Cost Benefit Analyses (CBA), Project...
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#8 Cost Benefit Analyses (CBA), Project development
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Cost Benefit Analyses
The CBA will be structured in following seven steps:
1) Objectives definition,2) Project identification (LTIP - PIP),3) Feasibility and options analysis,4) Financial analysis,5) Economic analysis,6) Multicriteria analysis and7) Sensitivity and risk analysis.
LTIP..Long Term Investment ProgramPIP…Priority Investment Program
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Objective definition
General ContractorTechnical, commercial, legal conditions
Project ManagementProject DesignExperticesPermission
TenderingScope of SupplyInterfaces Guarantees......
Supply contractsElectricityHeat
Purchase contractsFeedstockConsumables
Land
Project Financing
Operation & Maintenance
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Businessplan • Technical Conditions *)• Commercial Conditions and Financing *)• Legal Conditions• Environmental Conditions• Social Conditions
*) Benchmarking
Objective definition
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Technical Frame Conditions
• Full load hours – Heat duration curve• Large heat consumers• Heat demand (pressure)• Forecast : Increase of heat sales /y• Availability of Feedstock (Price!)• Site of Plant (Emissions: noise, pollutants...)• Water quality• High efficiency• High Plant availability• Feed stock flexibility• Low electrical self demand• Plant automatisation
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Commercial Frame Conditions
• Specific and Total Investment costs *)• Costs for building permit and water connection• Land costs (dedication (!))• Subsidies (grant, soft loan, feed in tariff, CO2-credits)• Equity demand, prefinancing costs and working capital• Mezzanine financing• Senior loan• ROE, ROA• DSCR
*)...Cogeneration: 2800 – 4500 EUR/kWel depending on size and quality
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Legal Frame Conditions
• Land use right,• Location permission (conceptional design)• Building permission (base design)• Eligible Power Producer Status• PPA (Power Purchase Agreement)• Biomass long term contract; definition for price escalation• Feed tariff system• Heat Price
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Environmental Frame Conditions
• Exhaust Gas Emission limits• IPPC report• EIA Study (sometimes precondition of some internEU funds)• Noise emission limits (eg. Wood chipper)• Traffic (Biomass)• Water and Waste Water (also substantial prefinancing costs)• Grid connection limits (important for larger units); 10kV/35
kV/110kV
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Social Frame Conditions
• Acceptance of the plant (neighbours)
• Create workstations (e.g.for local companies)
• Reduction of workstations (e.g. chimney sweep)
• .....
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Businessplan
Problem: Too optimistic CBA because of:• Too low investment costs estimations• Too low project development costs (DD)• No project prefinancing costs considered during building phase• Working capital during financing phase not considered• Too optimistic heat sale forecast• Too low personal costs especially for heating plants• Too low fuel cost (price escalation!) sensibility analyses• Escalation factors for price increase (e.g. operating costs… not
considered
Result: Project Standstill
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Example Project schedule between Buildings Phase and end ofWarranty Period
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Typical payment conditions (e.g. Biomass CHP plant)
• 45% prepayment against BG (validity until start hot initial operation)• 55% BG from Investor to GC (conformance to requirements; will be
reduced according to contractual payment schedule)• 10% start of construction against BG (validity until start hot initial
operation)• 10% Completion of building foundation• 20% Delivery of Steam Turbine• 5% Completion of Steam Boiler• 5% Start up• 5% After successful test run in lieu Performance (BG) guarantee of
10%-15% until end of 2 years guarantee period.
Project Development
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The payment conditions
• have considerable influence on the contract price• and have to be considered already during calculation• Influence the pre-financing costs (5-8% of GC price)
Project Development
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Project Financing
•project development
main works
contract
grace period
completion
repaymentyearly instalments
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down payment
project development construction
profit
contract completion, final payment
design
Design&Build Contract
Financing, “almost ideal case”
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Private investors are entrusted with the design, financing, building and operating of a project.
Concession contracts
PFI in the United Kingdom, the Private Financing Initiative, today an example for many similar projects world-wide.
DBFO, Design, Build, Finance, Operate PPP, Public-Private Partnerships BOT, Build, Operate, Transfer, after 25 or 30 years BOO, Build, Operate, Own, without transfer, unlimited private ownership.
Build-Operate-Transfer (BOT), Concessions