7 Steps to Create the Price and Profit Plan for a Solar Power Plant

When considering the price of a solar power plant, the first thing to check is not the quoted price itself but whether the financial projections based on that price are realistically achievable. Sales materials and project summaries may present organized figures such as rate of return, annual power sales revenue, estimated power generation, and operation and maintenance costs, but unless you verify the conditions under which those figures were derived, actual results after purchase can differ significantly.

Especially for secondhand solar power plants and already-operating projects, while there are historical power generation records, equipment degradation, changes in the surrounding environment, deferred repairs, changes in insurance terms, and land use restrictions can affect the project's financial performance. Even projects that appear cheap may see lower investment efficiency than expected once future additional burdens are factored in. Conversely, projects that look expensive may produce satisfactory long-term financial results if generation stability, contract terms, management arrangements, and land conditions are favorable.

This article organizes the approach for incorporating the price of a solar power plant into a cash flow plan into 7 steps that practitioners can easily verify. Rather than simply judging whether it is cheap or expensive, it provides concrete explanations of the perspectives to consider before purchase, including income, expenses, risks, site conditions, and future costs.

Table of Contents

• Do not judge the price of a solar power plant solely by the total amount

• Step 1 Confirm the assumptions for electricity sales revenue

• Step 2 Examine the basis for power generation by separating actual performance and forecasts

• Step 3 Identify operation and maintenance costs and fixed costs

• Step 4 Incorporate repair and replacement costs as future expenses

• Step 5 Reflect land conditions and contract terms in the income and expenditure

• Step 6 Confirm loan terms and cash flow

• Step 7 Adjust the income and expenditure plan to be conservative, including risks

• Assess the price of a solar power plant in conjunction with on-site verification and the income and expenditure plan

Do not judge the price of a solar power plant by the total amount alone

When looking at the price of a solar power plant, many people in charge first focus on the asking price and the gross yield. Of course, the acquisition cost is important for investment decisions. However, a solar power plant is not a one-time purchase; it is a commercial asset that, during its operating period, continues to generate revenue from electricity sales while requiring ongoing payments for operation and maintenance costs, insurance premiums, taxes, repair costs, and land-related expenses. Therefore, the reasonableness of the price needs to be judged not by the standalone amount but by the future flow of income and expenditures.

Even for power plants of the same scale, profitability varies depending on solar irradiance conditions, orientation, tilt, presence of shading, equipment configuration, the condition of electrical equipment, the shape of the land, and management status. Even if projects appear similar on the surface, the stability of power generation and future repair burdens can be completely different. Comparing price alone can make these differences difficult to see.

What you should pay particular attention to is what expenses the rate of return shown in the sales materials deducts. Whether the rate of return is based only on electricity sales revenue, shown after deducting operation and maintenance costs, or even takes loan repayments and taxes into account makes a big difference. In practice, do not judge by the term "rate of return" alone; check the calculation formula.

The purpose of creating a financial projection is not to line up optimistic figures. It is to confirm how much income can be expected after purchase, when expenses are likely to occur, and whether your cash flow can withstand a drop in power generation below expectations. The more carefully you prepare a financial projection at the stage of considering the price of a solar power plant, the less likely you are to regret the purchase afterward.

Also, a financial plan is not something you create once and then finish. You should update the assumptions each time you proceed with document review, on-site inspection, contract review, equipment checks, and verification of power generation results. Rough estimates are fine at the start, but as you approach the purchase decision you need to revise the figures to be evidence-based. When negotiating price, rather than saying something feels expensive or cheap, it is more persuasive for decision-making to show which costs and risks should be reflected in the financials.

Step 1: Confirm the assumptions for revenue from electricity sales

The first step in a financial plan is to verify the assumptions for electricity sales revenue. A solar power plant's income is fundamentally determined by the amount of electricity it generates and the selling price per unit. Therefore, you need to confirm what generation volume and what unit price were used to calculate the presented annual electricity sales revenue.

First, what I want to confirm is the basis for the electricity selling price. Whether the project is selling power at a fixed price or under different terms changes how you should assess future revenues. If there is a remaining term for a fixed price, the remaining sales period will have a major impact on cash flow. A longer remaining term makes it easier to forecast revenues. Conversely, if the remaining term is short, long-term financial outcomes can change significantly depending on assumptions about the post-period selling conditions.

