CALC-059

Discount rate, the lever the source report never varies

Calculation · Cited by CLM-0249 , CLM-0259

What this is

This is the project's own arithmetic, published in full so it can be checked rather than taken on trust. It is not a source. Every input it uses is cited to a record, and the conclusion it reaches only carries as far as those inputs do.

Feeds CLM-0249. Answers QST-004. Basis: FY2022 USD, nominal; RD1 and RD2; all other inputs at baseline.

Script. lcoe-model.py SECTION 10, section_discount_rate_table(), line 933. The script's own section comment records why it exists as its own section: the rate moves LCOE a lot and the source report does not test it.

Why it was needed. SRC-012 justifies its 3 per cent rate in one sentence (p.56) as a Government-financing assumption and does not revisit it anywhere in its sensitivity analysis (Tables 25-26). A parameter that is asserted once and never varied is exactly the kind that should be varied.

Inputs.

Quantity	Value	Source	Stated or assumed
Baseline discount rate	3 per cent	SRC-012 p.56	STATED
0 per cent	undiscounted bound	-	a bound, not a scenario
7 per cent	regulated-utility-scale WACC	-	ASSUMED / illustrative, not sourced to a named benchmark
10 per cent	higher-risk first-of-kind infrastructure WACC	-	ASSUMED / illustrative, not sourced to a named benchmark

Working, transcribed.

discount rate     RD1 $/kWh     RD2 $/kWh
     0%             0.519         0.821
     3%             0.623         1.015     [baseline]
     7%               -             -
    10%             1.056         2.016

Swing across 0-10%:  RD1 0.519 -> 1.056   RD2 0.821 -> 2.016

Result. Varying discount rate alone moves RD1 by 0.537 $/kWh and RD2 by 1.195 $/kWh - a swing comparable to or larger than most of the individual manufacturing and efficiency levers the source report does test.

Conclusion. 3 per cent, with no equity return, is a legitimate policy scenario. It is not the only one worth reporting, and the source reports only that one.

Where this fails. This does not establish what the correct discount rate for an SBSP programme should be. Two of the four rates in the table are illustrative rather than benchmarked, and they are the two that produce the largest figures. The 7 per cent and 10 per cent rows should carry a named benchmark before they are quoted outside the corpus.

Cite this

energyaperture.com/calc/calc-059

CALC-059. The working above, not a source document.