18 T. WAKIYAMA ET AL.
The Monte Carlo method can also be used to determine distributions as a
whole through various parameters and to reveal investment risk and return
probabilities (Froot et al. 1993 ). Thus, we use Monte Carlo discount cash
flow simulations and estimate the stochastic distribution of NPV and IRR
by assessing the uncertainty, risk, and return levels of a project investment.
2.4.1 HouseholdThis paper first focuses on household investments in solar PV and the risks
and returns from such investments. To estimate NPV and IRR values, a
cash flow balance sheet for solar power generation is constructed for April
2013 to March 2032 with a monthly base based on a household rooftop
form of solar PV installation (a 20-year duration). In this case study, the
household analysis examines the risk and return probabilities associated
with solar PV investment. The investment benefits of solar PV installation
include saving the costs associated with electricity fees as well as revenues
from renewable energy surpluses sold to an electricity company after the
renewable energy generated is utilized for household energy purposes. As
basic data for estimating cash flows, the current average installed capacity
of Kanagawa Prefecture (4.62 kW in 2013) is used (Yokohama is the capi-
tal city of Kanagawa Prefecture). Solar module costs, including ancillary
equipment (99,000 JPY) and installed costs (75,000 JPY), are estimated at
464,000 JPY per kW (the average cost of the module in Japan as of 2012).
Under the FIT system, electric power has been sold at a fixed rate of
42 JPY/kWh for 10 years as of 2012 for households (less than 10 kW
capacity)^6 (Asano 2013 ). In this case study, we assume that the FIT
application was submitted and registered in 2012, with operations begin-
ning in April 2013.^7 The profit probability level is estimated for 20-year
lifetime duration of solar module while the FIT time period is only for 10
years. Subsidies required for solar PV installation differ across cities. In
2013, the Yokohama city government provided subsidies of 50,000 JPY
to support the initial cost for each household in addition to national subsi-
dies, which are calculated by multiplying installed capacity levels by 15,000
JPY in cases in which installation fees exceed 410,000 JPY. By including
subsidies in this study, the total initial investment cost for 4.62 kW solar
PV in 2013 is estimated to be 2.02 million JPY.
For the estimation of NPV for future cash flows associated with solar
electricity generation, the following uncertainty factors and risks are con-
sidered: monthly average solar insolation in Yokohama, monthly household