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Transcript of 9.1 COURSE ON OF GEOTHERMAL ECONOMIC EVALUATION & MODELING, Gordon Bloomquist, Jeff Ponsness,...
Proceedings from World Bank’s GeoFund – IGA International Geothermal Workshop February 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009 Download Workshop Proceedings at:
http://iga.igg.cnr.it/ http://www.partnership-international.com/
9. GEOTHERMAL ECONOMIC EVALUATION & MODELING
9.1 Gordon Bloomquist, Jeff Ponsness, EnSight and WSU
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GeoFundIGA -- Geothermal Workshop
Turkey 2009
February 15-20, 2009
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Day 3Introduction
toFinancial Modeling Considerations
by
Dr. Gordon Bloomquist, IGA
Mr. Jeff Ponsness, EnSight and WSU
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Financial Modeling
Development of a geothermal project
Financial modeling is used throughout the developmentphase by multiple stakeholders to support individualinterests and needs that can greatly vary acrossstakeholder groups.
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Multiple Stakeholders…
Financial Institution
Developer
Investor
UtilityConsumers
Operator
Suppliers
Government
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Multiple interests, needs…
Debt repayment?
Technology choice?Resource depletion?
Energy sales price?
Return on equity?
Power PurchaseAgreement terms?
Operating costs?
Equipment costs?
Risks?
Viability?
Policy,sustainability?
Cash flow?
Financing terms?
Grants?
Incentives,credits?
Availability,Dispatch ability?
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Model Stakeholders Concerns
• Lenders will want to make corporate financialprojections to see how the project will perform in theshort, medium and long term
Can the project’s loans be repaid?
• Equity investors will want corporate financial projectionsto see if they will make enough return (profit) to justifyinvesting
NPV, investor IRR, dividend stream
• Governments and policy analysts may want to see thatthe project is selling energy at a “fair” price
Levelized Selling Price
• Developers will want to prioritize projects andtechnology alternatives
NPV, BCR
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Flexible modeling tools needed
• Flexible project-specific inputs Extensible for project-specific modeling requirements Multiple income and cost streams Funding mix – debt, equity, grants Cost escalation, incentives, taxation, credits, franchise fees, royalties
• Flexible outputs Cash flows over plant life Financial indicators, performance metrics Extensible user-managed reporting
• Flexible analysis and evaluation Risk evaluation Sensitivity analysis, “what if” scenarios
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Common Financial Evaluation Tools• Pro forma financials
Cash flow statement Income Statement Balance Sheet Use of Funds
• Financial Indicators Payback, Net Present Value, Benefit Cost Ratio Levelized Cost
• Probability and Leverage Ratios Gross Margin, Operating Margin Debt to equity, equity, debt
• Liquidity Measures Current Ratio, Acid Test Ratio
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Discount Rate (time value of money)
• Interest rate used in determining the presentvalue of future cash flows
Addresses the time value of money
Allows for meaningful comparisons across years
Next year’s $$ is worth less than today’s $$
Used in NPV, BCR, Levelized Cost, others
• Weighted Average Cost Of Capital (WACC) Includes both equity and debt funding sources
Funding plans vary by project… so do WACC’s
Taxable entities use tax-adjusted debt interest rates
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Pro Forma Statements
• Income Statement, Cash FlowStatement, Balance Sheet, Use of Funds
Provides insight into how project generatesincome,
ability to repay debt, cash flow, and cash available to provide equity investors a
return.
•Pro Forma statements commonly usedby investors for valuation, riskevaluation, and investment purposes.
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Income Statement
• Sales, Income total for ALL income sources Direct income = power sales, heat/cool sales Other income = co-production (brine mineral extraction), environmental
credits, incentives, income from direct use (agriculture, greenhouse)
• Retained earnings available for project use Growth, expansion, unplanned expenditures
EBITDA =EarningsBefore Interest,Taxes,Depreciation,Amortization
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Use of Funds
• Provides asummary ofhow sources offunds are used.
• Sources = Uses
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Cash Flow Statement
• Shows howmuch cash theproject isgenerating
• Negativecash balances
project isunder funded,
has too littleincome, or
expenses aretoo high
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Balance Sheet
• Assets = Liabilities + Shareholder Funds + Grants
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Levelized Cost
• Often used by energy policy analysts and projectevaluators to develop first-order assessments of a project’sattractiveness.
