Can I mix inflation-adjusted energy prices with a nominal discount rate?

The short answer

Real cash flows are expressed on a constant-price basis, while nominal cash flows include the assumed price changes over time. The discount-rate convention must match. Mixing inflation-adjusted prices with an incompatible rate can distort present value even when the energy and equipment costs are otherwise entered correctly.

Label the price basis of each input

Record the currency and base year for capital cost, maintenance, electricity value and end-of-life items. State which costs change only with general inflation and which have separately justified escalation assumptions. A fixed current-price quote does not automatically establish a long-term price trajectory.

Keep real and nominal tables separately identified if both are used. Do not combine values from different price bases because they share the same currency symbol.

Use a consistent mathematical relationship

For an illustrative case, a 5% real rate and 2% inflation correspond to a 7.1% nominal rate through 1.05 × 1.02 − 1. These figures explain the convention only; they are not recommended rates for a wind project.

Check the financial tool's input definitions and whether it calculates a related rate automatically. Entering a nominal rate into a real-rate field can apply the inflation effect incorrectly, especially when the cash flows are also escalated.

Review the comparison as a complete chain

Verify that both alternatives use the same price basis, timing and analysis horizon. Preserve the original quotations and distinguish documented prices from scenarios about future electricity or maintenance costs.

The handover should show the selected convention and a small reproducible calculation. If a correction changes the apparent economics, describe it as a financial-modelling correction rather than improved turbine performance. The resulting present value remains conditional on resource evidence, useful energy, actual project costs and the owner's approved financial assumptions.