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FIGURE 12.9 Cash Flows to Equity Investors from the Geothermal Project (Phase 1) 3 2 01 (-1) (-2) (-3) (-4) 0.6 1.6 1.61.7 2.3 2.4 2.4 1.8 1.9 1.9 1.9 1.9 1.9 2.2 0.0 0.6 -5.3 12.6.3 Financial analysis Phase 2 0.8 0.8 0.3 0.4 (-5) (-6) We use the DCF method to determine whether Phase 2 of the geothermal project in Dominica is financially viable for equity investors. We conclude that the geothermal project allows the equity investors to earn a 15 percent real rate of return when the PPA rate is about US$0.12/kWh. This PPA rate is the tariff at which the geothermal projects would need to sell each kWh of electricity to be able to service their debts and provide equity investors with a 15 percent real return. This PPA rate is feasible to implement, because it is significantly lower than the average tariff of Dominica and most of the countries to which the electricity from this project would be sold.271 The final PPA rate will be determined through negotiations between the partners of the project. Table 12.4 0 25.4 52.3 Financial Results of Geothermal Project (Phase 2) 0.12 0.14 20% 0.16 NPV to Equity Investors (US$ million) IRR to Equity PPA Rate Investors (Real) (US$/kWh) 15% 18% Notes: The IRR is Internal Rate of Return of the cash flows to equity investors. We assume a 15 percent real discount rate for equity cash flows. In this section, we present the estimated cash flows from the geothermal project. We explain the DCF methodology we use and our main assumptions in Appendix B. 271. The electricity generated by this project would be sold to Dominica, Guadeloupe, and Martinique. For the two latter countries, we use an average of the tariffs in Saint Vincent and the Grenadines (VINLEC, 2011 Annual Report), Grenada (GRENLEC, 2013 Annual Report), Saint Lucia (LUCELEC, 2013 Annual Report), and Dominica (DOMLEC, 2013 Annual Report). As an indication, the average tariff in the EC countries is about US$0.34/kWh. 120PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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