Appendix: Case Study

Worked Example – Solar Power Station

TurtleEnergy is considering a large-scale solar farm investment in Queensland. A solar farm (or solar power station) are large collections of photovoltaic (PV) solar panels that absorb energy from the sun to produce electricity. Solar farms are known as a good investment for firms who wish to reduce their carbon emissions as solar power generates significantly less carbon and invest in renewable energy. As TurtleEnergy is interested in sustainable investment, the company has asked for a social CBA on the potential project. However, TurtleEnergy is also interested in ensuring the investment is sound for their stakeholders. The company has provided the following information.

TurtleEnergy is expecting their solar farm to produce 110MWh. The project will last 20 years.

[You can find the template Excel File on the BB website – this example is worked through during class]

a) Market Perspective

The project requires TurtleEnergy to purchase the following

– 430,000 solar panels at $180 per panel. Each panel can generate 260w per hour.

– Racking and mounting frames: each rack is expected to hold 16 solar panels at a price of $250 per rack.

– Two demountable building – one for storage and another for the control system. Each will cost $63,000.

– Two transformers for the power to be converted for sale at a price of $300,000.

– 110 centralised cable inverters at a price of $450 each.

– Two worksite vehicles at a price of $45,000.

– The company needs 100 small marshalling kiosks for the racks. Each kiosk costs $250.

In addition to this, to build the solar farm there is a one-off pre-construction and transportation fee of $3 million dollars. The project also requires a significant amount of cabling to connect the panels to the distribution. It was estimated that the project would need an initial 32,000 meters of cabling at a price of $14.10 per meter. As part of the requirement to be a power generator, TurtleEnergy needs to purchase a turnkey protection and control system at a cost of $1.5 million.

As part of the project, TurtleEnergy is expected to need to maintain and repair the solar power station if faults occur. To ensure timely repairing of faults, the company plans to keep working capital as outline in Table 1 below:

Table 1: Working Capital
Item Units Price Per Unit
Centralised Inverters                  10                450.00
Spare Panels                  64                180.00
Cabling                800                  14.10
Spare Racks                    2                250.00


In addition to the working capital, TurtleEnergy has provided the following information of their estimated operating costs:

Table 2: Operating Expenses
Item Units Price Per Unit
Land Lease (hectares) 250 3000
Grid Connection Fee 1 100,000
Spare Panels 50 180.00
Cabling 200 14.10
Monthly General Operating Expenses 12 2,100



Note that in an average year, TurtleEnergy expects to replace 50 solar panels (spare panels). However, TurtleEnergy wants to keep a stock of 64 spare panels in working capital in case of unexpected extreme events.

The farm required yearly checks and upkeep for monitoring equipment, expected to cost $150,000 per year. The farm also requires an external yearly health and safety inspection to be conducted which comes at a cost of $2,500.

In terms of workers, the project has operating expenses of:

– Two specialist maintenance and operational engineers who receive an annual salary of $135,000.

– Additional casual maintenance and repair workers to keep the grounds and do general tasks – expected to cost $200 per day for 70 days of the year.

– One site supervisor who receives $175,000/per year.

– One external security operative to monitor the site at a cost of $65,000 per year.

TurtleEnergy notes that the insurance would be 1.5% per annum of the initial fixed investment cost. At the end of the project, the farm will be dismantled and salvaged. This is expected to provide 5% of the initial fixed investment.

To calculate the income from the investment, TurtleEnergy determined that the site has an average of 8.2 hours of sun each day. 6.3 hours are at peak sun (100% energy production capacity) and 1.9 hours are non-peak (50% energy production capacity). We assume that the specified hours above consider days losses due to cloud cover.

Turtle energy expects to receive a minimum of $44.50 per MWh when running at full power based on the 2020 average market rate in Queensland. However, we require to take into account the peak and non-peak production hours over a day as part of the calculation of the total revenue benefits to Turtle Energy. Assume that the power station runs 365 days a year.

Finally, the project will be built in two stages. Stage 1 takes 2 years, consequently the solar farm can only operate at 50% total capacity in year 1 and 2. Stage 2 will be completed in 3 years and will result in the farm running at full capacity from year 3 onwards.

i) Calculate The IRR and NPV for the Market Perspective at a 5%, 10% and 15% real discount rate.

