BREVE HISTORIA DE LA NORMATIVIDAD DE LOS INSTRUMENTOS

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Figure 7-2: Sensitivity of the LCOH

From the sensitivity analysis, it is clear that the LCOH is equally sensitive to variation of the irradiance, the system efficiency and the seasonal utilisation ratio. However, these variables are expected to be fairly stable and can be predicted with relative accuracy. In practice, the variability of the annual sum of irradiation is relatively low. The annual GHI in KwaZulu-Natal only varies between 1 550 and 2 000 kWhth/m2_{. According to the solar gains simulations, the seasonal utilisation} rate of the potential annual solar yield is between 69 and 74 % for all of the proposed solar thermal systems. The LCOH is inversely proportional to the capital cost of the project. Access to grant funding can, therefore, reduce the LCOH significantly.

7.2 Return on Investment

The return on investment of the proposed solar thermal projects is primarily dictated by the project costs, the energy yield of the collector field, as well as the value of the energy, and, therefore, the fuel, which is offset by the solar energy. The simple payback period of the solar thermal system for each of the integration concepts under scrutiny is expected to be in the range of 7 to 15 years. In order to investigate the influence of some of the most important variables on the return on investment of the solar project, a sensitivity analysis has been performed on the Internal Rate of Return (IRR).

The IRR is an accepted project finance criterion for expressing the merit of a renewable energy investment opportunity, based on the assumed cash flows associated with the investment. The IRR is usually compared to a predetermined hurdle rate in order to estimate the feasibility of a prospective project (Short, Packey & Holt, 1995). As such, the IRR is an estimation of the discount rate that would result in a zero net present value (NPV), which is the discounted sum of the annual cash flows

R- R0,20 R0,40 R0,60 R0,80 R1,00 R1,20 - 4 0 % - 3 0 % - 2 0 % - 1 0 % 0 % + 1 0 % + 2 0 % + 3 0 % + 4 0 % LCO H [R /kWh ) SCENARIO

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over the lifespan of the project (NREL, 2014). A higher IRR is expected to result in a higher return on investment. The formula for the calculation of the NPV is provided in Equation 7-2.

𝑁𝑃𝑉 = ∑ 𝐶𝑛

(1 + 𝑑)𝑛 𝑁

𝑛=0

[𝑅] 7-2

The NPV is dependent on the net cash flow (𝐶𝑛) of each year (𝑛) over the lifespan of the system (𝑁). The annual cash flows are discounted to real terms at an appropriate rate (𝑑).

The IRR, calculated by means of the built-in Microsoft Excel function, is based on the expected annual cash flow of a hypothetical solar thermal system. The assumed starting values for the IRR’s sensitivity analysis are provided in Table 7-5. These parameters have been varied up to 40 % of the starting values in both directions. The influence of the irradiation, system efficiency, capital expenditure, seasonal utilisation ratio and the value of the conserved energy has been evaluated.

Table 7-5: Parameter Values for the IRR Sensitivity Analysis

Parameter GHI [kWh/m2_a] System Efficiency [%] Capital Expenditure [R/m2_] Seasonal Utilisation Ratio [%] Energy Value [R/kWhth] Starting Value 2 000 40 3 000 74 0.65 Minimum 1 200 24 1 800 44 0.39 Maximum 2800 56 4 200 100 0.91

The result of the IRR sensitivity analysis is illustrated in Figure 7-3. The resultant 20 year IRR of a typical solar thermal investment is in the order of 15 %, although it can vary significantly. This correlates with similar studies conducted by the GIZ (2011).

As expected, the return on investment is highly sensitive to the initial cost of the system. A reduction in the capital cost of the plant is expected to result in a significant improvement of the IRR. The IRR is equally proportional to the irradiance, collector efficiency, discount and seasonal utilisation rate, as well as the value of the energy.

7.2 Return on Investment

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Figure 7-3: Sensitivity of the IRR

As indicated in the sensitivity analysis, the IRR is significantly influenced by the value of the energy that is offset by solar heat. The value of the energy is mostly based on the cost of the energy source or the fuel. The cost of bagasse is fairly insignificant since it is a residue of the sugar production process. Conningarth Economists (2013) estimated the cost of energy produced by bagasse to be approximately R 0.30 /kWh. However, due to the potential production of various bagasse by-products, the true value of bagasse is dictated by the opportunity cost. This cost is dependent on the economic value of the by-product.

The cost of the energy consumed in the factory is further inflated by the coal consumption because coal is relatively expensive compared to the bagasse. The cost of thermal coal over the last five years varied between R 400 and R 700 /tonne (InfoMine, 2015). Furthermore, local sugar factories can export cogenerated electricity at R 1.20 /kWh. Therefore, the value of live and exhaust steam is also inflated by the opportunity cost of electricity generation. Therefore, the value of the energy is expected to be between R 0.30 and R 1.20 /kWh. According to the result of the sensitivity analysis, the IRR is expected to exceed 10 % even if the value of the energy is as low as R 0.45 /kWh.

The hurdle rate for projects or investments in the sugar milling industry is typically expected to be 10 to 15 % (Foxon, 2015d). Since the IRR is expected to exceed the hurdle rate, integration of solar thermal process heat could be justified as a feasible investment opportunity according to the return on investment expected by investors in the industry.

0% 5% 10% 15% 20% 25% 30% - 4 0 % - 3 0 % - 2 0 % - 1 0 % 0 % + 1 0 % + 2 0 % + 3 0 % + 4 0 % IR R Scenario

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