Creation of Financial and Environmental Values With Solar Photovoltaic Projects While Managing Risks

Creation of Financial and Environmental Values With Solar Photovoltaic Projects While Managing Risks

Shantha Indrajith Hikkaduwa Liyanage (Botho University, Botswana), Fulufhelo Godfrey Netswera (University of Durban, South Africa), Shivajyoti Pal (Botho University, Botswana) and Isaac Nthomola (Botho University, Botswana)
Copyright: © 2020 |Pages: 14
DOI: 10.4018/IJSEM.2020040102

Abstract

This study investigates 200 kWp roof-mounted solar photovoltaic system in a country where there is no legal, policy, and institutional framework to de-risk the solar energy market but present naturally conducive environment in the sun-drenched semi-arid country. The analysis of quantitative and qualitative data subject to interpretivist and positivist approaches paves the way to find out that the university, though created financial and environments values, has not addressed the risk associated with illiquid capital intensive investment and conventional financial metrics such as net present value, internal rate of return. Hence, it is recommended to manage the risk with four strategies including maintaining economic value added at 5% or more, leveraging the investment, and withdrawing a part of equity for reinvesting in diversified investment. The findings are significant for low carbon investors to identify opportunities and manage the risk in solar energy market. Energy engineers enable designing a system that meets the fundamentals of the business and environmental value.
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Introduction

Solar energy is the highest capacity in producing electricity than any other renewable source. Dupont et al., (2020) point out that the earth receives solar energy in one hour is higher than the global consumption of energy within a year. Zheng et al. (2020) point out that if 0.1% of the solar energy that the earth receives is converted to generate electricity at a rate of 10% it enables to generate four times of the annual world electricity consumption. Gielen et al., (2019) point out that the success or failures of investment in renewable energy is strongly connected with the renewable energy framework introduced by the government by way of legal, policy and institutional framework for de-risking motivational programme such as feed-in-tariffs, net metering system, subsidies, carbon pricing etc. (Sweerts et al., 2019).

Despite of the fact that there is no de-risking motivational programme for sustainable investment in Botswana but the conducive natural platform in sun drenched Botswana with continuous clear skies for weeks, semi-arid and flat country side endowing 320 sunny days per year, 3200 sunshine hours per year and average insolation 2200 kWh/ m2 (6-6.5 kWh/m2/day) compared to European Countries 1000 kWh/ m2 (UNEP & Ministry of Minerals, Energy and Water Affairs, Botswana, 1999) endorse climate related sustainable investment from corporate citizens. In addition, Botswana codifies in Vision, 2036 inter alia that there are two major goals for power sector. One of them is to ensure energy security with safe and clean energy and the next goal is to be net exporter of energy (Government of Botswana, 2016). Further, as a member country of Paris Climate Agreement, Botswana (World Bank Group, 2016) expressed their willingness by the ‘Intended Nationally Determined Contribution INDC)’ to reduce overall CO2 emission by 15% taking 2010 as the based year at a cost of 18.40 billion of USDs. One of the strategies to reduce the emission by 2030 is to generate 25% of electricity with solar energy (Baek et al., 2018).

Research Problem

However, there is a poor application of solar energy in the country. Nevertheless, the university as a corporate citizen, subject to this study, was desperately looking for ways to create stakeholder value for the planet while making financial value (profit) in terms of the strategic plan of the university for 2018-2022. Having discarded few proposals including 50 kWp (kWp denotes kilowatt peak, the name plate capacity of the solar photovoltaic plant) roof mounted solar photovoltaic proposal (hereinafter referred to as 50 kWp Project) during the period of last three years, just commissioned a 200 kWp roof mounted project (hereinafter referred to as 200 kWp project) at a cost of $ 232000.00 at the main campus of the university. Hence, a curiosity arises how financial and environmental values can be created with more capital intensive 200 kWp project.

Many appraisals of projects are subject to favourite applications such as NPV and IRR. Marchioni and Magni (2018) stress the importance of NPV and point out that ROI is economically reliable and significant when it is compatible with NPV. Osborne (2010) points out that IRR is preferred to NPV because of being able to compare with WACC. Vartiainen et al. (2019) argue that WACC is the most important input parameter for calculating levelized cost of el electricity (LCOE) from solar photovoltaic system.

However, NPV and IRR are subject to inherent weaknesses. The risks associated with them compelled to initiate this investigation. The underlying cause is supported by Kirulff (2008) who elaborates how MIRR enable to deals with the weaknesses of NPV and IRR. Further, Jakub et al. (2015) advocate EVA as a new technique for measuring the performance objectively because EVA is based on the economic profit and opportunity cost guiding the investment decisions are efficient (Tortella and Brusco, 2003). Hence, this study is significant because these type of previous case studies do not take into consideration of all of them, NPV, IRR, MIRR and EVA on the premise of levered and unlevered investment in projects as a case study.

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