Presentation on theme: "1 World Energy Engineering Congress 2010 Carolyn Roos, Ph.D. Northwest Clean Energy Application Center Washington State University Extension Energy Program."— Presentation transcript:
1 World Energy Engineering Congress 2010 Carolyn Roos, Ph.D. Northwest Clean Energy Application Center Washington State University Extension Energy Program December 8, 2010 An Overview of
2 RELCOST Financial: Financial Analysis of Energy Projects Presentation Outline General overview Program use Overview of inputs Summary of results A review of input screens A quick look at each input screen to give you a sense 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 projects Create financial statements needed for support Quickly evaluate performance visually Test sensitivity of viability to unknown factors Developed by Washington State University Energy Extension Program Northwest 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 website Example analyses Users Manual PowerPoint presentations
5 Program Overview General purpose analysis tool Can be used for any project with income streams and expenses But intended for a variety of energy projects Power generation District energy Combined heat and power Alternative energy Wind, Solar, Biomass, Geothermal, etc. Anaerobic digestion with multiple revenue streams
6 Program Overview A MicroSoft Excel spreadsheet template… Template facilitates input From Rule-of-Thumb & preliminary input To detailed, project-specific factors Unprotected spreadsheet Create templates of common project types Any user familiar with Excel can customize All calculations visible Easy integration with other tools Excel used as output and input for many programs Extends reporting, analysis, & integration with the tools you use.
7 Program Use Policy analysis for most effective incentives Tax credits and exemptions Production incentives Bonus depreciation Grants and low interest loans Environmental credits Evaluate energy projects R Ranking, prioritization Bid evaluation Contract negotiation Funding needs Sales price, valuation
8 What It Does Not Do Does not include a database of incentives available Refer to DSIRE database Must be used with other tools for analyses of: Energy use System design and sizing Cost estimation Emissions calculation Plant simulation Power generation Renewable energy Requires input, such as system sizing, from other tools.
9 Sensitivity Factors Multipliers to test variation from most likely values: Investigate Cost overruns Sales price changes. Etc. Overview of Inputs Enter detailed input on a number of sheets Expected Values Enter most likely values for: Plant Operating Factors Capital Expenditures Funding Plan Purchased Fuels O&M Expenses Major Expenses Income, Sales Offsets, RECs, Prod Incentives Taxes, Fees Dividends Cost Escalation Cash Accounts Cost Allocation Input sheets will be discussed in more detail later…
10 Pro-Forma Statements Income Statement Cash Flow Statement Balance Sheet Use of Funds Life Cycle Cost Analysis Net Present Value Internal Rate of Return Benefit-Cost Ratio Financial Indicators Margins (e.g. Gross Margin) Ratios (e.g. Debt-Equity ratio) Levelized Costs Four Types of Results More Than Life Cycle Cost Analysis
11 Pro Formas Proforma financial statements that can be printed out for records, funding applications, tax purposes, etc. Income Statement Balance Sheet Use of Funds Cash Flow Stakeholders want to know your cash flow, earnings, expenses, etc. in every year of the project Lenders Equity investors Policy analysts Project developers
12 20 Year Analysis Period Results Example: Income statement has a column for each year Input Example: Carbon offsets in initial years of project is set to zero to account for M&V and registration. 20 columns, one for each year 20 columns to enable input in any project year
13 Visuals of Pro Forma Statements New graphs and charts easily added by user Example: Net profit before taxes over 20 year period Example: Income statement in a particular year
14 Financial Score Card Visual indicators of viability Red, yellow and green indicators Decision values defined by user
15 Sensitivity Analysis Sensitivity or What If Analysis What if I have a cost overrun? What if I dont get the sales price I expect? What if I dont get the grant Im expecting? How does that impact my internal rate of return? Sensitivity Factors and Results Shown Side-by-Side Identify which factors most impact the viability of your project Multiply inputs across many sheets all in one place for easy exploration of scenarios In 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 viability Created using sensitivity factors to obtain several scenarios Horizontal: Variation of a parameter from its expected value Vertical: Indicator of project viability (e.g. NPV or IRR) The steeper the slope, the less sensitive viability is to a variation in the parameter Focus investigation on parameters with low slopes
17 Automatic Spider Diagrams New version of RELCOST includes automatic creation of spider diagrams for easy investigation of scenarios Select performance measure and parameters Enter sensitivity factors to define scenarios Click the button to recalculate the spider diagram.