• Compare costs of alternate technologies – electric powergenerated by geothermal, natural gas, wind, etc. Project benchmark for competitive analysis
Discount rate and time period must be same forcomparisons
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Levelized Cost
Levelized cost is the annualized Total Cost ofinvestment, fuel, operations, and indirect income(incentives, credits, etc) divided by annual quantity ofenergy produced.
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Levelized Electric Price in US
“Levelized Cost of Energy” by LazardNational Association of Regulatory Utility Commissioners (NARUC)Summer Committee Meetings 2008
Geothermal
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Net Present Value (NPV)Benefit Cost Ratio (BCR)• Often used to rank projects or project alternatives
Technology choice – flash steam or binary geo plant?
Prioritize multiple projects for funding approval
Includes financing, income, operating costs + uses discount rate
• NPV = Present value (PV) of cash inflows - PV of cashoutflows.
NPV always calculated over a specific time period – plant life is common.
Only projects with positive NPVs should be considered
•BCR = PV of accumulated benefits / PV of accumulated costs Only projects with BCR > 1.0 should be considered
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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BCR, NPV and Payback
NPV, BCR and Payback
$(60,000)
$(50,000)
$(40,000)
$(30,000)
$(20,000)
$(10,000)
$-
$10,000
$20,000
$30,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Net
Pre
sen
t V
alu
e (
$1,0
00)
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
Ben
efi
t C
ost
Rati
o
NPV (1,000s) BCR
Payback occurs when BCR = 1.0and NPV = 0
• Larger BCRs and NPVs desirable
• Lower paybacks desirable
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NPV and IRR
•Net Present Value (NPV) Discount rate used to calculate PV. NPV = PV of benefits – PV of costs The NPV method is a valuable indicator because it recognizes the
time value of money. Projects whose returns show positive NPVsare attractive.
• Internal Rate of Return (IRR) Internal rate of return (IRR) is defined as the discount rate at
which the after-tax NPV is zero. The calculated IRR is examined to determine if it exceeds a
minimally acceptable return, often called the hurdle rate. The advantage of IRR is that, unlike NPV, its percentage results
allow projects of vastly different sizes to be easily compared.
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Which evaluation method should be used?
• Depends on the analysis goals Comparing alternatives or projects? NPV, BCR, IRR,
Levelized Selling Price Ability to repay debt? Leverage Ratios, Income Statement,
Cash Flow Statement RFP or business case support? Pro Forma Statements
• Multiple methods almost always used Provides different perspectives on risk assessment
• Other more complex methods also used Monte-Carlo simulations for multi-variant risk assessment
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Model Input Detail Vs Accuracy
• Early model inputs can be high-level, not detailed Feasibility, screening of alternatives Break-even sales pricing Estimating factors based on industry standards or past project
experience ($/KW system costs), localized for project conditions Reusable financial model templates can save time
• Model inputs to support contract or funding decisionsshould be project-specific and more detailed
Specific funding plan based on negotiated arrangements withfinancial institutions and investors
Sales price according to negotiated Power Sales Agreement Line item details for costs, income, expenses based upon specific
technologies, site-specific conditions Requires substantially more input time
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Sensitivity Analysis
• No project goes exactly according to plan!
• Once the base model is established, use sensitivityanalysis to assess impact of variation in selectedparameters
interest rates, capital cost, funding plan, energy tariff
re-run the model as many times as necessary, altering oneparameter at a time
• It’s important to identify the parameter that is to beused as the measure of change
IRR, Levelized Selling Price, etc.
For investors, the IRR is probably most useful.
• A “spider diagram” is a useful way to present the results
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Sensitivity – Spider Diagram
% C
han
ge
inT
hro
ug
h L
ife
NP
V
-30%
-20%
-10%
0%
10%
20%
30%
-10% -5% 0 5% 10%
Capital Cost
Availability
Geothermal resource capacity
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Questions ?
