𝐓𝐡𝐞 𝐒𝐨𝐥𝐚𝐫 𝐏𝐫𝐨𝐟𝐨𝐫𝐦𝐚: 𝐀 𝐓𝐚𝐥𝐞 𝐨𝐟 𝐂𝐚𝐮𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐒𝐜𝐫𝐮𝐭𝐢𝐧𝐲 In the past, we explored installing solar panels on the clubhouse of one of our complexes as a pilot project, considering it a potential initiative for many of our sites. The company we engaged, an experienced solar developer who shall remain unnamed, presented an attractive 18% IRR on the investment. Naturally, I asked for their spreadsheet to investigate their assumptions. After countless phone calls and extensive research, several issues emerged in their proforma. 𝐎𝐯𝐞𝐫𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐢𝐧𝐠 𝐄𝐧𝐞𝐫𝐠𝐲 𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧: Using maximum solar irradiance instead of average annual values Ignoring shading effects from nearby structures or vegetation Overlooking panel degradation over time (typically 0.5-1% per year) 𝐔𝐧𝐝𝐞𝐫𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐢𝐧𝐠 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐂𝐨𝐬𝐭𝐬: Missing panel cleaning costs, especially in high-pollen areas like the Southeast Neglecting insurance costs for the panels and other equipment Underestimating maintenance costs for inverters and other balance-of-system components 𝐈𝐧𝐚𝐜𝐜𝐮𝐫𝐚𝐭𝐞 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐀𝐬𝐬𝐮𝐦𝐩𝐭𝐢𝐨𝐧𝐬: Overlooking potential changes in electricity prices or feed-in tariffs Not accounting for inflation in operational costs Once we factored these realistic numbers into their models, the returns were, unsurprisingly, unacceptable. This exercise reaffirmed a fundamental truth in investing: assumptions often favor the seller and broker, not the buyer. As Charlie Munger famously said, “It’s not supposed to be easy. Anyone who finds it easy is stupid.” 𝐀𝐥𝐰𝐚𝐲𝐬 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧 𝐭𝐡𝐞 𝐫𝐨𝐬𝐲 𝐟𝐨𝐫𝐞𝐜𝐚𝐬𝐭𝐬 𝐚𝐧𝐝 𝐬𝐜𝐫𝐮𝐭𝐢𝐧𝐢𝐳𝐞 𝐭𝐡𝐞 𝐝𝐞𝐭𝐚𝐢𝐥𝐬. 𝐈𝐭'𝐬 𝐭𝐡𝐞 𝐧𝐢𝐭𝐭𝐲-𝐠𝐫𝐢𝐭𝐭𝐲 𝐭𝐡𝐚𝐭 𝐬𝐞𝐩𝐚𝐫𝐚𝐭𝐞𝐬 𝐚 𝐬𝐨𝐮𝐧𝐝 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐟𝐫𝐨𝐦 𝐚 𝐩𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐝𝐞𝐛𝐚𝐜𝐥𝐞.