Project Investment - Payback Period and Return on Investment:
You have learnt how to estimate the project investment need for the scheme selected. Here we consider the concerns of the appraising authority, i.e., financing institutions. You must appreciate that for Global Utilities, approaching the financing institutions for funding the power distribution networks is a new phenomenon. So far several networks were maintained or expanded based on customer demand. Thus it is necessary to begin with the simplest way of convincing the financing institutions though there are many proven appraisal methods to ascertain worthiness of the project for funding.
We choose an appropriate techno-economic parameter to apply, i.e., payback period (PBP) as the one for this purpose. There are several other measures of assessing techno-economic viability of any project ranging from the humble payback period to sophisticated discounted cash flow (DCF) technique based parameters such as net present value (NPV) and internal rate of return (IRR), etc. We provide below the purpose for choosing the payback period as the parameter for DPR preparation in the power distribution sector.