Effect of financial and technical uncertainty on distribution network reconstruction project selection

Distribution companies are pressurized into investing in many projects for ensuring customer satisfaction and increasing their profitability. There are a lot of feasible projects that may help companies to improve their services, but resources for accomplishing them are limited. Therefore, financial subjects are crucially important for related decision making and budget allocation is a bone of contention between different departments of companies. Project net present value (NPV), which depends on investment, expected annual profit, interest rate and inflation rate, is realistic criterion of project economic value. Interest rate and inflation rate are not predefined coefficients. Consequently, there is a great deal of uncertainty about NPV. In addition, the projects related to the new technologies or components are not promising. This paper is focused on the effect of uncertainty, especially future energy price and successfulness of project, on projects NPV. Our case studies substantiate the claim that a great many of attractive projects will not be profitable unless the energy price considerably increases over time, especially in developing countries with high interest rate.