26
Day 3Presentation of RELCOST Software
by
Dr. Gordon Bloomquist, IGA
Mr. Jeff Ponsness, EnSight and WSU
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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RELCOST Program
• Owned by Washington State University (Washington, USA)
• Developed by EnSight, a consultancy (Oregon, USA)
• Program distribution rights to IGA members from WSU (add website address here)
• Evolutionary application over past 15+ years Original stand alone model (mid-1980s)
Embedded logic within WSU’s HeatMap program (mid-1990s)
Recently released; stand alone model using Microsoft ExcelSpreadsheet template (includes multiple enhancements)
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Program Overview
• Evaluate financial viability of energy projects General purpose analysis tool Power generation, district energy, alternative energy (wind, geothermal, bio, solar, etc), combined heat and power
• MS Excel spreadsheet template Template provides input of both common and project-specific factors Users-defined logic and template extensions (unprotected spreadsheet); extends reporting, analysis, and integration
with other programs or spreadsheets.
• Pro forma financial statements 20 year analysis period Income Statement, Balance Sheet, Use of Funds, Cash Flow
• Financial Scorecard Stoplight chart of financial indicators User defined thresholds
• Sensitivity Analysis “What If” evaluation of key project inputs
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Program Use
Design andAnalysis Programs
Discounted Cash FLows
$-
$200
$400
$600
$800
$1,000
$1,200
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Year
Cash
Flo
w (
$1000)
RELCOSTRELCOST
Energy projects
Policy analysis
•• R Ranking, prioritization• Bid evaluation• Contract negotiation• Funding needs• Sales price, valuation
•• Tax, production credits• Tax relief, incentives• Environmental credits
• Economic viability• Risk assessment• Economic optimization• What if evaluation• Break-even, threshold analysis
• Energy use, cost• Emissions calculation• Systems design• Plant simulation• Power generation• Renewable energy
HeatMap is a District Energy program fromWashington State University, USA
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Program flow
Discounted Cash FLows
$-
$200
$400
$600
$800
$1,000
$1,200
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Year
Cash
Flo
w (
$1000)
• 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
Inputs
CalculationsCalculationsResultsResults
•• Income Statement Income Statement•• Cash Flow Statement Cash Flow Statement•• Balance Sheet Balance Sheet•• Use of Funds Use of Funds
Financial ScorecardSensitivity Factors Factors
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Input: Plant Operating Factor
• Dispatch factor indicates how much of the plant output that canbe generated occurs at times when there is a demand for it
Power production curtailment is modeled here
• Availability factor indicates how much of the time the plant isavailable to meet plant demands.
Geothermal source depletion (flow, temperature) is modeled here Planned maintenance outages are also modeled here
• Operating factor combines both dispatch and availabilityfactors.
Factor optionally used by other inputs; e.g., purchased fuels O&Mexpenses.
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Input: Capital Expenditures
• Expenditures can occur in each project year• Geothermal Modeling
Costs for exploration, environmental impact statements, licenses, permits, well drilling,supply/injection pumps, gathering system, distribution system can detailed here.
• Contingency and overheads included• Inputs in current dollars, escalated values calculated
3 categories3 categories
Itemized inputsItemized inputs
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Input: Tax Depreciation
• Multiple depreciation classes Varying depreciation life or
method for different types ofcapital expenditures
Plant has longer depreciation lifethan office equipment.
• Depreciation schedule library Accelerated depreciation (US tax
system) Country-specific depreciation
methods can be defined
• Geothermal Modeling Accelerated depreciation in US tax
system improves economicfeasibility, especially in early years
Country-specific availability ofaccelerated depreciation
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Inputs: Funding Plan
• Three (3) fund sourcetypes
Multiple types can beused in same projectperiod
• Ten (10) sources foreach type can be defined
Any project year Multiple investors,
lenders
• Monthly calculationused for borrowed funds
Short duration loans Construction financing
or working capital.The funding plan indicates the mix and timing ofresources used to finance the project.