Next, you need to distinguish whether the generation used to calculate revenue from electricity sales is based on actual results or on forecasts. For operating power plants, you can check past electricity sales performance and generation data. However, looking at only a single year can be strongly affected by weather. If you have multiple years of data, check the year-to-year variations and be sure to understand not only the average but also the levels in low-yield years.

When reviewing electricity sales revenue, also check the impact of output control and downtime. Even if a plant is capable of generating sufficient power, revenue will decline if there are periods when electricity cannot be sold due to grid-side constraints or equipment stoppages. It is important to determine whether the annual electricity sales revenue shown in sales materials reflects these constraints, or whether it is a figure close to the theoretical generation amount.

Also, electricity sales revenue may appear differently in terms of net proceeds depending on assumptions about consumption tax and accounting treatment. You should also verify whether the income shown in the documents is tax-inclusive or tax-exclusive, and how it is handled in the income-and-expenditure plan. In practice, the way income is presented can vary between documents, so when comparing multiple documents you need to align the basis.

If you judge the price of a solar power plant while the assumptions for revenue from electricity sales are ambiguous, the headline yield alone can be misleading. Verify each assumption one by one — generation output, unit price, remaining term, record of outages, output curtailment, and tax treatment assumptions — and clarify the basis for the revenues; that will be the starting point for the income and expenditure plan.

Step 2: Separate the basis for power generation into actual results and forecasts

In the financial plan for a solar power plant, the expected power generation is central. If the power generation is lower than anticipated, revenues from electricity sales will also decrease and the plan for recovering the investment will be undermined. Therefore, the basis for the expected power generation must be carefully verified.

When examining power generation, first separate actual values and predicted values. Actual values are the data obtained from the power plant’s actual operation. Predicted values are estimates calculated from solar irradiance, installed capacity, orientation, tilt, loss conditions, and so on. Both are important, but they mean different things. Actual values tend to reflect on-site conditions more readily, but they are affected by past weather and temporary outages. Predicted values make it easier to standardize conditions, but if the assumptions are optimistic they can look better than reality.

For operational projects, checking monthly power generation is useful. This is because annual totals alone can make seasonal biases and anomalies hard to see. For example, if generation falls sharply in a particular month, there may be causes such as snowfall, shading from vegetation, equipment stoppages, communication failures, or power conditioner malfunctions. If the decline occurs at the same time each year, impacts stemming from site conditions or the surrounding environment should also be considered.

When checking power generation, it is also important to look at generation per unit of installed capacity. Simple annual generation figures alone make it difficult to compare projects with different system sizes, so converting to generation per unit of capacity and comparing makes it easier to grasp performance differences between projects. However, because regional solar irradiance, snowfall conditions, and installation tilt angles differ, you should not judge superiority by lining up numbers alone; you also need to consider site conditions.

For predictions of power generation, check the contents of the loss assumptions. In solar power generation, from solar irradiance to the final amount of electricity sold there are losses due to temperature, wiring, conversion, soiling, shading, and declines from equipment degradation. The reliability of the generation forecast depends on the extent to which these factors are considered in the forecast documents. If losses are estimated too low, the financial projections will look favorable but actual performance may fall short.

Also, don't forget the annual decline caused by equipment degradation. Solar panels can be used for a long time, but their power generation performance gradually decreases. In financial projections, rather than assuming that the first year's power output will continue unchanged into the future, you need to incorporate year-by-year declines. Checking whether a degradation rate has been specified, whether it is consistent with warranty terms, and whether it appears reasonable based on actual results will improve the accuracy of the plan.

Power generation is the heart of the financial plan. Whether a solar power plant's price looks reasonable depends heavily on the assumptions about power generation. It is important to separately check actual performance, forecasts, losses, degradation, and downtime factors, and to create a plan that does not rely solely on optimistic generation figures.

Step 3: Identify maintenance and fixed costs

Once you have confirmed the assumptions for electricity sales revenue and power generation, the next step is to identify expenditures. When incorporating the price of a solar power plant into a profit-and-loss plan, maintenance and fixed costs are easy to overlook. Sales materials tend to emphasize the revenue side and may simplify expense items. However, to determine the actual take-home amount, you need to understand as concretely as possible the costs that occur every year.

Typical operation and maintenance costs include equipment inspections, remote monitoring, mowing, weed control, panel cleaning, emergency response, and report preparation. The required management tasks vary depending on the size and location of the power plant. At plants located in forests or on land converted from agricultural use, vegetation grows quickly, increasing the frequency of weed control. In snowy regions, winter inspections and restoration responses may be necessary. In locations close to the sea, attention to salt damage is required.

