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This MCC note is a practical guide to building robust ROI models, helping decision-makers test project economics under uncertainty and communicate investment cases with confidence. Explore the structure, assumptions, and stress tests that make financial models genuinely decision-useful.
The paper lays out a comprehensive approach to forecasting ROI, from defining inputs and cashflow logic through to scenario and sensitivity analysis. It highlights key modelling choices (capex/opex profiles, discount rates, revenue drivers) and the importance of transparently linking assumptions to operational realities. The note also discusses how to interpret results using consistent metrics and how to design models that support governance-enabling faster iteration, clearer risk discussion, and better investment prioritisation.
Example sources:
• Quinbrook Infrastructure Partners
• Masdar
• CEFC
Take-away: building ROI forecasts now starts with mapping revenue stacks and banking consortia before you touch the spreadsheet.
• Pinpoint the critical few variables before running hundreds of simulations.
• Use tornado charts for board-level conversations; keep the heavy Monte-Carlo in the background.
• Pair sensitivity outputs with hedging or commercial mitigations (e.g., interest-rate swaps, EPC price caps).
• Energy arbitrage calculations require assumptions for future market price, quantity and competitive dynamics. In turn, prices should reflect supply and demand assumptions.
1. Over-optimistic revenue curves (“hockey sticks”) with no bottom-up sales/PPAlogic.
2. Under-modelled O&M escalation, ignoring inverter replacements and high-voltage compliance costs.
3. Confusing profitability with liquidity (P&L shows profit while monthly cash turns negative).
4. Ignoring equity dilution and capital stack effects from layered funding rounds (e.g., convertibles, mezzanine, or green bonds).
5. Single-scenario bliss — no base/downside cases or toggles for price & irradiance shocks. Fin-Wiser
Modern guidance emphasises three nested approaches; one-way, multi-way andprobabilistic (Monte-Carlo) sensitivity, to reveal which levers (irradiance, PPA price, CAPEX, debt-margin) truly swing IRR/NPV.
DESNZ’s 2025 CfD-AR7 shift from a fixed budget to a “capacity ambition” means bid sizing must remain a live scenario until auction close. Renewable Exchange
• Wholesale price risk: 2024 saw record hours of negative power prices across Europe; statistical price models missed them, while fundamental dispatch models (e.g., PLEXOS) captured – €100/MWh events. Energy Exemplar
• Tariff benchmarks: The UK solar PPA market has been steadily declining—Q3 2024 figures show average fixed-price solar PPAs at ~£76/MWh—suggesting downside cases could use £70/MWh or lower as a base. Solar Power Portal
“A flat 95 % availability for 25 years. Real-world data shows outages and curtailment knock this to ~91 % by year 10.” fin-wiser.com
It highlights which covenant bites first; at Cleve Hill, a 10 % CAPEX overrun hurt the DSCR more than a 5 % PPA haircut — so lenders insisted on an EPC fixed-price, not a higher tariff. Energy arbitrage calculations should reflect future competitive landscapes. Cos forecasts should reflect observed cost curves, especially if capex is multiple years ahead. quinbrook.com
LCOE inputs (CAPEX, OPEX, yield), financing metrics (WACC, DSCR), tax shields, degradation, curtailment, merchant tail, exit multiple. Optionality to add batteries if not already included. fin-wiser.com
Run a policy-off / policy-on pair of cases (e.g., CfD lapses, UAE green-certificate boost). Then layer price-path volatility using a fundamental model to test break-even IRR under each regime. Try to insure against policy shifts - look at the USA for recent examples of policy changes that negatively impact returns. energyexemplar.com
• Partnership structure drives the spreadsheet: secure multi-bank or utility
partnerships first; numbers follow.
• Mistakes are predictable: over-stated revenues, under-counted costs, singlescenario optimism.
• Sensitivity is non-negotiable: Monte-Carlo or multi-way analysis exposes weak covenants before lenders do.
• Volatility & policy iterate: embed toggles for CfD/PPA shifts and feed them a volatile price curve, not a flat escalator.
• Audit-ready models win capital: clear sheet architecture and cited sources build investor trust.
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