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Inputs: Purchased Fuels
• Multiple fuel types insame year
Separate inputs for eachproject year
• Energy units can bechanged for country-specific standards
• Geothermal modeling Purchase of geo hot
water or steam forproduction
Power needed to runpumps/plant
Peaking fuel to run fossilboilers
• Inputs in current dollars,escalated valuescalculated
Applies operatingApplies operatingfactors to all projectfactors to all projectyearsyears
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Inputs: Operation and Maintenance
• Multiple expense categories Direct Production Selling & Admin Overhead Operating Labor Insurance, property Taxes
Applies plant operating factors to all projectyears for this expense category
Itemizedinputs
• Operating Reserves Set aside funds for future expenses Major overhaul Municipal bond payment Account earns interest
• Inputs in current dollars, escalatedvalues calculated
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Inputs: Major Expenses
• Ten (10)expenses can bedefined
Equipmentoverhaul
Pipe scaleremoval
• Repeating orone-timeexpenses can bedefined
Plannedmaintenance
Every 3 yearsshown
• Inputs in currentdollars, escalatedvalues calculated
• Geothermal Modeling Well Replacement Periodic well maintenance (example: scale removal)
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Input: Income from Sales
• Nine (9) pre-defined salesincome types
Type definitions can beuser defined for specificproject needs
• Geothermal Modeling Power sales, dispatch
ability, ramp-up,curtailment payments
Heat, cool sales Co-production
(metal/silica extractionfrom brine)
Direct use by-productssuch as greenhouse forflowers, plants,vegetables
•Units can be user defined forcountry standards• Inputs in current dollars,escalated values calculated
Applies operating factors to all project yearsApplies operating factors to all project years
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Inputs:Environmental, Production Credits
• Four (4) types canbe defined
Treated as asource of income
Subject to incometaxes
• User defined units Incentive type Country-specific
standards
• Inputs in currentdollars, escalatedvalues calculated• Geothermal Modeling
Carbon Credits offset Energy credits or production incentives from government
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Inputs: Income Taxes and Fees
• Tax rules formultiple countriescan be included insame template
US taxconfigurationprovided
• Special handling forUS tax system shown
Refundable credits Tax credit carry
forward
• Multi-jurisdictional Federal, state, local Tax rates can vary
by project year• Geothermal Modeling Energy tax credits (reduces income tax payments) Franchise fees or royalties paid to local municipality
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Inputs: Dividends
• Dividends are annual cash distributions made toinvestors (shareholders)
After-tax profits are used as the basis for dividends
Retained Earnings = After-tax profit – dividend distributions
• Dividend payout policies vary greatly User defined logic can be readily created for specific projects.
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Input: Cost Escalation Forecasts
• Escalated costs are calculated using factors from a forecast Forecast values are user defined Forecasts enable rapid “what if” sensitivity evaluation Escalation factors can optionally be incremental to general inflation rate
• Four (4) forecast types None – costs are not escalated Conservative – lowest cost escalation Likely – most probable escalation Aggressive – highest cost escalation
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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What if analysis
• Enables riskevaluation of keyproject factors
Are estimated inputvalues to high? Toolow?
Break-even analysis
Threshold analysis
Financial Scorecardimprovement
Multi-factor scenarios
• Geothermal modeling (examples)
Capital cost estimation accuracy (well drilling,gathering system)
Environmental and production incentive impacts
Power, heat sales price impact
Funding plan impacts (cost of capital)
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Output: Financial Scorecard
• User defined performance rulesdetermine stoplight indicators
Investor, financial institution targets
Threshold analysis
• Visual project economic health check
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Copyright © IGA 2008 – 2009
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Output: Graphs
Discounted Cash FLows
$-
$200
$400
$600
$800
$1,000
$1,200
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Year
Cash
Flo
w (
$1000)
Net Profit After Taxes
$(1,000)
$(500)
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Year
Co
sts
($
1,0
00
)
Benefit/Cost Ratio
(BCR =1 at payback)
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Year
BC
Rati
o
• Selected graphs onlyshown
• New graphs and chartseasily added by user
Requires MS Excel skills
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Reports
• Four (4) types of financial reports included Cash flow statement
• Shows how the project makes a profit for each project year
Income Statement• Shows the project’s financial performance for each project year
Balance Sheet• Shows the project’s financial position for each project year
Use of Funds Statement• Shows how fund sources are used for each project year
• New reports added by user Requires Microsoft Excel Skills
• Intended use of reports Gain understanding of modeled results Supporting data for project proposals Project prioritization, funding decision support
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Report: Income Statement
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Report: Balance Sheet
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Report: Cash Flow Statement
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Report: Use of Funds Statement
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Questions ?
