An adequate required rate of return for grid-connected PV systems

•The required rate of return has been decomposed into separate components.•The uncertainty of IRR for a grid-connected PV system has been modeled.•Each component of the required rate of return has been quantitatively estimated.•The relationship between FIT system and uncertainty of IRR has been studied.•A formula to calculate the required rate of return has been proposed.

The required rate of return (RROR) is a key input in the calculation of levelized cost of electricity, investment decisions and in policy making. The methodology proposed in this paper determines an adequate RROR for grid-connected photovoltaic (GCPV) systems. A calculation of RROR under market conditions has been carried out for four Eurozone countries as well as the assessment of the impact of feed-in-tariff (FIT) support schemes on risk reduction. Moreover, a formula has been proposed to quickly calculate the RROR for GCPV systems based on country risk, risk-free rate and FIT period length if relevant. The methodology can be further applied to other renewable energy sources and can be used to evaluate different support schemes.

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