Economic evaluation methodologies for renewable energy projects

Dranka, Géremi Gilson; Cunha, Jorge; Lima, José Donizetti de; Ferreira, Paula Varandas

doi:10.3934/energy.2020.2.339

Cited by 27 publications

(27 citation statements)

References 34 publications

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“…Despite the existence of alternative methods of assessing the effectiveness of investment projects, e.g., real options valuation (ROV), discounted cash-flow analysis (DCF) remains an essential tool in the fuel and energy sector, allowing for making investment decisions and, consequently, effective management of projects (for example "Guidelines for Economic Analysis of Power Sector Projects" [1] or Dranka et al [2], Hemerlink, de Jager [3], etc.). This method is based on money as a universal medium of exchange, assuming that making an investment decision is only rational if sufficiently a high return is expected on the invested cash over a certain period.…”

Section: Introductionmentioning

confidence: 99%

Cost of Equity of Coal-Fired Power Generation Projects in Poland: Its Importance for the Management of Decision-Making Process

Saługa

Szczepańska-Woszczyna

Miśkiewicz

et al. 2020

Energies

107

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Our knowledge of discount rates plays an important role both in the discounted cash flow decision-making process and in the later phases of a project’s lifetime. It is useful than both for management and cash-flow monitoring purposes at operating stages. Investors putting money into power generation projects expect an appropriate rate of return to compensate them for a minimum acceptable real return available in the market (risk-free rate of interest) and the project’s specific risk. Due to its essential nature in the financial and economic evaluation of projects (it is the only parameter that reflects the risk), it is reasonable to assume that investors would also be interested in constituent components of that indicator. The discount rate is one parameter in the discounted cash flow analysis that takes into account the risk of a venture. Further, the previous research in this area has focused mainly on the dimension of this variable, and the structure of this parameter has not been dealt with any other studies. The proposed idea of this study met the expectations of the industry—it aimed to present a typical project implemented in the energy industry, a relatively simple methodology that allowed estimating the components within the cost of equity capital of the enterprise. In the power generation sector, one can find various types of discount rates—assessed for multiple technologies, at different development stages, and expressed differently. Owing to the know-how and decades-long experience, coal-fired power projects’ remarks may be a good benchmark for alternative low carbon technologies. That is why, in this work, a discount rate for valuing investment in new coal-fired power projects was evaluated. This assessment was made on the “bare-bones” assumption, meaning evaluations at 100% equity, after-tax, in constant (real) currency units. The analysis of the discount rate structure was performed by applying the procedure of the classical sensitivity analysis having the accuracy of key input parameters. Finally, the risk factors within the risk-adjusted discount rate were calculated. The obtained results showed the importance of individual risk factors within the risk-adjusted discount rate used in coal energy projects, which would enable a more pragmatic approach to controlling this parameter by decision-makers and understanding the risk.

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Section: Introductionmentioning

confidence: 99%

Cost of Equity of Coal-Fired Power Generation Projects in Poland: Its Importance for the Management of Decision-Making Process

Saługa

Szczepańska-Woszczyna

Miśkiewicz

et al. 2020

Energies

107

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“…The mathematical models of the EMIM, MCS, and ROA can be found in (Guares et al, 2021). On the other hand, the procedure to support selecting the most appropriate methodology considering the singularities of the project can be found in (Dranka et al, 2020). (Guares et al, 2021) presents in Appendix A indicators for the economic viability analysis (EVA) of each methodology.…”

Section: Multicriteria Model For Fat Removal From Dairy Wastementioning

confidence: 99%

A Multi-Criteria Model for the Techno-Economic Evaluation of Fat Removal Technologies From Dairy Waste

et al. 2023

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This paper presents a multi-criteria model to identify the best technology for separating fat from dairy waste and evaluates the economic feasibility of its implementation. Also, the model incorporates the analysis of the project specificities. The methodology was structured in four steps: (i) identification of criteria and technologies by systematic literature review; (ii) acquisition of qualitative information (linguistic variables) from Brazilian and international experts; (iii) application of the TOPSIS 2-tuple multi-criteria linguistic method to rank the technologies; and (iv) evaluation of the economic viability of the best technology identified using the EMIM (expanded multi-index methodology). Separation by centrifugal force, solvent, heating/decanting, acid hydrolysis, and combined methods were the separation technologies most used in the literature and, therefore the considered alternatives. The model was validated in a dairy industry that produces 3,000 m3/day of waste, with 3% fat. The performance of the technologies concerning five criteria was between medium poor and good for both groups of experts. Also, the experts indicate centrifugal force as the preferred technology. This technology is economically viable, as it presented a high degree of return and low levels of risks and sensitivities. It is estimated a potential profit of R$ 55 million (NPV) over the project’s entire life cycle, equivalent to an annual return of approximately R$ 14 million (ANPV). This represents an Additional Return on Investment—ROIA of 51.17% annually. The Payback discounted occurs in the first year of its implementation. Similar analyses may apply the model we propose for other contexts involving technologies selection.

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“…Additionally, the focus is on the implications of financial aspects for assessment. A random selection comprises recent publications on economic evaluation methodologies for renewable energy projects [26], financial modeling [27], and financing costs [28][29][30].…”

Section: Literature Reviewmentioning

confidence: 99%