18 A Review of Input Sheets General Information Plant Operating Factors Capital Expenditures Funding Plan Purchased Fuels O&M Expenses Major expenses (overhauls) Income, Sales Taxes, Fees Dividends (shareholder) Cost escalation Cash accounts
19 First Input Sheet General Information Enter basic info on plant and financial assumptions Facility Description Discount and inflation rates Dispatch and availability factors RELCOST Tab of screen shot Inputs are blue. Calculated cells are green.
20 General Information Plant Operating Factor Dispatch factor How much of what can be generated occurs when there is demand for it? Availability factor How much of the time is the plant available to meet plant demands? Planned maintenance outages are also modeled here Other factors Optionally 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 project Declining resource depletion due to plant age.
21 Capital Expenditures Current dollars All inputs are entered in current dollars with escalated values calculated Plenty of space Three user-defined general categories, plus below the line expenses. Three user-defined general categories, plus below the line expenses. Expenditures can occur in any project year Sufficient for detailed cost estimate, but does not preclude simplified estimate Sufficient for detailed cost estimate, but does not preclude simplified estimate
22 Depreciation Recovery of the cost of an asset whose value declines over time Machinery, 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 Loans, grants, equity Multiple types can be used in same project period Up to 10 sources for each type Any project year Multiple investors, lenders Monthly calculation used for borrowed funds Short duration loans Construction financing or working capital. Example shows one loan, one equity investment and three grants.
24 Income from Sales Nine sales income types Can be user defined for specific project needs Example income streams Power sales Heat, cooling sales Co-products Tipping fees Savings due to efficiency improvements Direct use by-products, such as flowers from heated greenhouse Example illustrates multiple products possible at anaerobic digester projects
25 Purchased Fuels Can have multiple fuel types or sources in same year Separate inputs for each project year Energy units can be changed Applies operating factors to all project years Current dollars Input in current dollars Escalated values are calculated Example has low fuel usage in first year due to project start up
26 Operation & Maintenance Multiple user-defined expense categories For example Misc. Fixed & Variable Property taxes & insurance Labor & benefits Overhead Plant operating factor applied to variable but not fixed costs.
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 Offsets Renewable Energy Credits Production Incentives In example, carbon offsets are set to zero and ramp up in 3 rd 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 example Notes for this Biomass CHP example illustrates considerations.
30 Income Taxes and Fees Multi-jurisdictional: Federal, state, local Tax rates can vary by project year Tax incentives: Refundable tax credits Tax credit carry forward In this example, the state has a tax holiday for first year of project.
31 Cash Accounts Current Account and Operating Reserve Account Interest bearing Accounts receivable & payable floats Transfers between current and reserve accounts e.g. for major overhaul, bond payment, etc.
32 Dividends Annual cash distributions made to investors Dividend payout policies vary greatly User-defined logic can be created for specific projects.
33 Cost Escalation Option to add escalation factors to 3% general inflation Escalation factors can be selected for each item. Can be entered as relative to inflation In this example Option to add escalation factors and inflation is selected General inflation rate is 3% Electricity sales escalate at rate of 2% per year O&M under maintenance contract escalates at 12% every 5 years Electricity 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 escalated Conservative – lowest cost escalation Likely – most probable escalation Aggressive – highest cost escalation Forecast 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 costs In this example, allocation was calculated by efficiency method In this example, 56% of costs are associated with electricity sales and 44% with steam savings Resulting levelized costs shown on What If tab.
36 Users Manual Guide to financial analysis using RELCOST Background on financial concepts References for cost data and typical values Modeling tips Information on incentives … more
37 Download blank spreadsheet, examples, and Users Manual at Carolyn Roos, Ph.D. Northwest Clean Energy Application Center Washington State University Extension Energy Program Questions ?