Obviously, the NPV under this third scenario indicates that the wind
project is much more attractive than in the second scenario and it
has enjoys a larger margin of safety.
The impact of varying the discount rate from 8% (Scenario two)
to 5% (Scenario three) on the project’s NPV is illustrated in Fig. 5.
As shown in Fig. 5, when the electrcity price charged by the
utility witnessed a 5% annual increase, the IRR of the wind project
standed at approximately 8.5%. Worth to be mentionned that the
increase in the price of electricity (generated from conventional
source, i.e. fossil fuel) is usually higher than the increase witnessed
in the rate of inflation (Hau [39]: 764). Accordingly the annual
increase in the price of electricity can be higher then the assumed
rate of 5% if the inflation rate in Egypt exceeded 5% which was in
fact the case in the last 7 years since 2003 [40]. And with a higher
annual rate of price increase the wind project can witness a higher
NPV then the one realized and shown in Fig. 5.
Besides the positive effect a higher rate of price increase will
have on the project’s NPV there is also the effect of the new Electricity
Law. In fact this law imposes higher electricity tariff on all
industrial customers by gradually removing the subsidies on electricity
starting in the first phase with the large industrial customers
(over the period 2011–2014) and then followed by medium sized
industries in the second phase (from 2014 to 2017) and by 2020
all customers categories should be subject to unsubsidized prices
[41]. Accordingly under unsubsidized electricity price, the investment
in the wind project will prove to be even more financially
sound then Scenario two and three as any assumed annual rate of
increase should take effect in the future on higher prices than the
price used in this financial analysis (33.4 piaster/kWh) which is a
subsidized price.