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5. Analysis & Results
The case used for the model and the analysis is an installation of solar panels on a warehouse or plant’s roof. The objective of investing in such a project for a company is double. The first part is for the company to increase free cash flow like every other business projects. The second part is environmental by reducing the emission of carbon dioxide and equivalents in the atmosphere, thus reducing the global warming effect.
The green logistic project to install solar panels on a warehouse or plant’s house is based on many different assumptions. A sensitivity analysis gives a comprehensive view of the different outcomes regarding the project. The NPV is the dependent variable which will be affected by the independent variables or parameters. After the analysis, relations between dependent and independent variables will be determined and their extent as well. The data used during the sensitivity analysis, presented in the Table 2 below, comes from the energy professional environment including Gloria Energy Asset Limited, Tesla Energy Storage, and the Environmental Protection Agency.
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Table 2: Base Values of Variables & Parameters
Variables & Parameters Base Value
Installation Cost $ 12548
Length of Project T 20
Maintenance Costt $ 200
Initial Price of Energy P0 $ 0.4
Daily Market Output 6.24 kWh
CO2e per kWh 0.703 kg/kWh
Decay rate 2%
Increase rate i 2%
The Installation Cost includes the cost of a Tesla Powerwall ($6200) plus 24 solar panels with a unit price of $162 ($3888) and cables and racking ($1360). Finally, the set-up cost is estimated to be $1100 including the personnel cost ($800) and the shipping cost ($300). The Maintenance Costt of 200$ is a yearly estimate. At $12548, the installation cost is $ 2.01 per watt with 31%
being the cost of solar panels. The other variables in Table 1, like the Installation cost, are practical estimates. The characteristics of solar panels can be seen in the Appendix. They will be taken as basis for the analysis in Figures 6 to 8 unless they become independent variables.
For the price of Carbon Tax four scenarios are considered for Figures 6 to 8. The first one is PC02e = 0, no carbon price applied by the government. The second one is PC02e = 0.04, small carbon price applied by the government (40$/ ton of CO2e). The third one is PC02e = 0.08, an intermediate carbon price applied by the government (80$/ ton of CO2e). The fourth one is
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PC02e = 0.12, a high carbon price applied by the government (120$/ ton of CO2e).
The Figures 6 shows the impact of Carbon Tax on NPV under different levels of Increase rate (i).
The Figure 6 will have fixed values established in Table 2 for Installation Cost, Length of Project (T), Maintenance Costt, Initial Price of Energy (P0), Daily Market Output, and Decay Rate. For the left panel, there is a high cost of investment (r = 0.08) and for the right panel, a low cost of investment (r = 0.02). The two variables are the Increase rate (i) and the Price of Carbon Tax. For each panel, three scenarios for the Increase rate and four for the Price of Carbon Tax are crossed. With i = 0 there is no increase of the electricity price over the years.
With i = 0.02 there is a small constant increase of the electricity price per year. With i = 0.05 there is a large constant increase of the electricity price per year.
Figure 6: Impact of the Increase Rate and Carbon Tax
(r = 0.08) (r = 0.02)
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From the Figure 6, a positive and linear relation between the Increase Rate and NPV is observed.
As the price of energy increases the savings induced by the solar panels increase as well. A positive and linear relation between the Price of Carbon Tax and variable NPV is also observed.
A lower price of carbon induces a lower amount of Carbon Tax Avoided, therefore lower cashflows.
Another observation from the Figure 6 is that the project requires favorable investments conditions with a low discount rate r for the NPV to be positive and be economically viable. In the left panel, where r is high (r = 0.08), the NPV is negative for every factor tested. In the right panel, where r is low (r = 0.02), the NPV is positive when the increase rate i is high (i = 0.05) whichever level of Carbon Tax implemented. When i is medium (i = 0.02) the break-even point of the project is reach with a $ 59 tax per metric ton of CO2e emitted ($0.059/kg CO2e) implemented.
The Figure 7 shows the impact of Carbon Tax on NPV under different Initial Prices of Energy (P0). The Figure 7 will have a fixed value established in Table 2 for Installation Cost, Length of Project (T), Maintenance Costt, Increase Rate (i), Daily Market Output and Decay Rate.For the left panel, there is a high cost of investment (r = 0.08) and for the right panel, a low cost of investment (r = 0.02). The two variables are the Initial Energy Price (P0) and the Price of Carbon Tax. For each panel, three scenarios for the Initial Energy Price and four for the Price of Carbon Tax are crossed. With P0 = $0.20 the Initial Energy Price is considered low. With P0 =
$0.40 the Initial Energy Price is considered intermediate. With P0 = $0.60 the Initial Energy Price is considered high.