52
Day 3Modeling Examples
by
Dr. Gordon Bloomquist, IGA
Mr. Jeff Ponsness, EnSight and WSU
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Module 1: BasicsObjectives
• Demonstrate how to create a new model
• Calculate and review model results
• Show program input and output features
• Show navigation, data, and tab relationships
• Illustrate how to create templates for future modeling efforts
• Illustrate how to extend model with user fields and logic
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Module 1: BasicsSample Project Description
• Geothermal power generation 25 MW capacity
• 10% parasitic loss (2.5 MW, 22.5 MW net capacity)– Onsite power consumed (e.g., geo pumps)
• 2% transmission loss (0.5 MW)• 22 MW effective capacity at full load• Production begins in year 2 (18-month construction)
Operational Information• Dispatch
– Power sales agreement allows curtailment of 500 hoursper year (500/8760 = 5.7% total hours)
• Availability– Annual geothermal resource degradation = 1%– Scheduled maintenance = 0.5%
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Module 1: BasicsCapital Costs
• Total capital cost = $66,500,000 ($2,660 per kW)• Exploration = $3,000,000
• Well field development = $16,000,000
• Plant equipment = $38,000,000
• Permitting = $500,000
• Interconnection = $250,000
• Overheads, profit, contingency = $8,750,000
• 18 months construction schedule
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Module 1: BasicsOperating Costs
• Operating labor = $1,067,500/Yr (including overhead) Plant manager (1 @ $80,000 per year) Plant operators (8 @ $55,000 per year) Mechanic (1 @ $55,000 per year) Other labor (1 @ $40,000 per year) Overhead factor 1.75 (benefits, etc) $97,050 average per FTE with overheads
• Plant costs = $184,000/Yr Turbine/generator = $25,000 Electric, control systems = $43,000 Cooling systems = $6,000 Auxiliary systems = $13,000 Cooling water, chemicals = $47,000 Misc. Consumables = $50,000
• Well field costs = $177,000/Yr Well clean out = $92,000 Brine chemicals = $50,000 Miscellaneous = $35,000
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Module 1: BasicsMajor Overhaul, Fees, Resource Costs
• Major overhaul Plant $774,000 every 3 years
• Labor = $24,000 (400 hours @ $60 per hour)• Materials, parts = $750,000
Well maintenance $50,000 every 2 years Well replacement $2,300,000 every 5 years
• A reserve account is used to set aside funds for replacement• Annual reserve account deposits = 2,300,000 / 5 = $460,000• Interest earned on reserve account = 2%
• Fuel, resource costs Franchise fee to local municipality = 3% Gross Sales Reservoir management = $25,000/Yr Make-up water = $6,500/Yr Land lease fees = $5,600/Yr
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Module 1: BasicsFunding Plan• Equity
20% equity = 0.2 x 66M = $13.3M 100% paid at project start
• 2 equity investors @ 50% each
• Construction Financing (first 18 months) $10M at project start, 8% APR, interest only $25M after 6 months, 8% APR, interest only $25M after 12 months, 8% APR, interest only All construction financing rolled over into Long Term debt financing
• Long Term Debt financing 80% debt @ ~ $53.5M 20 years, 6% APR, 1% loan fee Begins after 18 month construction period
• Working Capital $1M @ 5-years, 8% APR, 1.5% loan fee
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
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Model 1: BasicsModel Results
• Financial performance results Cash Balance graph, Cash flow statement
• Cash account should never be negative!!
