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14.8.2 Financial analysis We use the discounted cash flow (DCF) method to determine whether Phase 2 of the geothermal project in Saint Kitts 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$0.15/kWh. This PPA rate is the tariff at which the geothermal projects would need to sell each kWh of electricity to be able to service their debts and provide equity investors with a 15 percent real return. This PPA rate is feasible to implement, because it is likely lower than the current electricity tariff from fuel oil generation.392 The final PPA rate will be determined through negotiations between the partners to the project. Table 14.4 0 7.1 13.2 Financial Results of Geothermal Project 0.15 0.17 22% 0.19 NPV to Equity Investors (US$millions) IRR to Equity PPA Rate Investors (Real) (US$/kWh) 15% 19% 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 : Methodology and Assumptions for Financial Analysis. Cash flows from the geothermal project In Figure 14.54, we present the projected cash flows of the geothermal project for a PPA rate FIGURE 14.11 of US$0.15/kWh. The figure shows that cash flows from financing are positive from 2019 to 2022 and are directed towards financing the capital expenditures (investments)—drilling the production wells and building the power plant and undersea interconnection cables. When the power plant begins operations in 2023, the cash flows from operations become positive and are used for repaying debt and paying dividends out to equity investors. Cash Flows of the Geothermal Project 413436371213 14 14 15 16 16 17 18 18 18 18 18 18 18 18 1818 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 -12 -13 -14 -14 -15 -16 -16 -17 Net Cash Flow from investing Net Cash Flow from operations -18 -18 -12 -12 -12 -12 -12 -12 -12 Net Cash Flow from financing Change in cash for the year 392. NEVLEC does not publish its financial statements, so we don’t have information on the value of the tariff. As an indication, the average of tariffs in the EC countries is about US$0.34/kWh. Source for average tariff: CARILEC, 2014 Average Tariffs in EC Countries (2015). 170 US $ MillionsPDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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