Alex Watt, the owner of Upstart Solar Systems, needs to provide quotes to potential customers for the design and installation of residential solar energy systems. Alex has an engineering background and has come to you for assistance in building a template to provide relevant financial information to customers. Alex let you know that the information provided to customers needs to be both accurate and positive so the business can grow.

Upstart Solar Systems is located in British Columbia (BC). In BC, any excess solar energy production is fed back into the hydro grid providing credits that customers can use during the winter when the days are shorter and there is less direct sunlight. BC Hydro has installed "Smart" meters that can measure electricity use and measure excess energy being fed back into the grid.

Alex wants to cast Upstart Solar Systems in the best possible light but does not want to be deceptive. Alex asked you to provide a report and three scalable spreadsheets that can be shared with customers:

Solar energy system payback period not considering the homeowner's cost of capital.

Solar energy system net present value with a 3% cost of capital.

The IRR over the expected life of the system.

Upstart Solar Systems has supplied you with the information they think you need to the analysis:

Alex has had long discussions with experienced real estate agents. They believe that the value of the customer's home will increase by 75% of the price of the solar energy system. This amount would only be realized if the customer sells their home. Since most people occupy several homes during their adult life, you can assume a return of 75% of the original full cost at the end of year 15.

The average customer will pay Upstart Solar Systems $17,000 to supply and install a rooftop solar system. However, similar to electric vehicles, customers can apply for a federal Green Homes Grant that will give them a $5,000 grant. Therefore, customers have a net cost of $12,000.

The system output depends on sunlight. Alex informed you that the average system will supply 8,000 KWh of electricity yearly. The system is designed to last for 30 years. You should understand what a KWh is before preparing your case.

The average household uses 9,700 KWh of electricity per year. Alex wants your spreadsheets to start with this usage and be scalable for various levels of use.

BC Hydro has two rate tiers. For this case, assume Step 1 allows up to 22.1918 KWh of electrical use per day at a current rate of $ 0.0950 per KWh. Electrical use over this amount is charged at the Step 2 rate of $ 0.1408 per KWh. There is a base charge of $6.78 per month that customers pay regardless of electricity use. You can assume that with an installed solar energy system, the customer will no longer use electricity at the Step 2 rate.

Although future rates are unknown, with the increase in the number of electric vehicles and the demand on the electrical grid, no one thinks electrical rates are going down. Alex suggested that you use an average yearly increase of 2.5%.

Required

Include one Excel file with three separate sheets labelled Payback, NPV 3%, and IRR, that clearly describe and support your findings. In your Excel file, use Sheet4 for your other data, such as rate forecasts, NPV, and IRR calculations. You will need to calculate expected electricity rates over the life of the solar panels and determine customer savings. Clearly label all your calculations so that someone looking at your work for the first time would understand your calculations.

Your product needs to be user-friendly and well labelled so that the financially untrained Upstart Solar Systems staff can customize the data for each potential customer. Therefore, your spreadsheet needs to accommodate a reasonable amount of "what-if" analysis, including varying electrical usage and different costs of capital. Your first three Excel sheets should be understandable and user-friendly so that financially untrained potential customers can understand the information that Upstart Solar Systems provides for them.

Answer rating: 100% (QA)

To create the Excel file with three separate sheets labeled Payback NPV 3 and IRR I will follow thes... View the full answer