Project feasibility analysis economic model for private investments in the renewable energy sector

Abstract

Purpose

The purpose of this paper is to explore the financial and economic aspects of the renewable energy sector aiming to develop and present a project feasibility analysis model that allows the public sector to master plan socially beneficial infrastructure projects and to find financially viable options for private investments. This paper develops a general frame that can be harmonized to a certain project by applying relevant country specific schemes.

Design/methodology/approach

The cost-benefit analysis (CBA) approach is used to develop relevant formulas aiming to compare the economic internal rate of return (EIRR) and financial internal rate of return (FIRR) of the possible investment options. The IRR method is used for the development of a platform that will allow comparing different project alternatives and choosing an optimal model for both public and private partners. A case study approach from Uzbekistan is used to highlight the implementation possibilities of the model based on a certain country example.

Findings

This paper develops a decision-making frame allowing the public sector to find organizational options that provide economically viable projects and at the same time attract private investors in the latter. The designed map of possible benefits, costs and revenue mechanisms allows practitioners to analyze the economic and financial viability of the existing combinations by using the developed model.

Practical implications

The developed model will allow the public sector to use the needed data on different possible design models in the developed formulas in order to identify the EIRR and FIRR of each option. Nevertheless, the application of the model will be possible after considering country specific options needed for CBA. The private sector can use the model to identify the financially acceptable options for the investments.

Originality/value

The paper provides the decision makers with a sound tool to identify the possible combinations of the options to conduct a relevant project with private investments in the renewable energy sector and to choose the model that generates the highest social welfare.

Citation

Badasyan, N. (2018), "Project feasibility analysis economic model for private investments in the renewable energy sector", Built Environment Project and Asset Management, Vol. 8 No. 2, pp. 215-230. https://doi.org/10.1108/BEPAM-08-2017-0057