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How much would your customers pay to be "greener"
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When companies plan whether to invest in a project to generate their own renewable energy, they typically consider investment and expenses such as the initial capital outlay (CAPEX), operating expenses (OPEX) charges such as maintenance or repowering costs, and cost cost of insurance among others.
Then cash inflows are added to the financial plan such as energy saving costs, subsidies, rebates from FIT’s and income from energy delivered to the grid.
These net cash inflows and outflows should be discounted to present value to obtain a measure of project profitability. Positive NPV usually means the project should go ahead.
Better still is to build a probabilistic model with an MsExcel add-on to model variations in costs and prices, considering optimistic and pessimistic scenarios to obtain a probability distribution of NPV rather than a single deterministic value.
I think there are many companies that may not consider the time value of money and rely on simple undiscounted and deterministic ROI calculations to make a Go- No-Go decision about a renewable energy project.
I think companies planning a wind or PV installation on their premises could benefit from adding an additional line of income to their financial appraisal models representing the monetizable utility value obtained when generating their electricity from renewable sources.
This intangible utility value can be monetized, because generating energy from renewables has a commercial value for a company beyond the money savings in Kwh.
Today more customers are prepared to pay a price premium for a product or service purchased from a company with proven carbon neutral credentials. For example, by offsetting their carbon footprint when they book flights.
According to a UK ONS survey, three-quarters of adults in Great Britain worry about climate change.
https://lnkd.in/eWg_AaeJ
Anyone considering a renewable energy project in a manufacturing or industrial plant, for example, should think about how much commercial value they can add to the products by using most of their energy from renewable sources.
Would your customers pay a price premium for your product if you use renewable energy to produce it? If the answer is yes , the premium revenue estimated should be added as an income line in your calculations.
Manuel Carmona
Thank Manuel for the Post!
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