Renewable Energy Diffusion In Ghana: Investment Decision Making Strategies Under Uncertainty

Abstract

Climate change and energy sustainability concerns have spurred renewed interest in the transitioning from fossil fuels to cleaner sources of energy generation, of which renewable energy generation plays an important role. However, the conversation surrounding renewable energy integration goes beyond environmental considerations to include other factors, such as ensuring profitability and increased investment. Renewable energy integration requires substantial buy-in from governments, investors, and businesses, particularly Small and Medium Scale Enterprises. However, securing the buy-in from these stakeholders, especially investors and businesses, requires that a business case be made for them in an environment riddled with uncertainties. Also, creating value within the uncertain environment requires investment decisions regarding the context-specific issues that could aid or offset profitability and the potential for renewable energy integration. This thesis seeks to provide decision-making strategies for large-scale and small-scale renewable energy investments in uncertain environments. Three independent studies are carried out with specific objectives that seek to achieve the overall aim of the study. The first study analyses the value of delaying utility-scale renewable energy investments. The second study analyses the costsaving potential for SMEs to switch to renewable energy technologies. Lastly, the third study presents a cost minimisation model for renewable energy investments while providing approaches towards financing same. Using real options models and linear programming models, the study outlines several findings that have implications for research, policy and investment decisions. The studies have varying implications for businesses in providing investment strategies for utility-scale and small-scale renewable energy investment. It also contributes largely to the pool of literature on renewable energy and investments using rigorous methodological approaches that consider inherent uncertainties in the business environment. First, there is value in delaying utility-scale renewable energy investments until the uncertainties are relaxed. However, delaying investments have opportunity costs and must be matched with the gains in delays to create an optimal investment timing point that maximises the option value for investors. Other factors that affect the option value for renewable energy investments include the volatility resulting from the upside potential of the investments. Also, governments are required to create an environment that increases the demand for renewable energy technologies. Second, SMEs obtain significant value when they replace, either wholly or partially, conventional energy supply sources with renewable energy technologies. This replacement allows for renewable energy technologies to be counted as part of the primary energy sources for the SME. However, SMEs do not obtain significant investment value when renewable energy technologies are used only for backup energy supply. SMEs are also required to consider the capacity factor of renewable energy technologies, tariffs for conventional power supply, system reliability of conventional systems and the investment costs for renewable energy generation as essential factors for renewable energy investments. Third, SMEs can finance their capacity expansion and renewable energy integration plans through debt financing amortised using savings they obtain when they use renewable energy technologies. However, considering the investment options, the study results show that in situations where savings from conventional tariffs are not enough to meet required loan repayments, delayed investments could yield substantial value for SMEs. The results further show that investment pooling can prove helpful to SMEs as unionised groups can drive trust from financial institutions. This approach is beneficial for SMEs that work within an industrial enclave.