Economy & Financing
Updated: March 2026
LCOE, financial structures, Asset Management and profitability
1 LCOE - Levelized Cost of Energy
Definition
The LCOE (Levelized Cost of Energy) represents the average cost of producing one MWh over the project lifetime, accounting for all discounted costs.
LCOE = Σ(CAPEX + OPEX) / Σ(Production)
All flows discounted at the chosen discount rate
Detailed formula
LCOE = [I₀ + Σ(Oₜ/(1+r)ᵗ)] / [Σ(Eₜ/(1+r)ᵗ)]
Dramatic cost evolution
LCOE 2010
381 €/MWh
LCOE 2015
126 €/MWh
LCOE 2020
57 €/MWh
LCOE 2024
30-45 €/MWh
-89% in 14 years
Source : IRENA Renewable Power Generation Costs 2024
LCOE comparison by energy source (2024)
€/MWh - Source: Lazard LCOE Analysis v17, IRENA 2024. Excluding storage/intermittency costs.
2 Financial structures
🎯 The central question
A solar project is expensive to build but generates revenue for 25-30 years.
The question is: Who pays? Who owns? Who sells the electricity? The various financial structures answer these questions based on each stakeholder's needs.
Overview: the 4 main financial structures
| Structure | Who invests? | Who operates? | For whom? |
|---|---|---|---|
| PPA | Producer (IPP) | Producer | Corporates wanting green energy without investing |
| Third-party invest | Third-party investor | Investor | SMEs/public entities with rooftop, 0€ CAPEX |
| Project Finance | Banque (70%) + Sponsor (30%) | Dedicated SPV | Large utility-scale projects |
| Self-consumption / FiT | Site owner | Owner | Individuals, farmers, SMEs |
PPA - Power Purchase Agreement
The king contract for large projects
In short: A producer builds a solar farm and sells all its output to a buyer (corporate, utility) at a fixed price for 10-25 years.
→ The producer gets guaranteed revenue (bankable)
→ The buyer gets a fixed price and green electricity (ESG reporting)
How does it work?
🏭 Producer
Builds the farm
Electricity
🏢 Buyer
Corporate / Utility
€ Fixed price
🏭 Producer
Guaranteed revenue
The 3 PPA variants
PPA On-site
Panels installed at the client's location (rooftop, parking). Direct self-consumption.
Example: Factory with 500 kWp on its rooftop
PPA Off-site
Solar farm elsewhere, electricity delivered via the grid (with aggregator).
Example: Amazon buys from a farm in Spain
Virtual PPA (VPPA)
Financial contract only. No physical delivery, just a reference price.
Example: Google "buys" solar in Sweden from the USA
Third-party Investment
0€ investment for the client
In short: An investor finances and installs the panels on your roof. You pay nothing upfront, you just buy the produced electricity cheaper than the grid.
📊 Real-world example: Supermarket with rooftop
The supermarket:
- ✓ Has a large available rooftop
- ✓ High daytime consumption
- ✗ Does not want to invest 200 k€
The investor offers:
- → I install 300 kWp on your roof
- → You pay me 0.12 €/kWh for 20 years
- → vs grid at 0.18 €/kWh
💰 Result: The supermarket saves ~30% on its bill, the investor earns an 8-10% return
💰 Investor
Finances + installs
🏢 Client rooftop
300 kWp installed
⚡ Client
Pays 0.12 €/kWh
Project Finance
For large projects (several M€)
In short: A dedicated company (SPV) is created just for the project. It borrows 70-80% from the bank, sponsors put in 20-30%. Debt is repaid solely from the project's revenue.
Typical Project Finance Structure
🏦 Banks
70-80%
Senior Debt
👥 Sponsors
20-30%
Equity
📋 SPV
Dedicated project company
☀️ Solar plant
10-50 MWc
📊 Example: 10 MWp project
CAPEX total
8 M€
Bank debt (75%)
6 M€
Rate ~4-5%
Equity sponsor (25%)
2 M€
IRR target 10-15%
Why an SPV? It isolates risk. If the project fails, the bank cannot seize the sponsor's other assets.
Self-consumption
Consume your own production
You invest, you consume directly. Surplus is sold to EDF OA (Feed-in Tariff) or stored.
Profitability calculation:
💡 Tip: Maximizing self-consumption = maximizing profitability
Feed-in Tariff (Obligation d'Achat)
State-guaranteed tariff
The State guarantees a fixed purchase price for 20 years for small installations (≤500 kWp).
2025 tariffs (revised quarterly):
⚠️ Full sale option removed for ≤9 kWp since March 2025
🎯 Which structure for which need?
PPA
"I'm a corporate, I want green energy without investing"
Tiers-invest
"I have a roof, 0€ to put down, I want to save money"
Project Finance
"I'm developing a large project, I want leverage"
Self-consumption / FiT
"I'm an individual/SME, I invest myself"
3 Solar Asset Management
KPIs de performance
PR - Performance Ratio
75-85%Ratio between actual production and theoretical production (STC).
PR = E_actual / (Irradiation × Peak_Power × Hours)
Yield - Specific Production
1000-1400 kWh/kWcAnnual production per installed kWp. Varies by location.
Northern France
900-1100
Centre
1100-1250
Sud / PACA
1300-1500
Technical Availability
> 98%Effective operating time vs theoretical time. Contractual O&M target.
Technical Due Diligence
Comprehensive audit before acquisition or refinancing of a solar park. Key areas analyzed:
Production analysis
Historical vs P50/P90, underperformance identification
Equipment inspection
Modules (IR thermography, EL), inverters, cabling, structures
Contract review
PPA, lease, grid connection, warranties, insurance
Regulatory compliance
Permits, ICPE, electrical standards, environment
Residual CAPEX budget
Provisions for inverter replacement, module revamping
Solar park valuation
DCF Method
Discounted Cash Flows
Discounting future cash flows at WACC. Standard for yield-producing assets.
Multiple €/MWc
0.8-1.2 M€/MWc
Valuation by installed capacity. Varies by age, location, contract.
Expected yield
5-8%
IRR equity expected by institutional investors on solar assets.
Premium/discount factors: Residual PPA term, offtaker quality (investment grade), location (irradiation, country risk), technical condition, portfolio size.
4 Solar project profitability
Structure CAPEX (utility-scale)
Ground-mounted utility-scale, 2024-2025
Annual OPEX structure
O&M (operation & maintenance)
Preventive, corrective, monitoring
Insurance
All risks, business interruption
Land lease / Rent
Variable depending on location
Management fees / Asset Management
Reporting, accounting, legal
Taxes (IFER, CFE)
Flat-rate tax on grid-connected enterprises
~2-3% du CAPEX par an
Profitability indicators
Project IRR (IRR)
6-10%
Internal rate of return on equity + debt
Equity IRR
8-15%
Return for shareholders (leverage effect)
Payback
7-12 years
Investment payback period
DSCR min
≥ 1.2x
Debt Service Coverage Ratio required by banks
Risk factors
Resource risk
Year-to-year irradiation variability (±5-10%). Mitigated by P50/P90 studies.
Price risk
Market price exposure post-PPA or in merchant mode. Spot price volatility.
Counterparty risk
Offtaker solvency (PPA). Importance of credit rating.
Technical risk
Failures, underperformance, accelerated degradation. Covered by warranties and O&M.
Regulatory risk
Tariff changes, taxation, standards. Risk of retroactivity.
Interest rate risk
Debt cost impact on equity IRR. Hedging recommended (swap).