Scenario Analysis

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Scenario Analysis in Aire

Scenario analysis compares complete project versions under different assumptions. Select multiple alternate values together across terms and blocks to model distinct futures—optimistic conditions, pessimistic outcomes, or design alternatives. Each scenario runs the full project model and produces complete financial outputs. Compare NPV, IRR, and cash flows across scenarios to understand outcome ranges and identify which assumptions drive viability.

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What It’s For

Scenario analysis answers questions like:

• How does the project perform in optimistic versus pessimistic conditions?
• Should we design with battery storage or without?
• Which financing structure produces better returns—tax equity or project finance?
• What combination of assumptions makes the project viable?

Use scenario analysis when you need to compare distinct alternatives or understand the range of potential outcomes. Use sensitivity analysis when you need to identify which individual inputs matter most.

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Key Components

Base Model: Your complete project model with all terms, blocks, and calculations defined — this is the starting point every scenario builds from Scenarios: Named versions of the model where specific terms carry different values from the base — “Optimistic” might use a higher electricity price and lower construction cost; “Pessimistic” might use the reverse Outputs: Complete financial results for each scenario including NPV, IRR, LCOE, and cash flows

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How It Works

Create a scenario and change whatever differs from the base — term values, formulas, or both. A scenario might simply use a different electricity price, or it might represent an entirely different process flow with different logic. The platform runs your complete project model for each scenario and generates full financial outputs. Example scenarios:

• Optimistic: higher electricity price, lower construction cost, 50% ITC, with battery storage
• Base: mid-range electricity price, expected construction cost, 30% ITC, with battery storage
• Pessimistic: lower electricity price, higher construction cost, no ITC, no storage
• Design Alt A: base prices and costs, flow battery, merchant revenue
• Design Alt B: base prices and costs, no storage, PPA revenue

Each scenario produces a complete set of outputs. Compare across scenarios to evaluate alternatives, understand outcome ranges, or test viability under different conditions.

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Configuring KPI Outputs

Any output term can be tagged to display as a KPI card in the scenario comparison view. KPI cards surface headline metrics—IRR, NPV, total CapEx—side-by-side across scenarios, giving you an at-a-glance comparison without digging into the full model. To tag a term as a KPI: open the term and enable Show KPI Card. The comparison view defaults to showing your tagged KPIs against the base scenario. Additional scenarios can be added to the comparison from the same view.

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Building Scenarios

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Combine Consistent Assumptions

Select alternate values that make sense together. Optimistic scenarios typically pair high revenue assumptions with favorable cost conditions—these tend to co-occur in reality. Pessimistic scenarios pair low revenue with unfavorable costs. Avoid contradictory combinations like “high electricity demand + low prices” unless testing a specific hypothesis.

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Create Meaningful Differences

Build scenarios that represent materially different futures or alternatives. If two scenarios differ by only one minor input, the comparison won’t inform decisions. Focus on the uncertainties or design choices that actually matter to project viability and investor returns.

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Stay Focused

Three to five scenarios works well: typically base, optimistic, pessimistic, plus one or two design or financing alternatives. More scenarios become difficult to compare effectively. If you need to test many input combinations systematically, use sensitivity analysis instead.

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Evaluating Results

Compare key metrics to evaluate scenarios: NPV and IRR: Which scenarios meet return thresholds? If only the optimistic scenario clears your hurdle rate, the project carries high risk. Outcome Range: How wide is the spread between optimistic and pessimistic results? Narrow spreads indicate resilient returns. Wide spreads signal high sensitivity to assumptions—consider whether you can control or hedge the driving variables. Downside Protection: Does the pessimistic scenario still deliver acceptable returns? If yes, the project has margin of safety. If no, understand what conditions would cause failure. Alternative Performance: Which design or financing structure produces better risk-adjusted returns? Make build-or-buy decisions, technology selections, or capital structure choices based on scenario performance. Use scenario comparisons to inform decisions: pursue battery storage if that scenario significantly outperforms; select financing structure A if it delivers superior equity returns; reconsider the project if viability depends entirely on optimistic assumptions.

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Understanding Limitations

Sampled, Not Exhaustive: Scenarios test specific points in the possibility space, not every potential outcome. You select which combinations to model—the analysis shows those scenarios, not all possible futures. Subjective Bounds: What constitutes “optimistic” or “pessimistic” involves judgment. Different analysts might define different bounds for the same project. Document your rationale for alternate value definitions. Unweighted Probability: Scenarios don’t include likelihood estimates. The optimistic scenario isn’t necessarily “likely”—it’s one possible future. Don’t assume equal probability across scenarios. Fixed Combinations: Each scenario locks in all alternate value selections simultaneously. If you want to understand every possible combination of inputs, you’d face combinatorial explosion. Instead, use sensitivity analysis to test inputs independently.

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Use Cases

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Investment Decisions

Build optimistic, base, and pessimistic scenarios. If base meets return requirements and pessimistic isn’t catastrophic, the project is attractive. If only optimistic works, understand whether you can control or hedge the key drivers.

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Design Choices

Create scenarios for design alternatives: different system sizes, with or without storage, alternative technologies. Compare NPV and IRR to select the optimal configuration. Consider both expected performance and downside scenarios.

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Financing Structures

Model scenarios for capital structure alternatives: tax equity versus project finance, different debt-to-equity ratios, merchant versus contracted revenue. Compare equity returns and cash flow stability to choose the structure that best fits project risk and investor requirements.

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Site Selection

Scenarios are well-suited for comparing the same project design across geographies. Vary the generation profile, PPA price, land lease, and property taxes by location to understand where a project performs best. Higher resource quality doesn’t always win. A solar installation in California or New Mexico may generate significantly more energy than one in Minnesota, but if PPA prices are higher and land costs lower in a less productive market, the economics can favor the lower-resource location. Scenario analysis makes this tradeoff concrete and comparable.

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Stakeholder Communication

Present multiple scenarios to demonstrate you’ve analyzed uncertainty. Base, optimistic, and pessimistic scenarios show the outcome range and give investors confidence you understand project risks. Scenarios turn abstract uncertainty into concrete financial projections.