Financing problems of photovoltaic panels in cameroon

4.2 Recovery Hypothesis

In our first hypothesis we proceed to calculate the weighted average cost of capital which is the average annual rate of return expected by shareholders and creditors, in return for their investment. In general, the WACC is used to measure what the company owes to all those who contributed capital. In our case we are considering a financing structure composed of:

· MVe: 60% of foreign funds (1.2 billion FCFA)

· MVd: 40% of equity (0.787 Billion FCFA)

· T: 30% tax rate normative

· Rd: 12% of the cost of equity

· Re: 15% of the cost of foreign funds

· 3.2% inflation¹²

_0,6 + _{0,4 0,6} + _0,4

We will consider that WACC takes into account a risk premium for equities as well as risk premium countries of the CEMAC zone and will not take into account the maintenance investments. Considering these data the WACC¹³ is calculated as:

Numerical application

WACC

WACC = 12.36%

12 www.investiraucameroun.com

13 http://en.wikipedia.org/wiki/Weighted_average_cost_of_capital

4.3 Result

The results obtained on the basis of our hypotheses according to the average price of electricity sold in the CEMAC zone (77.7 FCFA / KWh) yields a rate of return of 10.95%, a net present value (NPV) of negative - 66MFCFA. The IRR (Internal rate of return) is less than the WACC (12.34%), which represents the minimum rate of return an investor would expect from this type of project.

Figure 8 shows how we obtain the results of IRR and NPV.

At first glance, this project is not possible because it does not bring enough capital invested. Therefore the amount of FCFA 77.7 does not approve of sufficient profitability compared to the level of profitability that we expect from this type of project.

14 WWW.OECD.ORG

5 Conclusion of the model

Following the previous results on sales prices and cost constraints, under these conditions a solar project could not be realized. We are not surprised because we said earlier that production of solar electricity is relatively expensive in Cameroon. According to the solar projects realized in countries like Switzerland or France we can say they have the mechanisms necessary to established positive result for this type of project.

Although the radiation level is high in Cameroon that does not change the deficit that we encounter in our calculations, this is due to the results obtained at the WACC (12.35%). Recently, solar system projects have been launched in France, Switzerland and other European countries despite the fact that they do not possess many natural advantages as Africa. At first, a project equivalent would have been born with a WACC between 11 to 14% in Europe; the surplus efficiency characterized by a minimum number of hours is 500 hours which gives a better Internal rate of return (IRR). In general, this explained by the fact that Cameroon is rated at level 7 according to the country risk classification by the OECD (Organization for Economic Cooperation and Development)¹⁴, while the introduction of a risk premium changes the WACC. As a result, foreign investment clients consider that the risks of investment in Cameroon still remain very elevated.