Pre-Evaluation of Projects

There is a potential commercial rooftop solar PV project which needs to have a financial analysis done as part of a pre-feasibility study conducted.

i) The designed capacity is estimated to be 600 kWp, with annual PV production of 735,840 kWh (or Capacity Factor of 14%).

ii) Degradation rate of the solar PV production assumed to be 0.5% per annum

iii) An EPC has provided a prelim turnkey quotation at USD 0.65/Watt peak.

iv) O&M assumed by default to be 1% of Capex per annum, with 1% annual inflation v) Equipment(including inverter) replacement can be assumed to be $0.10 per Watt peak

v) The prospect’s current electricity tariff is about USD 0.07/kWh.

vii) Any suitable USD to IDR exchange rate can be assumed

The prospect is interested in an offer of a PPA contract and the sales team requests both a 20 and 25 year option for contract duration. Given that the benchmark IRR for most investors is 12%;

a) Based on the sales team suggestion of going with a 20% discount off tariff(D.O.T) for 20 years and 25% discount off tariff for 25 years, determine if the project is financially feasible for

i) Genes as the developer without any external project investors

ii) Project Investors if they were to come in with 100% of the CapEx needed, while GENES will earn

as a % of the Net Project Cashflow

If the above suggestion by the sales team is deemed to be financially unfeasible,

b) Suggest to the sales team what will be the suitable discount off tariff(D.O.T) that can be offered to the clients for both 20 and 25 years contract duration, if

i) Genes as the developer without any external project investors

ii) Project Investors if they were to come in with 100% of the CapEx needed, while GENES will

earn as a % of the Net Project Cashflow

c)  After prospect has agreed to the offered discount off tariff based on 1st round of discussions,

how would you further verify the feasibility of the project?

Hint: Think of at least 2 variables that can quite significantly affect the outcome from the pre-feasibility study in part a) and/or part b)?