IRR (internal rate of return) in solar projects
Solar finance glossary · South Africa
Quick definition
IRR (internal rate of return) in solar projects is the annual discount rate at which the present value of a project's future net cash flows, energy savings or revenue minus costs, equals the initial investment; it is the single-number measure most commonly used to compare the profitability of solar investments.
For an owner-occupier buying a system, the cash flows are the avoided electricity cost each year (net of maintenance, insurance and inverter replacement) against the purchase price, and the IRR is compared with the cost of finance or the return the business could earn elsewhere. For a PPA or rental provider, the cash flows are the tariff or rental income against the capital cost, and a minimum IRR sets the tariff the provider can offer.
In South Africa, IRR is highly sensitive to the assumed tariff escalation, the Section 12B allowance in the commissioning year, and the share of production the site actually consumes. Project IRR (before financing) and equity IRR (after debt) are different numbers and should not be compared directly.
ArkFlow is a software platform that facilitates calculating project and equity IRR from the site's tariff and consumption data within the financial proposal.
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Asset Finance vs Rent-to-Own vs PPA: Solar Finance Structures Compared →Compare solar finance structures in South Africa: Asset Finance, Rent-to-Own and PPA. See terms, ownership and tax so you can pick the right one.
ArkFlow is a software platform that facilitates solar finance origination. It is not a bank, lender, credit provider, tax adviser or financial adviser. This definition is general information, not a credit offer or advice. Funders make their own credit decisions and tax treatment should be confirmed with a registered practitioner.