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13.5.2 Financial analysis We use the discounted cash flow (DCF) method to determine whether the geothermal project in Grenada 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$0.19/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 current electricity tariff from fuel oil generation of US$0.37/kWh.307 The final PPA rate will be determined through negotiations between the partners of the project. Table 13.2 0 4.5 9.1 Financial Results of Geothermal Project 0.19 0.21 21% 0.23 NPV to Equity Investors (US$ millions) 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. The DCF methodology we use and our main assumptions are in Appendix B. Cash flows from the geothermal project In Figure 13.6, we present the projected cash flows of the geothermal project for an indicative PPA rate of US$0.19/kWh. Cash flows from financing are positive from 2015 to 2018 and are directed towards financing the capital expenditures (investments). The highest capital expenditures occur in 2018, when the wells are drilled and the power plant is under construction. When the power plant begins operations in 2019, the cash flows from operations become positive and are used for repaying debt. 22 0 63 FIGURE 13.6 Cash Flows of the Geothermal Project 77888 8 9 9 10 10 10 10 10 10 10 10 10 10 10 1010 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 -7-7-7-8-8 -8 -9 -9 -10 -10 -7 -7 -7 -7 -6 -6 -6 -6 -6 -6 Net Cash Flow from investing Net Cash Flow from financing Net Cash Flow from operations Change in cash for the year 307. GRENLEC, 2014 Annual Report; CARILEC, 2014 Average Tariffs in EC Countries (2015). 140 US $ MillionsPDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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