Economic feasibility analysis of small hydro power projects

Abstract

The clean development mechanism (CDM) was created with two main goals: help developed countries achieve the greenhouse gas emissions reduction targets set out in the Kyoto Protocol and provide sustainable development to developing countries who host the projects. Sustainable project management shares the same goals as the CDM project, which could be a valuable asset in the development of new projects. Much has been discussed about the effectiveness of the program in achieving those goals and even more in the post-2012 period when the CDM has experienced fewer new projects and lower certified emissions reduction (CER) prices compared to previous years. Based on Brazilian CDM project data, this works aims to analyze the economic aspect of sustainable management by observing the influence of the obtained CERs on the internal rates of return (IRRs) of a small hydro plant (SHP) according to the current CDM scenario, marked by CER prices reaching their lowest historical values. For this study, a spreadsheet was developed to simulate a project's cash flows and thus determine its IRRs. The results show that using the current CER prices, carbon credits do not significantly affect SHP projects' IRRs, with increases of less than 0.2% compared to a scenario with no credits. CDM projects may benefit more from optimizing the investment costs or increasing energy production. These results highlight a need to emphasize the sustainable benefits of the CDM program rather than only focusing on the economic return perspective.

Dynamic Analysis and Simulation of the Feasibility and Stability of Innovative Carbon Emission Reduction Projects Entering the Carbon-Trading Market

“…Evaluating the feasibility and sustainability of CDM projects is a crucial yet complicated issue. Currently, commonly used assessment methods mainly include cost-benefit analysis from a single-subject perspective [25][26][27][28], multi-criteria decision analysis for admission feasibility assessment [29,30] and life cycle analysis [31][32][33][34]. These methods have their own advantages and disadvantages, as well as some common limitations.…”

Financial and environmental efficiency of CDM projects: Analysis and classification for investment decisions

“…In the same way, other stakeholders, concerned with the environmental return, will be interested in developing projects that have a great capacity to reduce emissions to the maximum with the resources that have been employed. These aspects are also of scientific interest, and several studies were dedicated to better understanding the performance of this kind of projects, using different approaches, like the capacity to generate CERs as in Koo (2017), the internal rate of return (IRR) as in Carmichael et al (2016), and Monteiro et al (2021), or the abatement costs, like Simon et al (2017).…”