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Figure 7: Impact of Initial Price of Energy and Carbon Tax
(r = 0.08) (r = 0.02)
From the Figure 7, a positive and linear relation between the Initial Energy Price and NPV is observed. A higher Initial Energy Price increases the savings on energy bills . A positive and linear relation between the Price of Carbon Tax and NPV is also observed. A lower price of carbon induces a lower amount of Carbon Tax Avoided, therefore lower cashflows.
Another observation from the Figure 7 is that the project requires favorable investments conditions with a low r for the NPV to be positive and be economically viable. In the left panel, where r is high (r = 0.08), the break-even point is reached only when the P0 is high (P0 = $0.60) and with a $ 97 tax per metric ton of CO2e emitted ($0.097/kg CO2e) implemented. In the right panel, where r is low (r = 0.02), the break-even point is reach when P0 is intermediate (P0 =
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$0.40) and with a $ 59 tax per metric ton of CO2e emitted ($0.059/kg CO2e) implemented.
The Figure 8 shows the impact of Carbon Tax on NPV under different Length of Project (T).
The Figure 8 will have a fixed value established in Table 2 for Installation Cost, Maintenance Cost, Initial Price of Energy (P0), Increase Rate (i), Daily Market Output and Decay Rate. For the left panel, there is a high cost of investment (r = 0.08) and for the right panel, a low cost of investment (r = 0.02). The two variables are the Length of project T and the Price of Carbon Tax.
For each panel, three scenarios for the Length of Project and four for the Price of Carbon Tax are crossed under constant output performance. With T = 5 the project has a life span of five years, after t = 5, the project does not generate cashflows anymore. With T = 10 the project has a life span of ten years, after t = 10, the project does not generate cashflows anymore. With T = 20 the project has a life span of twenty years, after t = 20, the project does not generate cashflows anymore.
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Figure 8: Impact of Length of Project and Carbon Tax
(r = 0.08) (r = 0.02)
From the Figure 8, a positive and linear relation between the variable Length of project and variable NPV is observed. A longer length of project increases the savings on energy bills. A positive relation and linear between the variable Price of Carbon Tax and variable NPV is also observed. A lower price of carbon induces a lower amount of Carbon Tax Avoided, therefore lower cashflows.
Another observation from Figure 8 is that the project requires favorable investments conditions with a low r and Length of project T of 20 years for the NPV to be positive and be economically viable. In the left panel, where r is high (r = 0.08), the NPV is negative for whichever factor tested. In the right panel, where r is low (r = 0.02), the break-even point is reached when T = 20 and with a $ 59 tax per metric ton of CO2e emitted ($0.059/kg CO2e) implemented.
$-10,000
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Moreover, the slopes of the trendlines in Figure 8 are different than the ones in Figure 6 and 7.
While the slopes of the trendlines in Figure 6 and 7 are the same for each factor tested, in Figure 8 the slopes are increasing with T. It can be said that the Price of Carbon Tax and Length of Project T have a positive interaction effect on NPV under constant output performance degradation. That is, the economic benefits of solar panels installation are more salient when Carton Tax and project duration are both high.
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Research showed that acting toward mitigating the global warming issue was compulsory or mankind will face unbearable financial, social and environmental costs. Solutions exists to reduce the greenhouse effect. Among them the Green Logistics practices such as implementing solar panels on a warehouse’s roof. The three factors tested in our NPV model, the increase rate of energy, the initial price of energy, and the time length of the project were all positively related to the NPV of the project. The Carbon Tax level, tested in function of the three other factors was also positively related toward the NPV. With that said, when the discount rate is high, NPV values of Solar Panels Installation are nearly all negative in tested scenario. Keeping the discount rate low would mean a low cost of investment. A special credit rate for loan to green projects could drive the discount rate down and favorize investments in solar panels installation on warehouse’s roof for example. It would be beneficial for both companies and the planet to help companies to invest in Green Logistics project.
Nevertheless, the model suffers from a few limitations. The data taken for the analysis were for small scale photovoltaic (PV) projects, like household and little business infrastructure. Data for bigger scale of projects would have been preferable but were not available or in a less precise way. Non-residential solar installations, because significantly bigger, benefit from an economy of scale compared to PV residential installations. Therefore, the economy of scale could not be included in our model while an installation on a warehouse or plant’s roof is considered a non-residential solar installation. Regarding the Daily Market Output, a link with the Installation Cost could have been establish to consider different sizes of project of solar