing, contract management, administrative procedures, etc. Maintenance and management costs include periodic inspections, verification of electrical equipment, generation monitoring, mowing, cleaning, drainage management, repairs to fences and gates, management of surrounding trees, on-site response in the event of abnormalities, etc. These are costs that tend to occur in both high- and low-generation years, and should always be reflected in repayment plans.

Even if a property has had low historical maintenance costs, it is dangerous to take that at face value as a positive indicator. It may be that necessary inspections, mowing, cleaning, and drainage management were not carried out adequately, which would have kept costs low. In such cases, switching to appropriate management practices after purchase can increase costs more than expected. When reviewing past expenses, confirm which tasks were performed and how often, rather than focusing only on the amount.

Repair costs are also important. Solar panels, power conversion equipment, cables, connection equipment, mounting structures, foundations, monitoring devices, fences, drainage facilities, and the like may require repairs or replacement during the operational period. Even if they are operating without problems now, if repairs occur during the loan repayment period they will affect the ability to repay. In particular, replacement of power conversion equipment, cable repairs, repairs to mounting structures or foundations, and improvements to drainage facilities are items whose risks you should check before purchase.

Repair costs do not necessarily occur the same way every year. They can be concentrated in a single year. Therefore, it is necessary to consider not only the cash left in a single year but also the financial capacity over multiple years. Even if power generation performance is good and repayments in a normal year are manageable, you may run short of funds in a year when major repairs coincide. The concept of a repair reserve is also important in repayment planning.

For lower-priced power plants, the low price may be due to unaddressed repairs or underestimated fixed costs. For higher-priced power plants, the price may be justified by good equipment condition, streamlined fixed and management costs, and a clearer outlook for future repairs. When considering loan repayment, it is important to first deduct fixed costs, operation and maintenance costs, and repair costs, and then assess the remaining repayment capacity.

Perspective 4: Check the balance between the remaining term and the loan term

When considering the price of a solar power plant and loan repayment, the balance between the remaining operational period and the loan term is important. If the period during which the plant can earn revenue from electricity sales does not align with the loan repayment period, the cash-flow plan may become infeasible. This is especially true for already-operating solar power plants, since a certain period has already passed since they began operation, so it is necessary to carefully confirm the remaining period.

A power plant with a long remaining term may appear to make it easier to structure a repayment plan. However, a longer term also means that equipment degradation, repairs, insurance, fixed costs, vegetation management, and drainage management will continue to occur during that time. Rather than feeling reassured by a long remaining term, it is important to confirm whether the equipment can be operated reliably throughout that period.

For power plants with a short remaining period, more careful verification is required. When loan repayment is to be completed over a short period, declines in generation, equipment outages, or major repairs can have a significant impact on the repayment plan. Projects with a short remaining period may appear inexpensive, but whether that low price is truly advantageous cannot be judged without considering the repayment period, generation performance, and repair risk together.

When considering the loan term, check the cash flow over the entire repayment period, not just the first year. Confirm whether power generation is stable, fixed costs will not increase, the replacement timing for major equipment will not fall within the repayment period, and whether the land lease agreement can be continued. If major repairs, land lease renewals, or reviews of insurance terms will be required during the repayment period, those should also be incorporated into the plan.

We also verify the alignment between the power purchase conditions and the loan term. Even a project with favorable power purchase conditions can leave doubts about future income if the remaining contract period is short while loan repayments continue for a long time. Conversely, projects that are expected to complete loan repayment comfortably within the remaining contract period and still have room to operate after repayment are easier to consider.

When explaining to financial institutions or to colleagues, it is important to show how the repayment period corresponds to the power plant’s revenue period. Even if the price is reasonable, an unnatural design of the periods can leave doubts about the decision to purchase. Checking the balance between the remaining period and the loan term makes it easier to assess the realism of the repayment plan.

Perspective 5: Verify Local Risks and Collateral Value Before Purchase

When considering loan repayment, it is also necessary to verify, before purchase, elements related to on-site risks and collateral value. Solar power plants are outdoor facilities, and the condition of the land and equipment directly affects the project’s value. Even if the power generation track record is strong, significant on-site risks can raise future repair costs and the risk of shutdown, which will impact the repayment plan.

The first thing to check is the land rights. Is it owned land or leased land, is the contract term for land use sufficient, and what are the renewal and termination conditions? In the case of leased land, it is important to confirm whether land-use stability will be maintained during the loan repayment period. For power plants where there is uncertainty about land use, the premise for long-term repayment may be weakened.

Also confirm the boundaries and the scope of use. Check whether the contractual boundary, the boundary shown on drawings, the fenced area, and the area actually managed are consistent. At a power plant with ambiguous boundaries, concerns remain about future management, sale, collateral valuation, and interactions with neighbors. You should also verify that the power generation equipment is properly contained within the site and that drainage channels and maintenance access routes are not related to adjacent land.