Fixed costs may include land rent, insurance premiums, property taxes, communication expenses, contract costs related to electrical equipment, and management outsourcing fees. The expenditure structure differs depending on whether the land is owned or leased. If there is a land lease agreement, you should also check the conditions for rent revisions, the lease term, renewal conditions, and termination conditions. Land-related costs are incurred over the long term, so even small differences can affect income and expenses.

Regarding insurance, simply checking whether a policy has been taken out is not sufficient. Confirm the scope of coverage, deductible conditions, how disasters are handled, and whether there is compensation for losses resulting from a suspension of power sales. In recent years interest in natural disaster risks has increased, and insurance terms and premiums may change. In financial projections, you should consider not only current premiums but also the assumption that the same terms may not be maintainable in the future.

The contents of the maintenance and management contract are also important. Confirm whether the contract includes the number of inspections, on-call response, the communication system in case of abnormalities, the scope of minor repairs, and the contents of reports. Even if management fees appear low, if the scope of coverage is limited, additional costs may arise. Conversely, even if the fees are higher, if management quality is high and the system can shorten power generation downtime, it can be beneficial to long-term financial results.

When creating a financial plan, it's helpful not only to organize expense items as annual costs but also to distinguish which costs are fixed and which increase depending on circumstances, as this makes forecasting easier. For example, land rent and communication fees are relatively fixed, whereas grass cutting and repairs fluctuate according to site conditions. By building in a buffer for variable costs, the plan will be more realistic.

When comparing the prices of solar power plants, you should look not only at the purchase price but also at annual maintenance and fixed costs to reveal the true burden. Even if revenue is large, high expenses reduce your net return. Even if you can buy cheaply, heavy management costs or additional measures can mean it is not necessarily financially advantageous.

Step 4 Incorporate repair and replacement costs into future expenses

In a solar power plant's financial plan, future repair and replacement costs are particularly important. The plant is installed outdoors and, over a long period, is exposed to wind and rain, ultraviolet radiation, temperature changes, snowfall, lightning strikes, weeds, and damage from animals. Therefore, even if problems are not apparent at the time of purchase, equipment may require repair or replacement during the operational period.

Typical items subject to replacement include power conditioners, monitoring devices, communication equipment, junction boxes, cables, parts of mounting racks, fences, drainage facilities, and so on. In particular, electrical equipment requires consideration of lifespan and failure risk. If repair costs are not accounted for at all in the income-and-expenditure plan, unexpected expenses can worsen cash flow.

For used power plants, it is important to check the remaining service life of the equipment. Verify how much time has passed since the start of operation, which parts have been replaced in the past, whether there is a history of failures, and whether manufacturer or construction warranties still remain. Older equipment tends to be cheaper at acquisition, but refurbishment or replacement costs may arise in the near future. You need to determine whether the low price is due to equipment aging and how it will affect revenues and expenses.

Repair costs are expenses whose timing is difficult to predict precisely. Therefore, it is practical to combine a method that estimates a fixed amount each year with a method that anticipates a lump-sum renewal cost in specific years. Include minor repairs in annual maintenance expenses, and account for major equipment renewals separately as future expenditures so that peaks in cash flow become easier to see.

Also, when budgeting for repair costs, you should also take into account the loss of revenue due to halted power generation. If equipment fails, not only will you incur repair expenses, but sales revenue for the electricity that could not be generated during that period will decrease. If procuring parts or investigating the cause takes time, the outage period may be extended. In financial planning, it is safer to consider not only repair costs but also the risk of downtime.

Repairs to mounting structures and the surrounding land must not be overlooked. Soil runoff caused by poor drainage, slope failures, fence damage, intrusion by weeds and trees, and cable damage from animals are all factors that can worsen financial performance apart from the power generation equipment itself. In particular, on reclaimed land and sloped sites, land stability and drainage conditions affect long-term maintenance costs.

In cases where a solar power plant appears to be priced cheaply, future costs may already be reflected in the price. If you calculate yield at the time of purchase without accounting for expected repair costs, the financial performance can look better than it actually is. When preparing financial projections, it is important to check equipment age, warranties, replacement history, and on-site conditions, and to incorporate anticipated future repair and replacement costs in advance.

