Empirical analysis of the viability of solar

Abstract

This study evaluates the viability of investment in solar photovoltaic projects. The Autoregressive Moving Average (ARMA) technique was used to model the monthly solar radiation levels within Nairobi for the period between 1985 and 2013 whereas the net present value (NPV) and internal rate of return (IRR) methods were used to evaluate project viability. The solar radiation levels were obtained from the Kenya Meteorological Department and project specific information was obtained from the Strathmore Energy Research Centre. The behaviour of solar radiation levels in Nairobi was found to be ARMA (6, 2) and was high enough to generate sufficient electricity for large-scale use. Further, the forecast power ofARMA (6, 2) model was found to be high given the back testing procedures carried out. The project was found viable for cost of capital within a range of 4% - 6% and energy costs above USD 0.20. It was also noted that project viability is highly dependent on each project's specific details and that several other factors needed to be considered alongside the solar radiation levels before deeming a solar PV project economically viable.