SETTING TWO DISCOUNT FACTORS

In order to properly discount for the two technologies we are going to use two separate discount factors. For the home photovoltaic system we will assume the same discount rate we used for discounting energy coming from the national grid, 7%. Here again we assume an initial 5% discount, which measures the opportunity cost of investing in a risk free asset. How­ever, the additional 2% represent the uncertainty in the future price of raw materials such as silicon. For the Stirling engine technology we are going to use a 10% rate. The higher discount rate makes sense in this case due to the higher upfront capital costs and the fact that there is uncertainty due the scale of this endeavor because nothing of this sort has been yet implemented.

10.3 RESULTS AND DISCUSSION

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