Economic sustainability of renewable energy integration: A comparative cost-benefit analysis using EIRR, NPV, and LCOE across small islands and urban systems

Abstract

This study evaluates the economic sustainability of renewable energy (RE) integration through a comparative cost-benefit analysis (CBA) using three metrics: the economic internal rate of return (EIRR), net present value (NPV), and levelized cost of energy (LCOE). Focusing on Mauritius as a representative Small Island Developing State (SIDS), the analysis contrasts its RE economics with urban grid systems to assess scale, financing, and policy implications. The paper aims to address how different geographies affect the economic feasibility of RE deployment, a gap often overlooked in conventional financial models. Drawing on secondary data from project reports, policy papers, and utility tariffs, the study applies scenario-based sensitivity testing to compare hybrid solar-wind projects with diesel-backed grids. The results indicate that while small island systems face higher LCOEs and delayed breakeven points, they exhibit competitive EIRRs when factoring in avoided import costs and long-term sustainability gains. The paper concludes that SIDS require tailored economic appraisal models that incorporate externalities, financing constraints, and institutional risks. Policy implications include the adoption of blended finance, viability gap funding, and performance-based procurement to improve RE bankability across constrained grid environments.

Keywords: Renewable Energy Economics, Cost-Benefit Analysis (CBA), Small Island Developing States (SIDS), Levelized Cost of Energy (LCOE), Hybrid Energy Systems

Authors’ individual contribution: Conceptualization — M.M., S.V. and R.T.; Methodology — M.M., S.V., and R.T.; Formal Analysis — M.M.; Investigation — R.T.; Resources — S.V.; Data Curation — R.T.; Writing — Original Draft — R.T.; Writing — Review & Editing — M.M. and S.V.; Visualization — M.M.; Project Administration — R.T.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: O13, Q42, Q51

Received: 02.01.2025
Revised: 19.05.2025; 06.10.2025
Accepted: 13.10.2025
Published online: 14.10.2025

How to cite this paper: Mungra, M., Vishwakarma, S., & Tyagi, R. (2025). Economic sustainability of renewable energy integration: A comparative cost-benefit analysis using EIRR, NPV, and LCOE across small islands and urban systems. Responsible Business Review, 1(1), 23–30. https://doi.org/10.22495/rbrv1i1p3