Step 5 Reflect land conditions and contract terms in income and expenditure

When considering the price of a solar power plant, land conditions and contract terms are extremely important. Even if the performance of the power generation equipment is good, problems with the land can increase maintenance costs or impose constraints on future operations. Also, if there are unfavorable aspects in the contract terms, they become risks to the financial plan.

First, for site conditions we check the topography, slope, drainage, road access/frontage, surrounding trees, relationship with adjacent properties, and disaster risk. Maintenance and management costs differ between flat, easy-to-manage land and land with steep slopes that require more effort for mowing and inspections. On poorly drained land, erosion and muddy conditions caused by rainwater can occur and may affect inspection work and equipment maintenance. If there are trees growing nearby, the amount of shade may increase in the future.

Access conditions are also important in practice. How easily vehicles can access the power plant, and whether workers and replacement parts can be brought in during emergencies, affects how responsive you can be. If the entrance is narrow, the road is rough, or it becomes difficult to pass in rainy weather, management costs and the burden of repairs may increase. Because these aspects are difficult to see in sales materials, they are items that must be checked on site.

Land rights also directly affect revenues and expenses. You should confirm whether the land is owned or leased, how surface rights and leasehold rights are set up, and whether the contract term aligns with the feed-in tariff period. For leased land, it is important to check whether the contract can be renewed, rent adjustments, obligations to restore the site to its original condition, early termination conditions, and consent for transfer to third parties. Even if you purchase the equipment, if the rights to use the land are unstable, long-term operation could be jeopardized.

When reviewing contract terms, check the power purchase agreement, connection agreement, maintenance agreement, land contract, transfer agreement, and other related contracts. In particular, confirm before purchase the procedures required for change of ownership and succession of rights, any unpaid costs at the time of handover, past incidents or disputes, and whether warranties can be transferred. If contractual obligations are not reflected in the financial plan, unexpected costs or procedures may arise later.

Land and contract terms also affect your exit strategy. If you might sell in the future, properties with organized land rights, retained management records, and clear contractual relationships will be easier to explain to the next buyer. When you consider not only the purchase price but also the ease of future resale, checking the land conditions and contract terms is essential.

In financial projections for solar power plants, land and contracts tend to be treated as elements that are difficult to quantify. However, in reality they affect grass-cutting costs, repair costs, inspection costs, replacement costs, and resale value. When determining price, it is important not to treat land conditions and contract terms as mere checklist items, but to reflect them as factors that affect the project's income and expenses.

Step 6 Check loan terms and cash flow

When purchasing a solar power plant, if you use financing you need to accurately reflect the repayment terms in your cash flow plan. Even if the headline yield looks good, a heavy repayment burden can make monthly or annual cash flow tight. Conversely, if income and repayments are balanced, it becomes easier to maintain stable operation.

What you should check in the loan terms are the loan amount, the repayment period, the interest rate, the repayment method, the grace period, fees, and collateral conditions. In the cash flow plan, subtract maintenance and fixed costs from the annual revenue from electricity sales, and then check how much cash remains after loan repayments. If you only look at the pre-repayment cash flow, you may misjudge the actual amount you will have left.

When assessing cash flow, pay attention not only to the annual total but also to monthly fluctuations in income. Solar power generation varies by season. During periods with more sunlight, revenue from selling electricity increases, and during periods with less sunlight, revenue decreases. On the other hand, repayments and fixed costs often occur at a constant monthly rate, so even if you are profitable on an annual basis, you may be vulnerable to cash shortages during certain periods.

Also confirm whether there is sufficient leeway to continue repayments in the event of equipment downtime or adverse weather. If the income-and-expenditure plan assumes optimistic power generation, even a slight drop in output can tighten cash flow. It is important to consider whether repayments can be sustained at lower generation levels and whether operating funds can be secured if unexpected repair costs arise.

How the cash flow looks also depends on how much of your own capital you put in. If you increase borrowing, you can reduce the initial outlay of your own capital, but your repayment burden will rise. If you use more of your own funds, the repayment burden will be lighter, but the view of capital efficiency will change. Which option is better depends on the company's financial situation, investment policy, and risk tolerance.

If you finance with debt, it's prudent to consider the possibility of rising interest rates and the need to refinance. Whether the terms are fixed or variable, and whether there will be future reviews, will affect the long-term stability of cash flows. Because a power plant's income is unlikely to increase significantly, and higher interest or management costs reduce the net proceeds, you need to plan with sufficient margin.

