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Moving beyond LCOE: impact of various financing methods on PV profitability for SIDS


  • Tao, Jacqueline Yujia
  • Finenko, Anton


Small island developing states (SIDS) have some of the highest electricity tariffs globally. Renewable energy (RE) technologies could thus have reached grid parity in various SIDS. Furthermore, the abundance of resources such as solar and wind provides ample potential for SIDS to switch from high cost diesel generators to renewables. Despite favourable conditions, RE remains a largely underinvested sector in these regions. This paper aims to undercover the reasons why grid parity does not necessary translate into private sector investments in RE. With a focus on SIDS, this paper presents an evidence that achieving grid parity based on LCOE estimates is an incomplete benchmark for decision making in the power generation industry. In particular, LCOE and grid parity do not take into account financing constraints of RE projects which are often more pronounced compared to conventional forms of power generation. This paper thus presents the business perspective of RE projects, by employing a discounted cashflow model that includes various profitability metrics and effects of taxation and depreciation. The study shows that financing conditions exert strong influence on the economic feasibility of solar projects, both in LCOE terms and profitability terms. Thus, key policies should be targeted at improving financing conditions to ensure mobilization of private sector finances in solar PV.

Suggested Citation

  • Tao, Jacqueline Yujia & Finenko, Anton, 2016. "Moving beyond LCOE: impact of various financing methods on PV profitability for SIDS," Energy Policy, Elsevier, vol. 98(C), pages 749-758.
  • Handle: RePEc:eee:enepol:v:98:y:2016:i:c:p:749-758
    DOI: 10.1016/j.enpol.2016.03.021

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    References listed on IDEAS

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    7. Dornan, Matthew & Jotzo, Frank, 2015. "Renewable technologies and risk mitigation in small island developing states: Fiji’s electricity sector," Renewable and Sustainable Energy Reviews, Elsevier, vol. 48(C), pages 35-48.
    8. Bobinaite, Viktorija & Tarvydas, Dalius, 2014. "Financing instruments and channels for the increasing production and consumption of renewable energy: Lithuanian case," Renewable and Sustainable Energy Reviews, Elsevier, vol. 38(C), pages 259-276.
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    Cited by:

    1. Orioli, Aldo & Di Gangi, Alessandra, 2017. "Six-years-long effects of the Italian policies for photovoltaics on the pay-back period of grid-connected PV systems installed in urban contexts," Energy, Elsevier, vol. 122(C), pages 458-470.
    2. repec:eee:enepol:v:108:y:2017:i:c:p:731-741 is not listed on IDEAS
    3. repec:eee:juipol:v:54:y:2018:i:c:p:46-54 is not listed on IDEAS
    4. repec:eee:energy:v:130:y:2017:i:c:p:55-75 is not listed on IDEAS
    5. repec:eee:enepol:v:108:y:2017:i:c:p:292-298 is not listed on IDEAS
    6. repec:eee:enepol:v:120:y:2018:i:c:p:600-609 is not listed on IDEAS
    7. repec:gam:jeners:v:12:y:2019:i:12:p:2281-:d:239917 is not listed on IDEAS
    8. repec:gam:jsusta:v:11:y:2019:i:5:p:1461-:d:212448 is not listed on IDEAS
    9. repec:eee:renene:v:136:y:2019:i:c:p:414-427 is not listed on IDEAS
    10. repec:eee:juipol:v:54:y:2018:i:c:p:55-77 is not listed on IDEAS
    11. La Monaca, Sarah & Ryan, Lisa, 2017. "Solar PV where the sun doesn’t shine: Estimating the economic impacts of support schemes for residential PV with detailed net demand profiling," Energy Policy, Elsevier, vol. 108(C), pages 731-741.


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