In this installment I describe the evaluation and award process to the project contractor, the financial evaluation, and determine that it IS a good business to generate power from home with solar renewable energy.
After having passed a first stage of the project development through the elaboration of a first viable project offer, with two suppliers – from the supermarket, and another qualified one that I found in the first hand list, I decided to take out my professional toolbox and apply tools for the optimization of the project value – in. the first part I acted in the development of the proposal with the tools that a common consumer has-.
I researched the technology further, looked for the most sophisticated and experienced suppliers in the industry to make a short list of them that would allow me to focus, decided to increase the size of the project to attract larger scale and more attractive offers, made a formal bidding process with the main variables, received 5 offers, compared them, selected two more attractive ones for a new short list and homologated their parameters, and then developed a financing structure for the project that would allow me to pay installments during the first three years, without initial investment – along the way I saw offers from leasing, to segmented payments with credit cards-.
After all, it turned out interesting data, using all the area I had available in my house – remember a 25 m2 concrete terrace without using the roof -, supplying 90% of my current consumption, and applying the three-year financing obtained, it turned out that during the first three years I must pay the equivalent of $500 per year for the equipment – with the energy savings I pay $700 another to the financier annually – and, after the third year my profit is $1,200 net for the useful life of the equipment, -although in some years there will be some minor maintenance costs and some extraordinary equipment renewal costs that may eventually arise after the warranty period-.
Thus, the net annual cash flow -in dollars- is: current year (0) investment disbursement=0 -because of the financing developed-, year(1) = -500.(2)-500,(3)-500,(4)+1200,(5)+1200,(6)+1200,(7)+1200,(8)+1200,(9)+1200, (10)+1200, and would continue in the future until the useful life of the equipment, which offers 20 years. Thus, with the initial zero investment, and the savings by actively paying the financing in the first years, the payback period turned out to be 4 years, the rate of return 31% at 5 years and 57% at 10 years, plus the environmental benefits that I calculated in 3 tons of CO2 per year equivalent to planting 129 trees (assuming that the energy it will replace was coal, which is the case in Guatemala that there is coal generation in the national production base), with this I am already part of the energy transition to zero emissions!
Financially it resulted that the cost of 100% of the cost of the project will contribute 28% of my own capital, in 3 equal parts during the first three years, the remaining 72% comes from consuming my own energy and no longer having to consume it from the Distributor, from the fourth year the capital begins to repair and produce returns on it; in short, the financing scheme developed significantly increased the profitability of the project and thus return on investment. – in a previous chapter of the blog I calculated that it is financially viable even if the entire project is paid for with equity from the outset.
I performed a risk analysis, finding that if the project only generated 65% of the projected return, the payback period would be 6 years, and in that scenario the rate of return would be 18% over 10 years. both parameters are also acceptable for new family projects in Guatemala, which means that the project can withstand stress. With the above, I finally presented the project to the family board, and it was approved.
I have already signed the contracts and the contractor has started to work, I hope in 15 days to have the project installed, producing energy from home, and that if it behaves as planned it will be financially and environmentally a success! and it will also be fun to monitor its production with an application via wifi in real time!
By the way, the offers indicated that the best period to generate starts in December, until April -which is the end of the summer-, the other months are also produced since there is always solar radiation.
I am excited to share what I have found on this blog! The current economic conditions, the relationship between electricity rates and production costs with solar technology in Guatemala, make it a good business to generate energy from home.
I invite you to spread the word, that’s what this blog is for!