When looking at the price of a solar power plant, it's not enough that the purchase price is within your budget. By confirming whether the cash flow—including loan repayments—will hold up, whether you can still make repayments if power generation underperforms, and whether you have the capacity to cover future expenses, you can make a more realistic investment decision.

Step 7 Adjust the income and expenditure plan conservatively to include risks

The final step is to conservatively finalize the income and expenditure plan. Combine the revenue from electricity sales, power generation, operation and maintenance costs, repair costs, land conditions, contract terms, and loan conditions into a single plan, and consider not only optimistic cases but also downside scenarios.

In the financial projections for a solar power plant, it becomes easier to make decisions if you prepare multiple scenarios such as a base case, a conservative case, and a stress case. The base case is a standard plan based on past performance and reasonable forecasts. The conservative case is a cautious plan that assumes lower power generation and higher maintenance costs. The stress case combines events like equipment outages, incurred repair costs, and declines in generation to see how long cash flow can withstand the pressure.

The purpose of creating a conservative plan is not to view the project more negatively than necessary. It is to confirm whether the business can continue even if unforeseen circumstances occur. Because a solar power plant is intended for long-term operation, not only single-year profitability but stability over multiple years is important. Even if there are no problems immediately after purchase, renewal costs may coincide a few years later, or repairs to the surrounding land may become necessary.

Risks include lower-than-expected power generation, equipment failures, natural disasters, output curtailment, shading from vegetation, rising insurance premiums, increased management costs, changes in conditions at contract renewal, and reduced income after the end of the power sales period. While it is not possible to predict all of these precisely, building a margin into financial plans can increase the safety of decision-making.

Also, before purchasing, confirm that the numbers in the documents match the actual on-site conditions. Even if the documents are neatly organized, vegetation may be overgrown on site, drainage may be poor, fences may be damaged, or shading may be affecting the property. If you make a purchase decision without reflecting the information obtained from the site inspection in the financial projections, you may face increased costs later.

When preparing financial projections, it is important to shape them so they can be used for final decision-making. Rather than simply listing detailed figures, clarify which assumptions have the greatest impact on the finances, which costs are uncertain, and under what conditions you should decide not to proceed with the purchase. This makes the projections easier to use for internal explanations and approvals, consultations with financial institutions, and negotiations with sellers.

Whether the price of a solar power plant is appropriate is ultimately determined within the financial plan. By considering price, revenue, expenses, and risks together, you can avoid being swayed by mere cheapness and make a decision that is easier to accept in the long term.

Evaluate the price of a solar power plant by combining on-site inspection with a profitability plan.

When creating the price estimate and financial projection for a solar power plant, it is important not to rely solely on reviewing documents. Even if you organize revenue from electricity sales, energy output, operation and maintenance costs, repair costs, land conditions, contract terms, and loan conditions, unless you confirm the actual on-site conditions, the assumptions of the financial plan may be misaligned with reality.

On-site, we check for panel soiling or damage, the condition of the mounting structures (racking), cable routing, the condition of junction boxes and power conditioners, fences, drainage, vegetation, shading from surrounding objects, road access, and the land’s slope. All of these affect power generation, operation and maintenance costs, and future repair expenses. If abnormalities or concerns are found during the on-site inspection, they must be reflected in the financial projections as additional costs or as risks of reduced power generation.

To improve the accuracy of on-site verification, it is also important to record location information precisely. Accurately recording inspection points, locations where shadows occur, places with poor drainage, fence damage locations, and the extent of vegetation overgrowth will be useful when you later revise financial plans or explain matters to stakeholders. Because photos alone can make pinpointing locations ambiguous, having a system that can organize on-site information with location data increases the reproducibility of verification work.

To correctly judge the price of a solar power plant, it is essential to link the numerical financial projections with the on-site realities. Verifying whether the assumptions about revenue from power sales are reasonable, whether the projected generation aligns with local conditions, whether operation and repair costs are not underestimated, and whether land and contractual constraints are reflected in the financials will greatly improve the accuracy of a purchase decision.

As a way to carry out on-site surveys more efficiently, utilizing LRTK (an iPhone-mounted GNSS high-precision positioning device) is also an option. If inspection points within the plant can be recorded together with highly accurate location information, it becomes easier to organize the locations of vegetation shading, poor drainage, equipment damage, and inspection targets. When considering the price and revenue plan for a solar power plant, if you want to accurately grasp site conditions and make evidence-based decisions, incorporating such high-precision positioning can help improve the accuracy of survey records and financial projections.