Moving beyond LCOE: impact of various financing methods on PV profitability for SIDS

Jacqueline Yujia Tao and Anton Finenko

Energy Policy, 2016, vol. 98, issue C, 749-758

Abstract: Small island developing states (SIDS) have some of the highest electricity tariffs globally. Renewable energy (RE) technologies could thus have reached grid parity in various SIDS. Furthermore, the abundance of resources such as solar and wind provides ample potential for SIDS to switch from high cost diesel generators to renewables. Despite favourable conditions, RE remains a largely underinvested sector in these regions. This paper aims to undercover the reasons why grid parity does not necessary translate into private sector investments in RE. With a focus on SIDS, this paper presents an evidence that achieving grid parity based on LCOE estimates is an incomplete benchmark for decision making in the power generation industry. In particular, LCOE and grid parity do not take into account financing constraints of RE projects which are often more pronounced compared to conventional forms of power generation. This paper thus presents the business perspective of RE projects, by employing a discounted cashflow model that includes various profitability metrics and effects of taxation and depreciation. The study shows that financing conditions exert strong influence on the economic feasibility of solar projects, both in LCOE terms and profitability terms. Thus, key policies should be targeted at improving financing conditions to ensure mobilization of private sector finances in solar PV.

Keywords: Solar energy; Discounted cash flow; Internal rate of return; Net present value; Bond; Loan (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301421516301252
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:98:y:2016:i:c:p:749-758

DOI: 10.1016/j.enpol.2016.03.021

Access Statistics for this article

Energy Policy is currently edited by N. France

More articles in Energy Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().