73rd International Atlantic Economic Conference

March 28 - 31, 2012 | Istanbul, Turkey

Comparative analysis of financial and socioeconomic effectiveness of technologies in RES

Saturday, 31 March 2012: 9:30 AM
Magdalena Ligus, Ph.D. , Economics, Wroclaw University of Economics, Wroclaw, Poland
The paper attempts to carry out a comparative analysis of the investments’ profitability in priority renewable energy sources (RES) technologies in Poland: wind power plant, biogas power plant, solar-thermal collector for heating of domestic hot water. The analysis will be performed from the standpoint of the investor (financial analysis) and from the social point of view (economic analysis). In the paper the financial consequences of government system supporting green electricity and heating are described based on adjusted present value (APV) method. APV method allows to estimate the impact of each support mechanism on project’s value. The sum of financing side effects (increase in value due to financing conditions) will supplement the financial evaluation.

At the first stage, the financial effectiveness of the investment is assessed, then the effectiveness providing free-market conditions, i.e. without the support system. This analysis is only a starting point for proposals for the "required" minimum support for each technology that ensures the financial viability. This analysis is particularly important because the draft of Polish legal act on renewable energy sources announces differentiation of renewable energy investments support system in respect to particular RES technology. Then, an analysis of the economic viability of each technology was provided to verify the present financial government support system.

The economic analysis is based on the cost-benefit analysis (CBA) method. The methodology consists in: (1)  the transformation of market prices used in financial analysis into accounting prices (that amend prices distorted by market imperfections) and (2) recognition of externalities leading to social benefits and costs.  Basically, the main corrections are environmental, external effects of this investments. In the paper, environmental benefits are recognized as  the damage avoided due to  replacement of the coal electricity generation with the RES based electricity. The results of  detailed analysis of health and environmental impacts of electricity generation systems called Impact Pathway Assessment (IPA) approach, are obtained within the ExternE (External Costs of Energy) Project of the European Commission [European Commission, 1999] and CASES (Costs Assessment of Sustainable Energy Systems) Project [European Commission, 2008] framework.

Generally, the analyzed RES technologies contributes positively to projects’ value only because of implemented government support mechanisms. However, different technologies require different level of support.