Tariffs, cash flow & finance
The key idea
A tariff above LCOE does not by itself establish a viable project. Connection uptake may be slow, collections may be incomplete, and loan payments or other costs may fall due before sufficient revenue arrives.
Conversely, a capital grant can reduce the owner’s initial contribution without reducing the physical cost of the plant. Name the financial viewpoint before comparing results.
Follow one year of cash
Suppose full connection uptake would produce 20,000 kWh/year of sales. At 50% uptake in year 1, sales are 10,000 kWh. At USD 0.40/kWh, the billed energy charge is USD 4,000. Collecting 90% produces USD 3,600 cash.
With USD 3,000 operating cost, year-1 operating cash flow is USD 600. That is not the project’s cumulative cash balance: the owner has already made an initial contribution.
Separate the two panels
The exercise starts with USD 20,000 capital cost and a 20% grant, leaving USD 16,000 paid by the owner. Raise the tariff and observe which results change. Then increase the grant. Finally reduce annual energy sales to zero.
- Full-cost project LCOE
- $0.316/kWh
- Owner NPV after grant
- $9914
- Simple owner payback
- Year 6
Operating cash collected and cost
- Revenue collected
- Operating cost
Read the exact values
| Time / step | Revenue collected | Operating cost |
|---|---|---|
| Year 1 | 3600.0 | 3000.0 |
| Year 2 | 5400.0 | 3000.0 |
| Year 3 | 7200.0 | 3000.0 |
| Year 4 | 7200.0 | 3000.0 |
| Year 5 | 7200.0 | 3000.0 |
| Year 6 | 7200.0 | 3000.0 |
| Year 7 | 7200.0 | 3000.0 |
| Year 8 | 7200.0 | 3000.0 |
| Year 9 | 7200.0 | 3000.0 |
| Year 10 | 7200.0 | 3000.0 |
Owner cash balance, including the initial contribution
- Undiscounted owner balance
Read the exact values
| Time / step | Undiscounted owner balance |
|---|---|
| Year 0 | -16,000 |
| Year 1 | -15,400 |
| Year 2 | -13,000 |
| Year 3 | -8800.0 |
| Year 4 | -4600.0 |
| Year 5 | -400.0 |
| Year 6 | 3800.0 |
| Year 7 | 8000.0 |
| Year 8 | 12,200 |
| Year 9 | 16,400 |
| Year 10 | 20,600 |
Initial owner contribution: USD 16000. Grant: USD 4000. Changing the tariff or collection rate changes cash flow. It does not change the full-cost project LCOE at the same energy sales. A positive NPV is a result of these assumptions, not investment approval.
Data table: Annual cash-flow reconciliation
| Year | Uptake % | Sales kWh | Collected USD | Cost USD | Cash USD | Balance USD |
|---|---|---|---|---|---|---|
| 1 | 50 | 10000 | 3600 | 3000 | 600 | -15400 |
| 2 | 75 | 15000 | 5400 | 3000 | 2400 | -13000 |
| 3 | 100 | 20000 | 7200 | 3000 | 4200 | -8800 |
| 4 | 100 | 20000 | 7200 | 3000 | 4200 | -4600 |
| 5 | 100 | 20000 | 7200 | 3000 | 4200 | -400 |
| 6 | 100 | 20000 | 7200 | 3000 | 4200 | 3800 |
| 7 | 100 | 20000 | 7200 | 3000 | 4200 | 8000 |
| 8 | 100 | 20000 | 7200 | 3000 | 4200 | 12200 |
| 9 | 100 | 20000 | 7200 | 3000 | 4200 | 16400 |
| 10 | 100 | 20000 | 7200 | 3000 | 4200 | 20600 |
Model note · Invented 10-year exercise in constant 2026 USD, 6% real discount rate, USD 20,000 initial capital and USD 3,000/year operating cost. Owner cash flow is after a capital grant, with no debt. Connections reach full uptake in year 3. No tax, inflation, losses, replacements or salvage.
The full-cost project LCOE includes the whole plant cost. It is unchanged when tariff, collection or the grant changes. Owner cash flow includes collected revenue and the reduced initial contribution. A grant therefore changes owner NPV even though the full-cost project LCOE is unchanged.
Connection uptake changes the energy-sales denominator and the revenue schedule. Lower sales can increase LCOE even when capital and operating costs stay fixed.
State the financial basis
This is a ten-year exercise in constant 2026 USD, with a 6% real discount rate. It reports owner cash flow after a capital grant, without debt. It does not model taxes, inflation, depreciation, replacements, salvage, finance fees, network losses or separate fixed charges.
A real project must define these items and apply consistent nominal or real cash-flow conventions. A positive NPV is a calculation under those assumptions. It is not an investment approval or a conclusion about tariff affordability.
Revenue, cash balance, NPV and LCOEOptional — the page reads completely without it
Only sold and collected energy becomes cash:
collected revenue
R = Esales · tariff · collection
operating cash in year y
cashy = Ry − Cop,y
owner's starting position
cash0 = − capital + grant
owner NPV
NPV = cash0 + Σ cashy( 1.06 )y
The undiscounted balance simply accumulates cashy year by year. Simple payback is the first whole year in which that balance is non-negative; it is not discounted payback or IRR.
full-cost LCOE, independent of tariff and grant
LCOE = capital + Σ Cop,y / ( 1.06 )yΣ Esales,y / ( 1.06 )y
The general discounted-cost-over-energy form follows the National Laboratory of the Rockies LCOE documentation. Zero energy sales makes LCOE unavailable, not zero.
See it in Phasor
Set the project’s costs, customer uptake, tariff, collection and financing assumptions in the Financial model. Read the projection and tariff scenarios with their horizon, currency and cash-flow basis. The app’s full model includes details omitted from this teaching exercise.