Low Carbon Urban Infrastructure Investment in Asian Cities

RENEWABLE ENERGY INVESTMENT RISK ANALYSIS FOR LOW-CARBON CITY... 25

effects differ across company financial conditions and cash flow balances.
In addition, with 100 % immediate depreciation effects, initial year taxes
can be reduced, and it is notable that depreciation rates are zero after the
initial year, thus increasing taxes.
This paper also analyses the impact of fixed FIT price changes. It
compares the FIT prices of 40 JPY/kWh for 2012, 36 JPY/kWh for 2013,
and 32 JPY/kWh for 2014. The results indicate that IRR in the base case
is reduced to 0.7 % at the 36 yen/kWh FIT rate with normal depreciation
(2.1 % for the 40 yen/kWh FIT rate). When the FIT rate is reduced to 32
JPY/kWh, the IRR value is −0.8 % in the base case. In the simulation, the
IRR value exceeds 3 % in 40 JPY/kWh with more than 10 % probability,
but the probability value declines to less than 10 % at 36 JPY/kWh. For the
NPV, although the 40 JPY/kWh simulation ranges from −6,628,302 to
3,037,176 JPY, this range is lower profitability under 36 JPY/kWh, from
−8,693,496 to 97,576 JPY.
The economic and environmental effects of solar PV installation are
also considered. Total electricity generation levels for a solar PV installed
capacity of 50 kW range from 877,913 to 1,342,964 kWh over 20 years
and can therefore offset electricity use. CO 2 reductions over 20 years
can be achieved within a range of 407,351 to 623,135 t-CO 2 using the
amount of electricity generation from solar PV in a company cash flow
simulated by the Monte Carlo model and CO 2 emission intensity from
electricity as of 2014 (0.464 kgCO 2 /kWh).

0.00

0.01

0.02

0.03

0.04

NPV

40

36

32

28

24

20

16

12

44

8

4

0

Frequency

Probability

−600.000−500.000−400.000−300.000−200.000−100.000 0 100.000 200.000 300.000

Certainty Min = -8,846

Certainty = 16.55%

Fig. 2.3 Household NPV distribution with an FIT of 42 JPY/kWh for a 10-year
period. Source: Author