Browsing by Author "Mmushi, Isaac K."

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    Techno-economic investment framework for REIPPPP utility-scale PV plants in SA
    (Stellenbosch : Stellenbosch University, 2016-12) Mmushi, Isaac K.; Von Leipzig, Konrad; Stellenbosch University. Faculty of Engineering. Dept. of Industrial Engineering.
    ENGLISH ABSTRACT: The South African department of energy forecasts generation capacity to reach 89.5GW by 2030, and the objective is to have 8.4GW generated from solar Photovoltaic (PV) renewable energy plants. The department created an enabling environment for the private sector to invest through the Renewable Energy Independent Power Producer Procurement Program (REIPPPP). The REIPPPP has been hailed as one of the best renewable energy programs world-wide and has stimulated investment in this sector in South Africa. The questions considered in this research were: how is project viability of PV utility power plants assessed? Are conventional capital budgeting and project financial evaluation parameters sufficient to perform a preliminary analysis? How should investors account for risk associated with PV plants in South Africa? And finally, how should the risk be calculated or what tools and or techniques should be considered applicable? The aim of this research was to propose and develop an investment framework and model that private investors could use during the preliminary phase of utility scale solar photovoltaic projects. The first focus of the study was the development of a financial model which employs the conventional capital budgeting parameters such as the net present value (NPV), the rate of return (IRR), the return on investment (ROI), and the Debt Service Coverage Ratio (DSCR). @Risk® simulation package was used to simulate financial uncertainty through varying some of the inputs randomly, to see the effect on required financial output and probability of viability. The second phase of the study expands on the NPV values that were calculated, through the use of real options analysis. The significance of real options is the fact that, the volatility factor which is incorporated in the formulae, best represents all risks which are not catered for in most project financial formulas. Real options analysis provides the decision makers of a project with the flexibility to actively evaluate the project’s financial viability and undertake the risk based on all available information. The study uses project data obtained from REIPPPP window two PV project to evaluate the investment feasibility using conventional project finance evaluation parameters, an @Risk® analysis is performed and then expanded upon to do a real options analysis. A real options analysis (ROA) active mapping framework is adopted to map and analyse the viability of the project. This dynamic study of project financial evaluation in the form of the ROA of the case study, provided volatility and NPV ratios that yielded a ‘maybe invest now’ decision. The project used as a case study is already constructed and the volatility used in this study was based on risks experienced during the construction phase. The results support the decision made to invest in this project, as a good investment opportunity undertaken three years ago. The research objective proposing that three techniques; conventional capital budgeting methods, risk analysis and real option analysis should be combined in financial analysis of renewable energy utility scale PV projects was confirmed through this study. The advantage of combining the three techniques is that the financial due diligence now incorporates the risks associated with such projects which conventional capital budgeting methods does not account for.