Solar PV renewable energy sustainability: economic essential or financial folly

D. Ganendra, . and R. Navaratnam, . and A.B. Mohd Ismail, . Solar PV renewable energy sustainability: economic essential or financial folly. pp. 1-12.

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Abstract

In a period of falling energy prices, many sceptics have cast doubts on the sustainability of renewable energy (RE) projects. This paper will re-examine the difference between economic cost/viability (EIRR) and financial viability / bankability (FIRR) to place the subject matter of renewable energy feasibility and sustainability in its proper perspective. A review of the various components of economic costs for conventional fossil-fuel electricity is undertaken to assess the most suitable economic parameters. Current conventional financial analyses of projects do not consider the negative externalities of fossil-fuelled electrical energy generation. These negative externalities cause damage to the environment which directly contribute to (i) global warming/climate change (due to greenhouse gas emissions), (ii) human health problems (due to emissions, such as arsenic, mercury and other particulate matter) and (iii) other impacts to the environment (such as acid rain). The economic cost parameters of these negative externalities will be featured, and they will be used to highlight the substantial economic benefits of emission-free RE solar PV electricity which is the most popular RE type currently deployed in the Malaysian electricity grid. In this context, the Paper will analyze solar PV projects from both the financial and economic perspectives which will include the impact of these externalities on the levelised cost of electricity (LCOE). This short-term deficits in financial viability are compared in conjunction with the long-term benefits and suggest the need to consider policy mechanisms which deal with this viability profile. This could form a bridge between policy maker’s intent that decisions are economically based and funder’s requirements that are principally governed by financial viability / bankability.

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