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How Does Solar Radiation Affect the Returns of Your Solar Park?

Solar energy plays a vital role in powering the world and shaping a sustainable future.

Solar radiation, or sunlight, provides enough energy to power the entire planet annually, but its impact varies by location.
High-efficiency solar panels can mitigate weather effects, ensuring reliable solar yields even on cloudy days.
Using tools like the Global Solar Atlas helps identify the best locations with high solar radiation for solar parks.
Calculating solar yield and understanding site-specific factors are key to estimating electricity production and potential returns.
A thorough financial analysis, including revenue, expenses, and key metrics like IRR and NPV, is essential for successful solar projects.

Continuing will clarify how to leverage solar radiation data for profitable solar energy investments.

What is Solar Radiation?

Solar radiation definition is simply sunlight. It is energy emitted by the sun that we can transform into electricity or heat using different technologies. The sun provides 430 quintillion Joules of short solar radiation wavelengths every hour. That’s enough to power the entire planet for a year.

Although, solar radiation data show that its effects on Earth vary per location. For example, countries in the equatorial region receive the most sunlight because of their perpendicular angle to the sun. In contrast, the polar zone gets the most negligible solar radiation because of its tilted rotation axis.

Yet even a cloudy day, weather, or rain should not darken anyone’s path in switching to solar power. Although clouds, fog, and rain can affect solar radiation, using high-efficiency solar cells and panels can mitigate the effects. In fact, the top U.S. cities recording the highest level of solar savings, like New York and SFO, are typically cloudy. The main reason they gained the highest savings in a solar return chart is the high cost of electricity in these areas.

Find Solar Yields Through the Global Solar Atlas Solar Radiation Map

Solar radiation intensity map highlighting potential solar sites in Africa.

When running or building a solar park, you should hunt for clear, flat, and flood-free land receiving plenty of sunshine. The site must also be near electric grids and power lines, preferably within a mile, for a cost-effective interconnection. To build a 1-MW solar park, you may need 5 to 10 acres of land. Moreover, the location must meet local zoning regulations.

In addition, you also need to place the panels in a way that minimizes any shadows on the boards. It means ensuring that the panels are placed at enough distance from each other and have the optimal angle toward the sun’s radiation zone.

It is also vital to know the specific solar yield of a particular location to calculate the energy production and rate of returns. Luckily, the Global Solar Atlas provides easy and quick access to global solar radiation data with a mouse click. It is a color-coded map based on the sun’s radiation zone.

What is Solar Yield?

The amount of energy harvested from solar panels is called solar Yield. It largely depends on the amount of solar radiation received per location. Besides sunlight, dirt, heat, and shading also affect solar Yield.

When the sun shines at its peak at noon, solar Yield increases because more photons hit the solar cells. It means that solar panels can collect more energy during that time. Thus, the more intense sunlight a location receives, the higher power the solar farm expects to yield.

When clouds or large trees block the sunlight, the number of photons reaching the solar cells decreases. That is why shading lower solar Yield.

Similarly, dirt that builds up on the solar panels causes them to heat up. As the temperature rises, electrons bounce around and escape the system. Again, it results in a decrease in solar Yield.

Location plays a vital role in determining the solar Yield of a solar system. Ideally, solar farms in areas with primarily hot summers and less cloudy days produce more energy output, given that air is clean and temperature is controlled. Additionally, the size of the solar system directly affects solar Yield. The larger the solar panel, the higher it will yield energy from the sun. Therefore, solar radiation management should look over these factors.

The Global Solar Atlas

The Global Solar Atlas is a free resource online on global solar power potential. The solar radiation map-based application has an extensive download section, a PV power calculator, and reporting tools. It is easy to use the Solargis model. All you need to do is type the location you want to check in the search box. It will show different solar radiation examples, such as DNI, DIF, and GHI.

Direct Normal Irradiation (DNI) is solar irradiance that directly hits the surface.
Diffuse Horizontal Irradiation (DIF) means scattered solar radiation.
Global Horizontal Irradiation (GHI) combines both DNI and DIF.

Photovoltaic power output map displaying solar irradiation data for San Diego, California.

For example, if you type “San Diego, California” on the search box of the homepage, results will show the following data:

PVOUT = kWh/kWp
DNI = 2138.3 kWh/m2
GHI = 1921.3 kWh/m2
DIF = 570.5 kWh/m2

Please note that “PVOUT” is equivalent to the specific solar Yield for the said location.

How to Calculate Electricity Production Volumes of a Solar Park

The formula to calculate the annual solar energy produced or electricity production volumes of a solar park is: installed capacity x the specific solar yield of a location.

Installed capacity is the solar system size measured in kilowatt peak (kWp). Under standard laboratory test conditions, it is the amount of power the solar park can produce in bright sunshine. Most solar parks have an installed capacity of 1 megawatt (MW) to 100 megawatts. If you convert 1 megawatt in kilowatts (kW), that equals 1,000 kWp.

Sample Calculations

Calculation of annual solar energy output for varying solar yields

Based on the three sample calculations, the installed capacity of the solar park is set at 5,000 kWp. There are three possible locations:

Location A in Sample 1 has a specific solar yield of 1200 kWh/kWp
Location B in Sample 2 has a specific solar yield of 1500 kWh/kWp
Location C in Sample 3 has a specific solar yield of 1800 kWh/kWp

As you can see, the higher the specific solar yield, the higher the electricity production volumes of a solar park. Therefore, solar yield affects the electricity production volume of a solar park.

