Open Access Research

Analyzing the impact of environmental variables on the repayment time for solar farms under feed-in tariff

Bin Lu1* and Matt Davison2

Author Affiliations

1 Department of Applied Mathematics, University of Western Ontario, London, ON, N6A 5B7, Canada

2 Department of Applied Mathematics, Department of Statistical and Actuarial Science, Richard Ivey School of Business, University of Western Ontario, London, ON, N6A 5B7, Canada

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Environmental Systems Research 2013, 2:5  doi:10.1186/2193-2697-2-5

Published: 4 March 2013

Abstract

Background

Environmental concerns have promoted the rise of low emissions “green” power technologies such as solar power. In part to make these technologies of economic interest to investors, many green energy policies have been proposed, and a wide variety of green energy developments have been launched which take advantage of these policies. This paper studies the impact of the unpredictable solar insolation on two variables of key interest to solar plant developers: the repayment time and the cash flow at risk.

Results

Using a bootstrap analysis of solar irradiation time series, we model solar farms which sell their power output at a Feed-In Tariff (FIT) rate motivated by one used in the province of Ontario, Canada. We show that the feed-in tariff level which existed in Ontario in March 2012 was more than sufficient to remove the financial risks inherent in financing a solar PV plant.

Conclusions

We conclude that the Ontario Canada FIT 2012 program was an effective tool to encourage investment in solar PV plants. We also find that repayment time is strongly sensitive to FIT rates. So FIT is a very efficient tool to impact/control the volume risk.

Keywords:
Solar PV; Feed-In Tariff; Repayment time; Bootstrap