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The accounting-and-finance of a solar photovoltaic plant: Economic efficiency of a replacement project

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  • Magni, Carlo Alberto
  • Marchioni, Andrea

Abstract

In this work we illustrate a simple logical framework serving the purpose of assessing the economic profitability and measuring value creation in a solar photovoltaic (PhV) project and, in general, in a replacement project where the cash-flow stream is nonnegative, with some strictly positive cash flows. We use the projected accounting data to compute the average ROI, building upon Magni (2011, 2019) (see also Magni and Marchioni 2018), which enables retrieving information on the role of the project’s economic efficiency and the role of the project scale on increasing shareholders’ wealth. The average ROI is a genuinely internal measure and does not suffer from the pitfalls of the internal rate of return (IRR), which may be particularly critical in replacement projects such as the purchase of a PhV plant aimed at replacing conventional retail supplies of electricity.

Suggested Citation

  • Magni, Carlo Alberto & Marchioni, Andrea, 2019. "The accounting-and-finance of a solar photovoltaic plant: Economic efficiency of a replacement project," MPRA Paper 95263, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95263
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    References listed on IDEAS

    as
    1. Magni, Carlo Alberto & Marchioni, Andrea, 2018. "Project appraisal and the Intrinsic Rate of Return," MPRA Paper 95262, University Library of Munich, Germany.
    2. Carlo Magni, 2011. "Aggregate Return on Investment and Investment Decisions: A Cash-Flow Perspective," The Engineering Economist, Taylor & Francis Journals, vol. 56(2), pages 140-169.
    3. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    4. Remer, Donald S. & Stokdyk, Scott B. & Van Driel, Mike, 1993. "Survey of project evaluation techniques currently used in industry," International Journal of Production Economics, Elsevier, vol. 32(1), pages 103-115, August.
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    Cited by:

    1. Andrea Marchioni & Carlo Alberto Magni & Davide Baschieri, 2020. "Investment and Financing Perspectives for a Solar Photovoltaic Project," MIC 2020: The 20th Management International Conference,, University of Primorska Press.
    2. Marchioni, Andrea & Magni, Carlo Alberto & Baschieri, Davide, 2020. "Investment and financing perspectives for a solar photovoltaic project," MPRA Paper 104012, University Library of Munich, Germany.
    3. Baschieri, Davide & Magni, Carlo Alberto & Marchioni, Andrea, 2020. "Comprehensive Financial Modeling of Solar PV Systems," MPRA Paper 103886, University Library of Munich, Germany.
    4. Magni, Carlo Alberto & Marchioni, Andrea & Baschieri, Davide, 2022. "Impact of financing and payout policy on the economic profitability of solar photovoltaic plants," International Journal of Production Economics, Elsevier, vol. 244(C).

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    More about this item

    Keywords

    Energy project analysis; investment evaluation; value creation.;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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