Significant facts need to be identified and evaluated in order to make the right decisions for your solar investment. Which technical and commercial key figures are the most relevant for your PV system? Find out which photovotlaic KPIs can support you in your decision-making process.
You needed meaningful KPIs to achieve a high performance with your PV system. They can help you to identify whether the technical performance is already good or whether there is still need for action.
What’s more, these numbers can also be used as an indicator whether there is potential for a better economic performance of your system. However, unsuitable key figures also exist. These are sometimes used by sellers to blind inexperienced investors. For example, annual interest rates from the real estate market cannot be transferred to photovoltaics.
What is important in the selection process?
When selecting important KPIs, they should be comparable, serve a specific purpose, easy to understand and should be easily collected and documented. Key figures should always be used purpose-driven. It makes sense to focus on key figures that are as universally valid and as comprehensible as possible.
When making a direct investment in photovoltaic systems, you should focus on the following areas: technical key figures on performance and output as well as financial key figures on costs, income, debt, and return. For the construction of entire portfolios, additional key figures help to optimize the whole by identifying outliers upwards and downwards.
Key performance indicators at a glance
You should be familiar with the following business key figures:
- Return on equity: how much return is generated by the invested equity. The return on equity is the ratio of profit to equity.
- Return on total capital / Return on Investment (ROI): how efficiently the entire capital including borrowed capital has been invested. It is calculated from the ratio between profit and invested capital.
- Net present value: how much future cash flows are worth today. For this purpose, future returns on an investment are discounted to the present value.
- Debt service coverage ratio (DSCR): how well debt can be repaid. For this purpose, the cash flow and the redemption payments are put into a ratio.
The better you understand the relationships between the most important indicators, the better you can assess and manage your investment and make the right decisions.
The following technical key figures are relevant for your investment:
- Specific yield: compare installations of different sizes with each other. To do this, the annual electricity yield (AC / alternating current side) is divided by the area (m2) or the installed capacity (kWp).
- Performance Ratio: how far the photovoltaic system exploits its potential. For this purpose, the possible yield is put into relation with the actual yield of the photovoltaic system.
Technical managers require further key figures for the operation of the photovoltaic system, but these are not meaningful for the investment itself. They often indicate the current technical condition of the photovoltaic system and can signal to the technical operator whether and where action is required.
Collecting, comparing, and interpreting KPIs
The basic rule is: less is more! Controlling is not an end in itself and should focus on the actual requirements, so that cost and benefit are in a healthy balance. It is best to focus on universally valid figures that can be read and evaluated beyond doubt.
You can also compare your KPIs with others or with industry averages to benchmark. Experienced market players have access to key figures of many comparable projects and can therefore provide competent advice. Six percent is for instance a good benchmark for the return on equity.
A comparative value for the specific yield can be calculated using weather maps (global irradiation maps) based on the location and orientation of the plant. Here, a distinction must be made between the years under consideration: is it an ideal year, is it the first full operating year or a historical average?
Technical data can be collected manually via electricity bills or digitally from data loggers and monitoring systems. By comparing forecast target values (planning values) of your photovoltaic system or values of comparable PV systems with your actual values, you can find out how good the technical performance is.
You can determine commercially relevant values by means of investment calculations and yield calculations. For the analysis you can create your own Excel tables or use appropriate tools. In solar asset management solutions the most important key figures including their formulas have already been compiled.
This makes it easier to make data-driven decisions, which means you are more certain to get what you expect and what you were promised from your solar investment.
The following examples show the significance of the most important key figures of a solar investment for the operation of your photovoltaic system:
- Performance ratio collapses = technical problems; it might be worthwhile to inspect the system.
- Specific yield deviates from forecast = bad weather; if this is not clear, compare your own values with those of others in the region to rule out the weather and, if necessary, initiate an inspection.
- Debt coverage ratio borderline = refinance; with more debt and less equity, debt should be repaid from the income of the plants.
Return on equity is the key performance indicator
How can you generate a high return on equity? The main drivers of the return on equity of photovoltaic systems provide the relevant information on this.
On the cost side
- low investment costs
- low running costs (insurance, maintenance, …)
- predictable cost development (advantages and disadvantages of long-term contracts)
- high proportion of outside capital, i.e. as little equity as possible
- low borrowing rate
On the income side
- high, stable electricity yields or high specific yield
- optimum remuneration of the electricity produced
- long lifetime of the plant
By optimizing operations, financing and running costs, the return on equity can be increased even for projects already underway.