Drainage, shading, vegetation, and disaster risks are also important. Poor drainage can cause scour around foundations, weakening of the ground, and may affect cables and electrical equipment. Shade from nearby trees and the overgrowth of vegetation can reduce power generation and hinder inspection work. In locations with risks such as heavy rain, strong winds, snowfall, fallen trees, or sediment inflow, recovery can take time and may affect the electricity sales revenue that serves as the source of repayments.

When considering the collateral value of equipment, the equipment condition and documentation are also important. If power generation records, inspection reports, repair histories, equipment ledgers, drawings, land contracts, and on-site photographs are organized, it becomes easier to explain the condition of the power plant. For power plants where documentation is lacking, drawings do not match the site, or repair histories are unknown, the basis for explaining the value becomes weak.

Local risks and collateral value may appear separate from the loan repayment itself, but in reality they are closely related. If the power plant’s value is stable, it becomes easier to explain the repayment plan. When local risks are high, careful judgment is required even if the price is low. Before purchase, it is important to document the on-site condition so that you can explain its future revenue-generating capacity and asset value.

Pitfalls to Avoid When Making Price Decisions Based on Loan Repayments

A price decision you should avoid when considering loan repayment is assuming you can repay based only on revenue from electricity sales. Revenue from electricity sales is important, but unless you deduct operation and maintenance costs, fixed costs, insurance, repairs, and the risk of downtime, you cannot know your actual repayment capacity. If you judge solely by surface-level income, you may struggle with repayments in years when generation falls or repairs are required.

Another thing to avoid is using only a good year’s generation results as the basis. Solar power generation is affected by weather and local conditions. If you build a repayment plan based solely on a single year’s results, you may overlook the available funds in a weak year. You should review monthly data over multiple years and confirm whether you can meet repayments even in a bad year.

Underestimating equipment deterioration can be dangerous. Even if current power generation performance is good, replacement of power conversion equipment, cable repairs, repairs to mounting structures and foundations, and updates to monitoring equipment may be required during the repayment period. If you create a repayment plan without accounting for repair costs, unexpected burdens may arise after purchase.

Postponing consideration of land conditions is also a pitfall. Land contracts, boundaries, road access, drainage, vegetation, and disaster risks affect power generation and maintenance costs. In particular, for leased land or cases with unclear boundaries, you need to confirm that no land-use issues will arise during the repayment period.

You should avoid making decisions based solely on documentation. Even if power generation records and drawings are in order, issues such as shading, drainage, vegetation, equipment deterioration, road access, and boundary problems can be found on-site. If you are considering loan repayment, it is important to reflect not only the desk-based income and expenses but also the risks that can be confirmed on-site.

Summary: Compile the evidence that repayment is feasible, including local information

When evaluating the price of a solar power plant and its loan repayment, it is important to look at the net cash remaining after repayments rather than electricity sales revenue; to reflect the stability of generation performance in the repayment plan; to deduct fixed costs, operation and maintenance costs, and repair costs first; to confirm the balance between the remaining operational period and the loan term; and to verify on-site risks and collateral value before purchase. Whether the price is low or high alone cannot determine if the plant will be able to repay the loan.

There may be reasons why a low-priced power plant is cheap. Unstable power output, equipment deterioration, planned repairs, uncertainty about land conditions, underestimation of fixed costs, or lack of documentation may underlie the price. Even for higher-priced power plants, if the generation track record is stable, fixed costs and repair risks are clear, and the land and equipment are in good condition, it can be easier to establish a repayment plan.

What matters for operational staff is being able to present to the company and to financial institutions the basis for repayment. By linking and organizing power generation data, power sales terms, operation and maintenance costs, inspection reports, repair histories, land contracts, drawings, and on-site verification results, it becomes easier to explain the reasonableness of the price and the repayment plan. This is particularly essential for used solar power plants, where reconciling past operational records with the current on-site condition is indispensable.

During on-site surveys, it is effective to record verification points that could affect the repayment plan together with precise location information. If you can record with location data the equipment near boundaries, drainage channels, trees causing shade, areas of vegetation overgrowth, power conversion equipment, cable damage, fence damage, spots of equipment deterioration, and candidate repair locations, it becomes easier to organize the basis for revenue declines and future costs.

If you want to organize the on-site evidence required for loan repayment of a solar power plant, using LRTK (an iPhone-mounted GNSS high-precision positioning device) can also be effective. If you can record the locations of equipment within the plant, drainage channels, causes of shading, extent of vegetation, candidate repair locations, and points of caution near boundaries together with high-precision location information, you can reconcile discrepancies between drawings and the site and make it easier to share factors that affect the repayment plan among stakeholders. When determining the price and loan repayment for a solar power plant, it is important to build up not only on-paper financials but also on-site verifiable evidence.