1. An Overview of World Energy Engineering Congress 2010
Carolyn Roos, Ph.D.
Northwest Clean Energy Application Center
Washington State University Extension Energy Program
December 8, 2010

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
User’s 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 Evaluate energy projects
Ranking, prioritization
Bid evaluation
Contract negotiation
Funding needs
Sales price, valuation
Policy analysis for most effective incentives
Tax credits and exemptions
Production incentives
Bonus depreciation
Grants and low interest loans
Environmental credits

8. What It Does Not Do 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.
Does not include a database of incentives available
Refer to DSIRE database

9. 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
Sensitivity Factors
Multipliers to test variation from most likely values:
Investigate
Cost overruns
Sales price changes
Etc.
Input sheets will be discussed in more detail later…

10. Four Types of Results More Than Life Cycle Cost Analysis
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

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
20 columns, one 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 to enable input in any project year

13. Visuals of Pro Forma Statements
Example: Net profit before taxes over 20 year period
Example: Income statement in a particular year
New graphs and charts easily added by user

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 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-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
RELCOST Tab
of screen shot
Enter basic info on plant and financial assumptions
Facility Description
Discount and inflation rates
Dispatch and availability factors
Inputs are blue.
Calculated cells are green.

20. Plant Operating Factor
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 Plenty of space Current dollars
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
Current dollars
All inputs are entered in current dollars with escalated values calculated

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 Up to 10 sources for each type
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 Example income streams
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
Applies operating factors to all project years
Can have multiple fuel types or sources in same year
Separate inputs for each project year
Energy units can be changed
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
Plant operating factor applied to variable but not fixed costs.
Multiple user-defined expense categories
For example
Misc. Fixed & Variable
Property taxes & insurance
Labor & benefits
Overhead

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 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 example
Notes for this Biomass CHP example illustrates considerations.

30. Income Taxes and Fees Multi-jurisdictional: Tax incentives:
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 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
Option to add escalation factors to 3% general inflation
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, 56% of costs are associated with electricity sales and 44% with steam savings
Resulting 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 concepts
References for cost data and typical values
Modeling tips
Information on incentives
… more

37. Questions ? Carolyn Roos, Ph.D.
Northwest Clean Energy Application Center
Washington State University Extension Energy Program
Download blank spreadsheet, examples, and User’s Manual at