Presentation on theme: "An Overview of World Energy Engineering Congress 2010"— Presentation transcript:
1 An Overview of World Energy Engineering Congress 2010 Carolyn Roos, Ph.D.Northwest Clean Energy Application CenterWashington State University Extension Energy ProgramDecember 8, 2010
2 RELCOST Financial: Financial Analysis of Energy Projects Presentation OutlineGeneral overviewProgram useOverview of inputsSummary of resultsA review of input screensA quick look at each input screen to give you asense of its look and feel and comprehensiveness.More content in this PPT than we can cover
3 Program Overview RELCOST for Financial Analysis of Energy Projects Evaluate financial viability of energy projectsCreate financial statements needed for supportQuickly evaluate performance visuallyTest sensitivity of viability to unknown factorsDeveloped byWashington State University Energy Extension ProgramNorthwest Clean Energy Regional Application Center
4 Find it On the Web Northwest Clean Energy Regional Application Center Click on “Software, Resources and Links”Direct link:Also, available on our websiteExample analysesUser’s ManualPowerPoint presentations
5 Program Overview General purpose analysis tool Can be used for any project with income streams and expensesBut intended for a variety of energy projectsPower generationDistrict energyCombined heat and powerAlternative energyWind, Solar, Biomass, Geothermal, etc.Anaerobic digestion with multiple revenue streams
6 Program Overview A MicroSoft Excel spreadsheet template… Template facilitates inputFrom Rule-of-Thumb & preliminary inputTo detailed, project-specific factorsUnprotected spreadsheetCreate templates of common project typesAny user familiar with Excel can customizeAll calculations visibleEasy integration with other toolsExcel used as output and input for many programsExtends reporting, analysis, & integration with the tools you use.
7 Program Use Evaluate energy projects Ranking, prioritizationBid evaluationContract negotiationFunding needsSales price, valuationPolicy analysis for most effective incentivesTax credits and exemptionsProduction incentivesBonus depreciationGrants and low interest loansEnvironmental credits
8 What It Does Not Do Must be used with other tools for analyses of: Energy useSystem design and sizingCost estimationEmissions calculationPlant simulationPower generationRenewable energy Requires input, such as system sizing, from other tools.Does not include a database of incentives availableRefer to DSIRE database
9 Overview of Inputs Enter detailed input on a number of sheets Expected ValuesEnter most likely values for:Plant Operating FactorsCapital ExpendituresFunding PlanPurchased FuelsO&M ExpensesMajor ExpensesIncome, SalesOffsets, RECs, Prod IncentivesTaxes, FeesDividendsCost EscalationCash AccountsCost AllocationSensitivity FactorsMultipliers to test variation from most likely values:InvestigateCost overrunsSales price changesEtc.Input sheets will be discussed in more detail later…
10 Four Types of Results More Than Life Cycle Cost Analysis Pro-Forma StatementsIncome StatementCash Flow StatementBalance SheetUse of FundsLife Cycle Cost AnalysisNet Present ValueInternal Rate of ReturnBenefit-Cost RatioFinancial IndicatorsMargins (e.g. Gross Margin)Ratios (e.g. Debt-Equity ratio)Levelized Costs
11 Pro FormasProforma financial statements that can be printed out for records, funding applications, tax purposes, etc.Income StatementBalance SheetUse of FundsCash FlowStakeholders want to know your cash flow, earnings, expenses, etc. in every year of the projectLendersEquity investorsPolicy analystsProject developers
12 20 Year Analysis PeriodResults Example: Income statement has a column for each year20 columns, one for each yearInput Example: Carbon offsets in initial years of project is set to zero to account for M&V and registration.20 columns to enable input in any project year
13 Visuals of Pro Forma Statements Example: Net profit before taxes over 20 year periodExample: Income statement in a particular yearNew graphs and charts easily added by user
14 ”Financial Score Card” Visual indicators of viabilityRed, yellow and green indicatorsDecision values defined by user
15 Sensitivity Analysis Sensitivity or “What If” Analysis What if I have a cost overrun?What if I don’t get the sales price I expect?What if I don’t get the grant I’m expecting? How does that impact my internal rate of return?Sensitivity Factors and Results Shown Side-by-SideIdentify which factors most impact the viability of your projectMultiply inputs across many sheets all in one place for easy exploration of scenariosIn example, electricity sales price is 90% of what is expected, multiplied through all input sheets
16 Sensitivity Analysis Spider Diagrams Used to identify parameters that most affect viabilityCreated using sensitivity factors to obtain several scenariosHorizontal: Variation of a parameter from its expected valueVertical: Indicator of project viability (e.g. NPV or IRR)The steeper the slope, the less sensitive viability is to a variation in the parameterFocus investigation on parameters with low slopes
17 Automatic Spider Diagrams New version of RELCOST includes automatic creation of spider diagrams for easy investigation of scenariosSelect performance measure and parametersEnter sensitivity factors to define scenariosClick the button to recalculate the spider diagram.