Income Statement• Earnings Before Interest and Taxes (EBIT)• Profits before and after taxes
Balance Sheet• Assets = Liabilities + Shareholder Funds (Equity) + Grants
Use of Funds• Summarizes how funds are used (Sources, Uses)
• Two statement types Income Statement and Balance Sheet (1) Income tax – taxable income calculated using tax depreciation
• Accelerated tax depreciation (US tax system)
(2) Shareholder – Income, profits using depreciation from funding• Accelerated depreciation not used
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Module 1: BasicsModel Results
• Common project ranking indicators Levelised selling price (before tax)
• Lowest price best• Uses discounted costs over a specific time period• Financing, labor, O&M, overhauls, credits, incentives
Benefit-Cost Ratio (after tax)• Larger values > 1.0 desired• Discounted payback when BCR = 1.0
Net Present Value (NPV, after tax)• Larger, positive values desired• Positive when BCR > 1.0
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Module 2: What If, Sensitivity AnalysisObjectives
• (Use simple model from module 1)
• Show how results are used to create aFinancial Scorecard
Discuss selected financial indicators
Show how users can control scorecard indicator preferences
• Show how to use sensitivity factors and costescalation forecasts
• Show to do a break-even and thresh-holdanalysis
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Module 2: What If, Sensitivity AnalysisAbout the Financial Scorecard
• Visual financial health check Available for each project year Color-coded “dash board” display
• (Red, Yellow, Green) for multiple items in each scorecard category
Risk assessment, economic viability
• Uses calculated values from financial statements Example: Cost of Sales and Operating Expenses Calculations details on the “Calcs_Financial_Indicators” tab
•User configurable (see next slide) Stoplight threshold values Stoplight threshold logic (requires MS Excel skills)
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
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•• Risk Values on Risk Values on ““Calcs_FinancialCalcs_Financial Indicators Indicators”” tab tab
•• Risk level cells contain stoplight logic (can be Risk level cells contain stoplight logic (can bechanged by user)changed by user)
•• Color-coded min, max columns contain stoplight Color-coded min, max columns contain stoplightvalue thresholds (user defined)value thresholds (user defined)
Module 2: What If, Sensitivity AnalysisFinancial Scorecard Configuration
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Module 2: What If, Sensitivity AnalysisFinancial Scorecard Categories
• Financial Indicators (Payback, NPV, BCR) Indicates general economic viability, often used as funding “hurdles” (Go, No Go) or
project ranking
• Probability Ratios (Gross Margin, Operating Margin) Indicators used to determine how likely a project is to turn a rpofit
• Liquidity Measures (Current Ratio, Acid Test Ratio) Indicates how quickly assets can be turned into cash to support unexpected business
conditions or market-driven needs such as growth
• Leverage Ratios (Debt to equity, equity, debt) Provides insight into project’s method of financing and ability to meet financial
obligations
• Levelised selling price (power sales, heat/cool sales) Common comparative indicator calculating the unit sales cost (example: $/MWhr) Used discounted costs over a specific time period (example: 20 year plant life)
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Module 2: What If, Sensitivity AnalysisAbout sensitivity analysis
• Allows “What if” analysis without changing base inputs Scorecard and financial statement impacts Multiple factors can be used at the same time
• Allows risk evaluation of base assumptions to be tested How sensitive is viability to capital cost?
• Use +/- percentage variations of “Capital Expenses” sensitivity factor to seeScorecard/Statement impacts
• Enables rapid break-even or thresh-hold analysis What first year energy price is needed to achieve a Benefit-Cost-Ratio
before year 10?• Use +/- percentage variations of the “Electric Sales” sensitivity factor to observe
changes in BCR values.
• Cost escalation forecasts allow rapid evaluation of escalationimpacts
Four (4) escalation forecasts: Likely, Conservative, Aggressive, None User defined cost escalation factors in each forecast library
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Model 3: Modeling ConceptsObjectives
• Show how to use model for phased projects
• Show how government incentives and grants (tax credits,production incentives, environmental credits) improve economics
Discuss model treatment of income taxes Add tax credits, production incentives and grants to simple model
• Illustrate use of analysis tool (HeatMap) to determine modelinputs
Use pre-defined HeatMap model, do a quick drive thru HeatMap
• Other topics (TBD) based upon workshop participant request
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009
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Questions ?
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RELCOST Information
• RELCOST spreadsheet template, usermanual, workshop models, and workshopslides can be downloaded: (web site address to be provided at workshop)
• Questions, please contact: Jeff Ponsness, Ensight ([email protected])
Carolyn Roos, WSU ([email protected])
Proceedings from World Bank’s GeoFund – IGA International Geothermal WorkshopFebruary 16-19, 2009 - Istanbul, Turkey
Copyright © IGA 2008 – 2009