Financial Analysis of a New Solar Park Based on Solar Radiation

Building a new solar park entails a significant investment. Total costs for a 1-MW solar farm may range between $800,000 to $1.36 million. When putting such money at risk, you will need a financial analysis. It will help you better understand your new solar park’s bankability, profitability, and viability.

The easiest way to analyze a new solar park is through a solar energy financial model Excel template. Solar radiation allows you to run different scenarios to calculate annual revenues, EBITDA and levered and unlevered IRR.

Sample Financial Analysis for a Solar Park

Let us further analyze the solar return of a solar park based on the three locations. With an installed capacity of 5,000 kWp, the annual energy produced for each location is as follows:

Location A = 6,000,000 kWh/year
Location B = 7,500,000 kWh/year
Location C = 9,000,000 kWh/year

The table above shows the values that a solar model Excel template auto-calculates. These include the Revenue, OPEX, and EBITDA. More than merely calculating annual revenues and EBITDA is needed to validate the profitability of a solar park. We should also account for business valuation, capital budgeting, cash flows, discount rate (or WACC), and many other factors. That is where IRR and NPV enter, the most accurate ways to determine the worth of an investment. You will also need these financial metrics to get funds for your solar park.

Revenue

The annual revenues are the earnings or money a solar park generates for selling electricity within 12 months. A straightforward calculation of such a factor is multiplying its installed capacity with the agreed off-take electricity price. Most PPA electricity costs range from USD Cents 3.5/kWh to USD 7.0/kWh. If you want your solar park to prosper and survive over time, you will need a solid revenue model.

OPEX

OPEX or operational expenses include fixed and variable expenditures in a financial plan. These expenses can consist of paying for the use of the land and maintaining security measures to keep out intruders and protect the solar panels. You might also need staff to weed and grass the ground routinely. You can talk to other plant owners or equipment manufacturers to get a reasonable estimate of a solar farm’s operating costs.

EBITDA

EBITDA means earnings before interest, taxes, depreciation, and amortization. It focuses on the company’s capacity to produce cash flows unaffected by how they choose to finance their enterprise, how high their tax rate is, or how quickly their assets depreciate.

WACC

The weighted average cost of capital (WACC) is a company’s average after-tax cost of capital. It is the typical discount rate or interest rate that a business anticipates paying to finance its assets, including common stock, preferred stock, bonds, and other types of debt.

NPV

The Net Present Value (NPV) is the sum of all future cash flows discounted over the entire investment life. Whether positive or negative, it will enable you to determine whether the solar project can sustain itself. It is so that the precise dollar value of the solar return can be measured. Theoretically, a positive NPV signifies that predicted costs are more than future earnings discounted into present value. It is, therefore, profitable. So, a solar park with a positive NPV is worthwhile to invest in, while one with a negative NPV should be avoided.

IRR

Internal Rate of Return (IRR) is the discount rate that makes all cash flows of an NPV equal to zero. Therefore, its value should be higher than the weighted average cost of capital (WACC). An IRR will also show the expected annual growth of your new solar park. The formula to calculate IRR is similar to NPV. The only difference is that NPV is equal to zero.

There are two types of IRR – levered and unlevered. Under an unlevered IRR, the capital expenditure came from the investors alone. So, the solar park only has operational obligations. A levered IRR indicates that a bank or lender funded part of the capital expenditure. Therefore, the solar park may have debt payments other than operational expenses. For most industries, a high IRR means that the investment is more viable. Moreover, the levered IRR should be higher than the unlevered IRR to balance the risk of debt financing.

Please remember that you must go through trial and error when calculating IRR. The best way to get an accurate IRR value is through a solar energy financial model template.

Sample IRR Analysis Chart

This IRR Analysis Chart shows the unlevered and levered IRR based on the annual electricity produced. As you can see, only the third solar park investment with an annual energy production of 9,000,000 kWh/year is worthwhile. It is because both the unlevered and levered IRR are greater than WACC, together with a positive NPV.

IRR analysis chart showing unlevered and levered returns for energy outputs.

Summary

Solar energy accounts for 3.6% of today’s global electricity generation. That means a competitive market awaits you if you want to invest in a new solar park. Yet the profitability and viability of a solar project continue beyond what is solar energy. It’s because solar radiation affects the solar return. Hence, it is vital to check the solar yield of a target location. You can do this using the Global Solar Atlas. Remember that the more sunlight you get, the higher your expected solar returns.

Furthermore, you will need to perform a financial analysis to ensure your solar park investment’s bankability, profitability, or viability. After knowing the forecast electricity production volume, you must carefully account for your solar park’s revenue, OPEX, and cash flows. Then, it would help if you calculated its IRR and NPV. Banks, investors, and lenders look at these financial metrics to decide if your investment is worthwhile.

A solar energy financial model template can help you perform a solid IRR and NPV analysis. It is also a versatile tool for executing many assumptions, scenarios, and sensitivity studies. eFinancialModels offers a renewable energy financial model bundle, industry-specific financial models, and Google sheet templates like that for a solar park.

Feel free to also browse our whole selection of Financial Model Templates for Solar Projects here:

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