Financial Calculation of the

Renewable Energy
Development Plan
Faisal Budiman

School of Electrical Engineering, Jl. Telekomunikasi no. 1,

Bandung 40257, West Java, Indonesia

1
 FEASIBILITY STUDY
• Feasibility study - To reach the target of
affordable energy, the investment for
renewable energy should be efficient,
economic and mitigate the specific
character of renewable energy resources.
THE COMPONENT OF FEASILIBILITY
1 LOCATIONS
2 TECHNOLOGY
3 ELECTRICITY/ENERGY ANALYSIS
TIME VALUE OF
MONEY
▪ The value of the money will
depend on the time.
▪ Time value of the money =
discount or present worth rate.
▪ The term “discount rate” refers
to the factor used to discount
the future cash flows back to
the present day.

4 REGULATION

5 SOCIAL ECONOMIC AND

ENVIRONMENT

6 FINANCIAL ANALYSIS
2
FINANCIAL FEASIBILITY
PROCESS

1
Financial Financial
Financial
Feasibility
Assumptions Calculations
Parameters

3
 FINANCIAL ASSUMPTION 4

▪ Financial assumptions are all the assumptions which is defined

at the beginning.
▪ It must include a projected income statement, balance sheet
and cash flow statement for the coming three to five years.
▪ Financial assumptions consist of technical assumptions and
economical assumptions.
PLANT CAPACITY
TECHNICAL
ASSUMPTION
PLANT EFFICIENCY
FINANCIAL
ASSUMPTION
LOAN, EQUITY DAN
LIABILITY
ECONOMICAL
ASSUMPTION
DISCOUNT RATE,
INTEREST, INFLATION
 PLANT CAPACITY
▪ Plant capacity = the installed capacity of power plant
which will be developed.
▪ The unit of installed capacity is ACTIVE POWER
(WATT).
▪ For financial calculation, It must be converted to
Megawatt (MW) or kilowatt (kW).
▪ For the Solar Photovoltaic, the installed capacity = peak
active power.
▪ In Indonesia cases, the conversion factor from peak
active power to active power is basically 0.8.
𝑀𝑊 = 0.8 𝑀𝑊𝑝
▪ The conversion factor will be different for different area.
It is related to irradiation condition.

5
 PLANT EFFICIENCY
• The efficiency of a plant =
percentage of the total energy
content of a power plant's fuel
that is converted into electricity.
• The remaining energy is usually
lost to the environment as heat.
• The plant efficiency should be
defined for renewable energy
which is using thermal power
plant concept or hydro concept
(there is constant energy input).
Example: geothermal power
plant, biomass power plant and
hydropower plant.
• If the fuel is not constant and/or
not uncountable, the plant
efficiency does NOT need to be
calculated. Example: wind
power plant and solar
photovoltaic. 6
 Basically, INVESTMENT on
renewable energy power plant
requires A LOT OF MONEY. The
developer tend to prefer a loan
mechanism to lenders.

7
FINANCIAL FEASIBILITY
PROCESS

2
Financial
Financial Financial
Feasibility
Assumptions Calculations
Parameters

8
 LOAN, EQUITY AND LIABILITY
▪ In most financial cases,
𝐀𝐒𝐒𝐄𝐓𝐒 = 𝐋𝐈𝐀𝐁𝐈𝐋𝐈𝐓𝐘 + 𝐄𝐐𝐔𝐈𝐓𝐘
• ASSET = a resource with
economic value that a
company owns or
controls with expectation
that it will provide a future
benefit.
• LIABILITY = something a
company owes, usually a
sum of money.
• EQUITY = ownership of https://images.app.goo.gl/rZ2pyBnzQUgirwYRA

assets that may have

debts or other liabilities
attached to them. What’s
left over: Assets minus
9
liabilities.
 LOAN, EQUITY AND LIABILITY 10

▪ Liabilities and shareholders' equity represent how the assets of a

company are financed.
▪ If it's financed through debt, it'll show as a liability, and if it's financed
through issuing equity shares to investors, it'll show in shareholders'
equity.
▪ The balance sheet = the statement of financial position.
 11

CASE
ASSETS: WHAT WE HAVE LIABILITY = WHAT WE OWE EQUITY = WHAT WE GET
(Cash, Property, Inventory) (Debt, Loan) (Capital, Profit, Loss)

Let’s say you and your friend start a small business. You both agree to
invest $15,000 in CASH, for a total initial investment of $30,000.

• You spend $4,000 of your company’s cash on McBook, and your

company take out a $10,000 bank loan to pay for expensive
standing desks for your employees. Show your balance sheet!

