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GeoFund
IGA -- Geothermal Workshop
Turkey 2009
February 15-20, 2009
Day 3
Introduction
to
Financial Modeling Considerations
by
Dr. Gordon Bloomquist, IGA
Mr. Jeff Ponsness, EnSight and WSU
2
Financial Modeling
Multiple Stakeholders
Operator
Financial
Institution
Developer
Utility
Suppliers
Investor
Government
Consumers
4
Operating costs?
Debt repayment?
Return on equity?
Financing terms?
Incentives,
credits?
Risks?
Technology choice?
Resource depletion?
Policy,
sustainability?
Cash flow?
Power Purchase
Agreement terms?
Availability,
Dispatch ability?
NPV, BCR
6
Flexible outputs
Risk evaluation
Sensitivity analysis, what if scenarios
forma financials
Cash flow statement
Income Statement
Balance Sheet
Use of Funds
Financial Indicators
Probability
Liquidity
Measures
Income Statement
EBITDA =
Earnings
Before Interest,
Taxes,
Depreciation,
Amortization
Use of Funds
Provides a
summary of
how sources of
funds are used.
Sources = Uses
12
project is
under funded,
expenses are
too high
13
Balance Sheet
14
Levelized Cost
Often used by energy policy analysts and project
evaluators to develop first-order assessments of a projects
attractiveness.
Compare costs of alternate technologies electric power
generated by geothermal, natural gas, wind, etc.
15
Levelized Cost
Geothermal
17
NPV always calculated over a specific time period plant life is common.
1.600
$10,000
1.400
1.200
$$(10,000)
10 11 12 13 14
15 16 17 18 19
20
1.000
0.800
$(20,000)
0.600
$(30,000)
$(40,000)
0.400
$(50,000)
0.200
$(60,000)
0.000
NPV (1,000s)
$20,000
BCR
19
10
11
Sensitivity Analysis
No project goes exactly according to plan!
Once the base model is established, use sensitivity
analysis to assess impact of variation in selected
parameters
30%
% Change in
Through Life NPV
20%
10%
0%
-10%
-5%
5%
10%
-10%
-20%
-30%
24
12
Questions ?
25
Day 3
Presentation of RELCOST Software
by
Dr. Gordon Bloomquist, IGA
Mr. Jeff Ponsness, EnSight and WSU
26
13
RELCOST Program
Owned by Washington State University (Washington, USA)
Developed by EnSight, a consultancy (Oregon, USA)
Program distribution rights to IGA members from WSU
Program Overview
Evaluate financial viability of energy projects
Financial Scorecard
Sensitivity Analysis
28
14
Program Use
Design and
Analysis Programs
Energy projects
RELCOST
Discounted Cash FLows
$1,200
$1,000
$800
$600
$400
$200
Ranking,
prioritization
R
Bid evaluation
Contract negotiation
Funding needs
Sales price, valuation
$1
10 11 12 13 14 15 16 17 18 19 20
Project Year
Policy analysis
Economic viability
Risk assessment
Economic optimization
What if evaluation
Break-even, threshold analysis
Program flow
Inputs
Sensitivity Factors
Results
Calculations
Income Statement
Cash Flow Statement
Balance Sheet
Use of Funds
$800
$600
$400
$200
$1
10 11 12 13 14 15 16 17 18 19 20
Project Year
Financial Scorecard
30
15
Dispatch factor indicates how much of the plant output that can
be generated occurs at times when there is a demand for it
31
Costs for exploration, environmental impact statements, licenses, permits, well drilling,
supply/injection pumps, gathering system, distribution system can detailed here.
32
16
Geothermal Modeling
33
Monthly calculation
used for borrowed funds
34
17
Itemized
inputs
Direct Production
Selling & Admin
Overhead
Operating Labor
Insurance, property Taxes
Operating Reserves
18
Equipment
overhaul
Pipe scale
removal
Repeating or
one-time
expenses can be
defined
Geothermal Modeling
Well Replacement
Periodic well maintenance (example: scale removal)
Planned
maintenance
Every 3 years
shown
Inputs in current
dollars, escalated
values calculated37
Geothermal Modeling
38
19
Inputs:
Environmental, Production Credits
Four (4) types can
be defined
Treated as a
source of income
Subject to income
taxes
Geothermal Modeling
Incentive type
Country-specific
standards
Inputs in current
dollars, escalated
values calculated
39
US tax
configuration
provided
Refundable credits
Tax credit carry
forward
Multi-jurisdictional
Geothermal Modeling
40
20
Inputs: Dividends
42
21
What if analysis
Enables risk
evaluation of key
project factors
Break-even analysis
Threshold analysis
Financial Scorecard
improvement
Multi-factor scenarios
43
Threshold analysis
44
22
Output: Graphs
Discounted Cash FLows
$1,200
$4,000
$1,000
$3,500
Costs ($1,000)
$3,000
$2,500
$2,000
$1,500
$1,000
$800
$600
$400
$500
$200
$$(500) 1
10
11
12
13
14
15
16
17
18
19
20
$-
$(1,000)
Project Year
10 11 12 13 14 15 16 17 18 19 20
Project Year
Benefit/Cost Ratio
(BCR =1 at payback)
1.4
1.2
BC Ratio
1
0.8
0.6
0.4
0.2
0
-0.2 1
10
11
12
13
14
15
16
17
18
19
20
Project Year
45
Reports
Four (4) types of financial reports included
Income Statement
Balance Sheet
Shows how the project makes a profit for each project year
Shows the projects financial performance for each project year
Shows the projects financial position for each project year
Shows how fund sources are used for each project year
46
23
47
48
24
49
50
25
Questions ?
51
Day 3
Modeling Examples
by
Dr. Gordon Bloomquist, IGA
Mr. Jeff Ponsness, EnSight and WSU
52
26
Module 1: Basics
Objectives
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
53
Module 1: Basics
Sample 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 hours
per year (500/8760 = 5.7% total hours)
Availability
Annual geothermal resource degradation = 1%
Scheduled maintenance = 0.5%
54
27
Module 1: Basics
Capital 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
55
Module 1: Basics
Operating Costs
Operating labor = $1,067,500/Yr (including overhead)
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
56
28
Module 1: Basics
Major Overhaul, Fees, Resource Costs
Major overhaul
57
Module 1: Basics
Funding Plan
Equity
Working Capital
58
29
Model 1: Basics
Model Results
Financial performance results
Income Statement
Balance Sheet
Use of Funds
59
Module 1: Basics
Model Results
Common project ranking indicators
60
30
62
31
63
Indicates general economic viability, often used as funding hurdles (Go, No Go) or
project ranking
Indicates how quickly assets can be turned into cash to support unexpected business
conditions or market-driven needs such as growth
Provides insight into projects method of financing and ability to meet financial
obligations
Common comparative indicator calculating the unit sales cost (example: $/MWhr)
Used discounted costs over a specific time period (example: 20 year plant life)
64
32
Use +/- percentage variations of the Electric Sales sensitivity factor to observe
changes in BCR values.
65
66
33
Questions ?
67
RELCOST Information
68
34