Financial Aspects
Financial Terms
Some common financial terms it’s useful to know:
- CAPEX: Capital Expenditures are costs that occur when purchasing, improving or maintaining physical assets of an investment project. Examples include costs of planning processes, installation or equipment.
- OPEX: Operational Expenditures are the costs that occur in the daily operation of a project. Examples include maintenance costs, staff costs, costs for external subcontracting, etc.
- ROI: Return on investment is a performance measure used to evaluate the efficiency or profitability of an investment. It is used to measure the amount of return on a particular investment, relative to the investment’s cost. Key factors influencing ROI include the initial investment amount, ongoing maintenance costs, and the cash flow generated by the investment.
- Discount rate: The interest rates applied to calculate the present value of future cash flows. As part of a Discounted Cash Flow Analysis, the discount rate is used to calculate the Net Present Value (NPV) and contributes to accounting for the time value of money and the riskiness of an investment as well as making different investments more comparable.
- Payback period: The time taken to recover the initial cost of investment.
- Citizen Finance: A financial scheme that uses citizens’ investment to fund a project. In this financing scheme, citizens or communities pool together their financial resources to implement a project aimed at their common good. Citizen financing is also sometimes referred to as citizen funding or public financing and can be organised in different ways, e.g. crowdfunding, cooperatives, etc.
- Revenue: The income generated by the daily operations performed within a project. Revenue streams can include, for example, energy savings generated, operation and maintenance fees, energy supply, etc.
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