Discounting and NAV

The discount rate is the most sensitive parameter in the model: at a 30-year horizon, 100 basis points move the NPV by 7 to 9%. Its construction is set out here component by component.

The rate build-up

Each year carries its own nominal USD rate:

$$r_y = f_y + \pi_{country} + \pi_{project}$$

• f_y is the projected US policy-rate path from the macro set. Anchoring on the expected path treats the term structure under the expectations hypothesis, with a term premium near zero. This reading is consistent with the main empirical term-premium estimates of the past decade (ACM, Kim-Wright), and the ±100 bps sensitivity quantifies what rides on it.

• π_country is the risk premium of the country where the asset operates, maintained per country as a protocol-level catalog.

• π_project comes from the scored risk framework: π_project = Σ_d b_d s_d / 10^4, with each dimension contributing its basis-point weight per score point.

Cash flows are nominal USD, converted along the PPP-consistent FX path and discounted at nominal USD rates, so currency, inflation, and discounting close consistently.

Liquidity and the discount rate

Private infrastructure equity ordinarily carries an illiquidity premium of 100 to 300 bps, which shows up equivalently as the 10 to 30% NAV discounts seen in fund secondaries. The model does not add one: the instrument carrying the exposure is a liquid token with functioning transfer and redemption paths, not a locked-up fund position.

That argument has a boundary worth drawing. Liquidity does not justify discounting long-duration cash flows at short rates. A 30-year Treasury trades in seconds and still yields the 30-year rate, because duration risk travels with the instrument: a holder who sells after rates rise sells at the fallen price. What a liquid instrument removes is the inability to exit, which is the specific risk the illiquidity premium compensates. Against the 9 to 12% USD cost of equity observed for illiquid operating solar in emerging markets, the model's typical all-in rate sits at the lower edge of the range, which is where removing the illiquidity component puts it.

Mid-year convention

Solar revenue arrives more or less continuously through monthly billing, so the center of gravity of a year's cash is mid-year rather than December 31. The discount divisor for row n compounds prior years in full and the row's own factor by half:

$$D_n = \left[\prod_{k<n}(1 + r_k \cdot tf_k)\right]\cdot\left(1 + \tfrac{1}{2}\, r_n \cdot tf_n\right), \qquad NPV = \sum_n \frac{F^{USD}_n}{D_n}$$

Rates enter scaled by time factors, so the partial valuation-year row discounts to the midpoint of its remaining window and pre-valuation rows are inert. An end-of-year convention would understate every valuation by about (1+r)^(1/2) - 1 ≈ 4% at typical rates. Since the NAV governs issuance and redemption, a biased NAV favors one side of every transaction; the convention is chosen to be unbiased rather than conservative.

Withholding on distributions

Distributions through the protocol's regulated structure bear withholding at rate θ on their gain portion, meaning the distribution minus the scheduled capital repayment under the project's declared curve. The capital shield is cumulative:

$$S_n = K \cdot q_n \cdot tf_n + carry_{n-1}, \qquad W_n = \theta \cdot \max(0,\ F^{USD}_n - S_n), \qquad carry_n = \max(0,\ S_n - \max(F^{USD}_n, 0))$$

with K the invested capital and q_n the scheduled repayment fraction. The carryforward follows investment contracts that impute distributions to capital until the cumulative schedule is met: scheduled capital unused in a low-cash year, such as an equipment-replacement year, is not forfeited, and negative years pay no tax.

From NPV to NAV per pWatt

$$NAV_{pWatt} = \frac{\sum_n \left(F^{USD}_n - W_n\right)/D_n}{1000 \cdot kWp}$$

The post-withholding NPV divided by the project's pWatt supply, at one pWatt per watt DC. This is the figure the protocol publishes and the Reserve consumes, and every published instance carries the sensitivity analysis that brackets it.