The Hindu Business Line : Sun shines and wind blows but where's the auditor?

HERE is something they don't normally teach accountants: Financial Evaluation of Renewable Energy Technologies. Which is why it would make sense to hear what two IIT profs, T. C. Kandpal and H. P. Garg have to say in their book, published by Macmillan (www.macmillanindia.com) and sponsored by UNESCO.

"Increasing prices of fossil fuels and associated environmental hazards of their excessive production and utilisation have made renewable energy technologies very attractive," notes the preface.

We now stand at a point of time when after decades of research into the technology of renewable energy, attention is getting focussed on the economics. "Economic or financial efficiency may be quite different from engineering efficiency," state the authors.

So, in a chapter on basic formulae of financial management, the book poses problems such as: "It is estimated that about 120 million households in the country can benefit from the use of improved biomass cookstoves. What is the required growth rate to achieve the potential in the next 20 years if the number of improved biomass cookstoves disseminated so far is 30 million?" Or, try this: "Use of a 100 litre per day domestic solar water heating system is expected to save 1,500 units of electricity every year of its useful life of 20 years. If the current price of electricity is Rs 2 per kWh and is likely to increase 20 per cent every year, what is the present monetary worth of the life cycle fuel savings of the solar water heating system? Assume a discount rate of 12 per cent."

If you are bored by the usual grind of investment appraisal problems, here is a poser: "An investment of Rs 50 lakh on a large solar swimming pool heating system in a cold climate promises to earn an annual return of Rs 6 lakh in terms of fuel savings.

The prospective life of the solar water heating system is uncertain. How many years would the returns need to continue for the investment to be attractive, assuming a discount rate of 10 per cent?"

Compared to traditional energy sources, the eco-friendly technologies score by reducing CO{-2} emission. Oh, that is carbon dioxide, you'd say. But, did you know that the total amount of CO{-2} emissions from any energy system is determined by social, economic, technological and energy/ environment policy related factors? So, the equation is: CO{-2} = (POP) (GDP/POP) (GPER/GDP) (FPEC/GPER) (CO{-2}/FPEC).

That must be quite daunting, so some help: POP is population; GDP is gross domestic product; GPER is gross primary energy requirement; FPEC is fossil primary energy consumption.

The authors draw attention to "one of the important yardsticks in the selection of CO{-2} mitigation measures" — the cost per unit of greenhouse gases removed.

"However, very little attempt has been made so far, to aggregate the combined effects of all the fossil fuel substitution and to device a global marginal cost function of the possible measures to reduce greenhouse gas emissions."

Among the many case studies in the book is one on paddy parboiling, where financial analysis includes the computation of unit cost of useful thermal energy (UCTE) as unit cost of fuel (UC) upon calorific value (CV) times overall efficiency of energy conversion/utilisation. Another case is on photovoltaic (PV) power generation. Among the factors that influence the unit cost of PV are: "Capacity Utilisation Factor (CUF) of the PV system that is defined as the ratio of annual kWh generated by the PV system to the kWh that would be generated if the output was constant at its peak value." And the cost per peak watt, C{-p}{-w}, of the PV system basically depends on the per peak watt costs of the PV module and the balance of system.

When fossil fuels are gone, accountants would have no choice but to set their sights on cost of watts and emission equations.

BooksOfAccount@thehindu.co.in