18 A Review of Input Sheets General InformationPlant Operating FactorsCapital ExpendituresFunding PlanPurchased FuelsO&M ExpensesMajor expenses (overhauls)Income, SalesTaxes, FeesDividends (shareholder)Cost escalationCash accounts
19 First Input Sheet General Information RELCOST Tabof screen shotEnter basic info on plant and financial assumptionsFacility DescriptionDiscount and inflation ratesDispatch and availability factorsInputs are blue.Calculated cells are green.
20 Plant Operating Factor General InformationPlant Operating FactorDispatch factorHow much of what can be generated occurs when there is demand for it?Availability factorHow much of the time is the plant available to meet plant demands?Planned maintenance outages are also modeled hereOther factorsOptionally can use other factors, such as resource depletion and parasitic plant losses, to calculate dispatch and availability factors.Example:Low plant operating factor in first year to model start up of projectDeclining resource depletion due to plant age.
21 Capital Expenditures Plenty of space Current dollars Three user-defined general categories, plus “below the line” expenses.Expenditures can occur in any project yearSufficient for detailed cost estimate, but does not preclude simplified estimateCurrent dollarsAll inputs are entered in current dollars with escalated values calculated
22 Depreciation “Recovery” of the cost of an asset whose value declines over timeMachinery, equipment, structures, etc.Three classes of capital expenditures that can be accelerated at different rates.IRS MACRS depreciation schedule library on drop-down menus
23 Funding Plan Three funding source types Up to 10 sources for each type Loans, grants, equityMultiple types can be used in same project periodUp to 10 sources for each typeAny project yearMultiple investors, lendersMonthly calculation used for borrowed fundsShort duration loansConstruction financing or working capital.Example shows one loan, one equity investment and three grants.
24 Income from Sales Nine sales income types Example income streams Can be user defined for specific project needsExample income streamsPower salesHeat, cooling salesCo-productsTipping feesSavings due to efficiency improvementsDirect use by-products, such as flowers from heated greenhouseExample illustrates multiple products possible at anaerobic digester projects
25 Purchased Fuels Can have multiple fuel types or sources in same year Applies operating factors to all project yearsCan have multiple fuel types or sources in same yearSeparate inputs for each project yearEnergy units can be changedCurrent dollarsInput in current dollarsEscalated values are calculatedExample has low fuel usage in first year due to project start up
26 Operation & Maintenance Plant operating factor applied to variable but not fixed costs.Multiple user-defined expense categoriesFor exampleMisc. Fixed & VariableProperty taxes & insuranceLabor & benefitsOverhead
27 Major Expenses Repeating or one-time major expenses In example, a major maintenance expense of $30,000 occurs every 3 years beginning in year 5
28 Environmental Credits Incentives proportional to production:Carbon OffsetsRenewable Energy CreditsProduction IncentivesIn example, carbon offsets are set to zero and ramp up in 3rd year to account for time required for registration and M&V.In example, sensitivity factor for production incentive was set to zero because project took the ITC and so was not eligible.
29 Incentives Where to account for incentives Grants and low interest loans are entered on “Funding Plan”Incentives proportional to production such as production incentives, carbon offsets and RECs can be entered on “Offsets, RECs” or on “Sales, Income”Tax exemptions, credits and holidays are entered on “Taxes & Fees”Bonus depreciation entered on “Depreciation” As indicated in the notes for this exampleNotes for this Biomass CHP example illustrates considerations.
30 Income Taxes and Fees Multi-jurisdictional: Tax incentives: Federal, state, localTax rates can vary by project yearTax incentives:Refundable tax creditsTax credit carry forwardIn this example, the state has a tax holiday for first year of project.
31 Cash Accounts Current Account and Operating Reserve Account Interest bearingAccounts receivable & payable floatsTransfers between current and reserve accountse.g. for major overhaul, bond payment, etc.
32 Dividends Annual cash distributions made to investors Dividend payout policies vary greatlyUser-defined logic can be created for specific projects.
33 Cost Escalation Escalation factors can be selected for each item. Can be entered as relative to inflationIn this exampleOption to add escalation factors and inflation is selectedGeneral inflation rate is 3%Electricity sales escalate at rate of 2% per yearO&M under maintenance contract escalates at 12% every 5 yearsOption to add escalation factors to 3% general inflationElectricity sales escalated at rate of 2% per year-- 3% inflation minus 1%In this example, the facility has an O&M contract that specifies a 12% increase every 5 years.-- 9% plus 3% inflation
34 Escalation Forecasts Four escalation forecast types can be entered None – costs are not escalatedConservative – lowest cost escalationLikely – most probable escalationAggressive – highest cost escalationForecast is selected on “What If”drop down menu“Likely” forecast selected in this example.
35 Cost Allocation Allocation of costs of sales Used in calculating levelized costsIn this example, 56% of costs are associated with electricity sales and 44% with steam savingsResulting levelized costs shown on “What If” tab.In this example, allocation was calculated by “efficiency method”
36 User’s Manual Guide to financial analysis using RELCOST Background on financial conceptsReferences for cost data and typical valuesModeling tipsInformation on incentives… more
37 Questions ? Carolyn Roos, Ph.D. Northwest Clean Energy Application CenterWashington State University Extension Energy ProgramDownload blank spreadsheet, examples, and User’s Manual at