Use a conversion factor of 1,000,000

b) Private Perspective

To finance the project and its high initial costs, TurtleEnergy would like to take a loan worth $20 million at an interest rate of 5.4%. The life of the loan would be 15 years. In 2032, the company plans on taking a $1 million interest only loan to cover any unexpected events. This loan has an interest rate of 9.5%. Over the period of this loan, only the interest is paid, at the end the loan is paid back in full in 6 years (at the end of 2038).

Depreciation for TurtleEnergy is complex. TurtleEnergy plans on depreciating the initial investment stock of solar panels purchased at the start of the project. However, the company will not depreciate any additional replacement panels purchased over the life of the project as the replacement panels are proportionally relatively small. The solar panels will be depreciated over the life of the project (20 years). In addition to the depreciation of the solar panels, the following assets can be depreciated over their book life

Table 3: Assets for Depreciation
Item Life
Transformers 20
Demountable Buildings 5
Worksite Vehicles 6


The tax rate on profits is 30%.

i) Calculate the IRR on equity and NPV for the business at a 5%, 10% and 15% real discount rate for the Private/ Investor Perspective


c) Social Perspective

You now need to consider the social perspective. The information on taxes and subsidies is outlined below and can be used to calculate the shadow prices.

Table 4: Taxes, duties, and subsidies.
Input Item Information
Duties:       -demountable buildings 10%
                    -transformers 15%
Subsidies:  – Grid Connection Fee 80%
                    – Solar Panels 20%
                    – Protection and Control Syst. 10%
Taxes :        – Vehicles 10%
                     – Monitoring Equipment 10%


As we observe taxes and subsidies only on inputs in this project, we assume that inputs represent additional quantities supplied (not diverted from other uses). Note that the government provides a 80% subsidy on the grid connection fee to encourage businesses to invest in renewable energy projects such as this one.

In addition to the taxes, duties, and subsidies we need to consider the role of labour inputs. Specifically, the maintenance engineers, and security workers are expected to be sourced from elsewhere.  Casual employees have an opportunity cost of 40% of the market wage.

The opportunity cost of land is $0.

Finally, you refer to some recent research and found that 1.60 units of carbon (CO2) are saved per year per kWh (1000 kWh = 1 MWh). Given that the site is expected to produce 110MWh, and the price of carbon is $50 per tonne, you can calculate the net external benefit of the project by calculating the yearly savings.

i) Calculate the NPV and IRR of the social perspective using a 5%, 10% and 15% discount

d) Disaggregated Social Perspective

Now as part of the CBA, you would like to breakdown the benefits to various stakeholders for TurtleEnergy. In this analysis, you separate the benefits to the private investor (TurtleEnergy) from the benefits to society. In this case we consider those with standing including stakeholders (landowner, labour, banks, and government) to disaggregate and allocate the benefits to subgroups with standing in the project. Using the template identify:

i) The NPV for the aggregate social perspective using a 5%, 10% and 15% discount rate (additional benefits that do not accrue to TurtleEnergy).

ii) The NPV for each stakeholder group in the social perspective using a 5%, 10% and 15% discount rate.

iii) The NPV for the private investor group using a 5%, 10% and 15% discount rate (the benefits to TurtleEnergy).

Once you have managed to complete these tasks you have successfully completed a full Social CBA!

e) Sensitivity Analysis

Many of the inputs into the CBA provided by TurtleEnergy for the project are uncertain.

i) As part of the analysis, TurtleEnergy would like to know how variation between the price of electricity and the production of electricity will impact the IRR from the investor perspective. Allow the price of electricity to vary between $34.50, $\44.50 and $55.50 and the production in MWh between 100, 110 and 120. Determine whether the results will impact TurtleEnergy’s decision to undertake the project.

ii) Suppose Turtle Energy would like to achieve a minimum IRR of 8% on the investment (as a hurdle rate). Using a threshold analysis, determine the required average price for electricity.

iii) Assuming the $45.50 price of electricity from before. What is the minimum tax on profits that would result in the government breaking even at a 5% discount rate?


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