INITIAL BUY MCBOOK LOAN FROM BANK BUY STANDING DESK

INVESTMENT $4,000 $10,000 $10,000
Assets: Assets: Assets: Assets: $26,000 in cash
$30,000 in cash $26,000 in cash $36,000 in cash McBook: $4,000
Liabilities: 0 $4,000 McBook $4,000 McBook Standing Desk: $10,000

Equity: $30,000 Liabilities: 0 Liabilities: $10,000 Liabilities: $10,000

Equity: $30,000 Equity: $30,000 Equity: $30,000
 CASE
Let’s say you and your friend start a small business. You both agree to
invest $15,000 in CASH, for a total initial investment of $30,000.

• You spend $4,000 of your company’s cash on MacBooks, and your

company take out a $10,000 bank loan to pay for expensive
standing desks for your employees. Show your balance sheet!

ASSETS LIABILITIES
$ 26,000 in cash $ 10,000 in loans
$ 4,000 in equipment (Mac Book) Equity
$ 10,000 in equipment (Standing Desk) $ 30,000 in stock (You and your friend)
Total Assets Total Liabilities and Equity
$ 40,000 $ 40,000

12
 DISCOUNT RATE
▪ Depending upon the context, the discount rate has two different
definitions and usages following:
▪ The discount rate = the interest rate charged to the
commercial banks and other financial institutions for the loans
they take from the National Reserves Bank.
▪ The discount rate = the interest rate used in discounted cash
flow (DCF) analysis to determine the present value of future
cash flows.
▪ Basically, the discount rate in electricity project in Indonesia will be
8% - 12%.

https://images.app.goo.gl/br71asiQEMNH2FYbA

13
https://images.app.goo.gl/RGrgbAHN8Jkuc5Pi8
INFLATION
▪ Inflation measures
the average price
change in a
basket of
commodities and
services over
time.
▪ Inflation occurs
when prices rise,
decreasing the
purchasing power
of your dollars.

14
 INTEREST RATE
• The interest rate is the amount a lender charges for the use
of assets expressed as a percentage of the principal.
• The interest rate is typically noted on an annual basis known
as the annual percentage rate (APR).

https://images.app.goo.gl/XSeqFRrdaAFPAkWV6 15
WEIGHTED AVERAGE COST OF CAPITAL
• The weighted average cost of capital (WACC) is a calculation of a
firm's cost of capital in which each category of capital is
proportionately weighted.
• All sources of capital, including common stock, preferred stock,
bonds, and any other long-term debt, are included in a WACC
calculation.
• WACC is calculated to pay off all of its debt, using existing assets.

16
WACC FORMULA

• The WACC equation follows:

(WACC = COST OF EQUITY + COST OF DEBTS)

𝑬 𝑫
𝑾𝑨𝑪𝑪 = ∗ 𝑹𝒆 + ∗ 𝑹𝒅 ∗ (𝟏 − 𝑻𝒄)
𝑽 𝑽
Re = Cost of equity
Rd = Cost of debt
E = Market value of the firm’s equity
D = Market value of the firms’s debt
V =E+D
E/V = percentage of financing that is equity
D/V= percentage of financing that is debt
Tc = corporate tax rate 17
FINANCIAL FEASIBILITY
PROCESS

3
Financial
Financial Financial
Feasibility
Assumptions Calculations
Parameters

18
 BENEFIT COST RATIO
• A benefit-cost ratio (BCR)
is a ratio of the relative
costs and benefits of a
proposed project.
• BCR equation follows:

𝐵𝑒𝑛𝑒𝑓𝑖𝑡
𝐵𝐶𝑅 =
𝐶𝑜𝑠𝑡
https://images.app.goo.gl/umDGUUbBPxv2ZZ7x9

• Project is FEASIBLE if
BCR > 1.00
19
NET PRESENT VALUE (NPV)
▪ Net present value (NPV) is the difference
between the present value of cash inflows
and the present value of cash outflows
over a period.
▪ NPV Equation follows:
𝑇
𝐵𝑡 − 𝐶𝑡
𝑁𝑃𝑉 = ෍ − 𝐶0
1+𝑟 𝑡
𝑡=1
where,
▪ B = benefit https://images.app.goo.gl/wek1FZr63QU7J75MA

▪ C = cost
▪ C0 = Investment Cost in t=0
▪ r = discount rate
▪ T = years

▪ PROJECT is PROFITABLE if NPV > 0.

20
 PAYBACK PERIOD
• The payback period = the amount of
time it takes to recover the cost of an
investment.
• The payback period = the length of time
an investment reaches a break-even
point.
• The formula for the pay back period will
https://images.app.goo.gl/ostVhEQW1onK3an19

be :
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝐶𝑜𝑠𝑡
𝑃𝐵𝑃 =
𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑝𝑒𝑟 𝑝𝑒𝑟𝑖𝑜𝑑

• Shorter paybacks mean more attractive

investments.
• In electricity project, lender will interest
for PBP < 10 years. The most
requirement is 6 - 8 years.

21
 CONCLUSIONS
Financial feasibility processes flow…..

Financial
Financial Financial
Feasibility
Assumptions Calculations
Parameters

22
23
24
25
26
27