A proposed solar plant once arrived at our investment discussion with a revenue line that seemed unusually easy to understand. The forecast generation was multiplied by an annual power price, and the resulting figure flowed into the debt and return calculations. Every multiplication was correct. The problem was that the plant would not produce an equal quantity in every hour represented by that price. We were using a market average to answer a question about a particular generating pattern. That distinction changed the conversation before it changed the spreadsheet.
I do not expect directors to reproduce an hourly energy model during a meeting. I do expect the investment account to explain why the price used is relevant to the output expected. A project can generate substantial electricity while earning a disappointing amount if its production is concentrated in less valuable hours. Conversely, an annual average can understate the value of a different pattern. Neither direction should be assumed from the technology label alone. The financial question starts with the asset, its location and the timing of the electricity it can deliver.
Begin with the generating hours
For an 80MW solar proposal, our development case assumed 160GWh of annual production. Using EUR72 per MWh produced EUR11.52 million of revenue. A generation-weighted estimate of EUR54 produced EUR8.64 million instead. The EUR2.88 million difference was a change in the planning account, not an operating loss. No electricity had yet been sold by this proposed asset. Describing the revision correctly mattered because a dramatic loss headline would have obscured the actual governance issue: the original basis was unsuitable for deciding how much capital to commit.
The board needed to understand how the revised price had been derived and where uncertainty remained. We examined the expected production profile alongside the price assumptions rather than treating the lower number as a new certainty. Weather, outages and restrictions on delivery could affect volume. Changes in the relationship between production and price could affect the value of that volume. A single weighted estimate was useful for comparison, but it was still the result of assumptions. The investment paper therefore kept the main sensitivities visible and explained which work would be needed before a construction decision.
This approach also changed the discussion between finance and development. A lower central revenue case could sound like finance had become pessimistic about a project that the operating team understood better. We avoided that unproductive division by separating the technical production forecast from the commercial valuation of its timing. Engineers remained responsible for their technical assessment. Commercial colleagues explained market and contract assumptions. Finance connected those accounts to funding and returns. The purpose was to make the decision more coherent, not to claim that one discipline could substitute for all the others.
Read the contract beside the weather
A proposed contract provided a fixed EUR62 per MWh for twenty-five per cent of actual output, with the remaining production exposed to the forecast market value. At the central generation estimate, that meant an expected 40GWh at the fixed price and 120GWh at EUR54. The resulting EUR8.96 million was more useful than the original annual-average calculation, but it remained a forecast before other costs. We were careful to state that the contract covered a share of actual production. It did not turn the central volume estimate into a fixed delivery promise.
That wording deserves more attention than it often receives in an abbreviated board paper. A fixed price can be mistaken for fixed revenue when the quantity remains uncertain. Different arrangements allocate volume, delivery and settlement responsibilities differently. I want the commercial and legal teams to explain the obligations of the agreement being considered, using the terms that actually apply. A familiar contract label is not enough. Directors need to know what happens when output differs from the model, who carries the resulting exposure and whether the financial case has represented those conditions consistently.
I also ask whether the contract has been treated identically across the revenue, financing and risk discussions. It is possible for one section of a proposal to use a cautious production case while another assumes the central forecast without saying so. The problem may be accidental, but its effect can be material. A common set of clearly identified assumptions helps the board understand whether a stronger funding proposition comes from a better commercial arrangement or simply from a different version of the expected output. Internal consistency is a practical control over the quality of the decision.
Contracting does not remove the need to examine operating costs and future obligations. EUR8.96 million was revenue, not a sum available for distribution. Maintenance, access arrangements, financing, tax and other commitments still had to be assessed. We did not compress that sequence into a single attractive return measure. The board could see the revenue construction, the main deductions and the sensitivities that affected them. That made it easier to ask a precise question about a specific assumption instead of arguing over whether the overall project felt sufficiently conservative.
Keep the investment decision conditional
We deferred the construction commitment and asked for a revised financing account. The contract arrangement was agreed subject to the project's development conditions, and the opportunity remained under examination. This was neither a completed investment success nor a rejection of solar generation. It was a decision that the available account did not yet justify committing the full amount. The distinction matters in an executive profile because the quality of judgement cannot be measured only by how many proposals receive approval. Sometimes the useful outcome is a more demanding next decision.
There was a cost to the delay. Development colleagues had to revisit the timetable, counterparties had to understand the conditions and further analysis consumed time. A board should not pretend that requesting more evidence is free. I wanted the paper to explain what additional work could actually change our judgement and when it would return. Open-ended caution would have been unfair to the team and unhelpful to the enterprise. A defined evidence request gave management a route forward while keeping the original financial weakness visible.
My broader lesson is to resist the convenience of a number whose name sounds appropriate but whose construction does not match the asset. An annual power price may be perfectly valid for its own purpose and still be the wrong basis for a particular plant. Before debating whether an assumption is high or low, establish what it measures. Then relate it to production, contracts and the cash commitments the company is considering. That sequence makes the investment discussion harder in the right places and reduces the chance that a precise calculation will be mistaken for a well-grounded decision.