Farm Energy Assessments

Kick-Off Meeting

September 18, 2009

Carolyn Roos, PhD

Washington State University, Energy Program

roosc@energy.wsu.edu

An Overview of RELCOST Financial

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

Program Overview

Evaluate financial viability of energy projects

• General purpose analysis tool Multiple user-defined products and fuel-sources

• Intended for a variety of energy projects• Power generation• District energy• Combined heat and power• Alternative energy

Wind, Solar, Biomass, Geothermal, etc.

Especially tailored for anaerobic digester projects

Program Overview

MS 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

e.g country-specific tax structure

• Easy integration with other tools• Excel used as output and input for many programs• Extends reporting, analysis, and integration with the tools you use.

Program UseUse in design and analysis with other energy analysis toolsRequires information from other analyses, such as

• Energy use• Cost estimation• Emissions calculation• Systems design• Plant simulation• Power generation• Renewable energy

Develop Policy analysis• Tax, production credits• Tax relief, incentives• Environmental credits

Evaluate energy projects• RRanking, prioritization• Bid evaluation• Contract negotiation• Funding needs• Sales price, valuation

Sensitivity Factors FactorsMultipliers on inputs to test Multipliers on inputs to test variation from most likely values:variation from most likely values:

• Cost overrunsCost overruns• Sales price changesSales price changes• Etc.Etc.

InputsEnter detailed input on a number of sheets

InputsEnter expected values for:

• Plant Operating Factors• Capital Expenditures• Funding Plan• Purchased Fuels• O&M Expenses• Major expenses• Income, Sales• Carbon Offsets, RECs• Taxes, Fees• Dividends• Cost escalation• Cash accounts

Pro-Forma StatementsPro-Forma Statements• Income StatementIncome Statement• Cash Flow StatementCash Flow Statement• Balance SheetBalance Sheet• Use of FundsUse 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 CostsLevelized Costs

Four Types of Results More Than Life Cycle Cost Analysis

Pro Formas

Pro forma financial statements Income Statement Balance Sheet Use of Funds Cash Flow

Stakeholders need pro formas to support a project• Lenders• Equity investors • Policy analysts • Project developers

20 year analysis period

Presentation of Results

Quickly evaluate performance visually

“Financial Scorecard”• Red, yellow and green indicators• Decision values defined by user

Plots from Pro Forma Statements

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

Ca

sh

Flo

w (

$1

00

0)

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,

000)

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

Rat

io

New graphs and charts easily added by user

Sensitivity Analysis

“What If” Analysis: e.g. What if I have a cost over run? 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 multiply inputs across many sheets all in one place.

• View results on same screen as sensitivity factors

Sensitivity AnalysisGraphical Results

Sensitivity Analysis

-40%

-30%

-20%

-10%

0%

10%

20%

30%

-4,0

00,0

00

-2,0

00,0

00 0

2,00

0,00

0

4,00

0,00

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6,00

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8,00

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10,0

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12,0

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Net Present Value

Var

iati

on

in P

aram

eter

Sales Price

CapEx

Sensitivity diagrams are used to identify which factors most impact the viability of your project

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

General Information

• Facility Description

• Discount and inflation rates

Input 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 her

RELCOST Tab

of screen shot

Capital Expenditures

• Detailed or simple estimateDetailed or simple estimate

• 3 General Categories3 General Categories

• Expenditures can occur in each project year• Inputs in current dollars, escalated values calculated

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 depreciation schedule library

Funding Plan

Three fund 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.

Purchased Fuels

• Can have multiple fuel types in same year Separate inputs for each project year

• Energy units can be changed

• Inputs in current dollars, escalated values calculated

Applies operating factors to Applies operating factors to all project yearsall project years

Operation & Maintenance

Multiple expense categories Sales & Administration Costs Overhead Operating Labor Insurance, property Taxes

Operating Reserve Deposits & Withdrawals

• “Cash Accounts” Current account Operating Reserve account

• Save up for major expenses Major Overhaul, bond payment

Major Expenses

• Repeating or one-time major expenses e.g Equipment overhaul e.g. Every 5 years starting in year 6

Income from Sales

• Nine sales income types• Can be user defined for

specific project needs

• Products• Power sales• Heat, cool sales• Co-products• Direct use by-products such

as greenhouse for flowers, plants, vegetables

Environmental Credits

• Carbon Offset, Renewable Energy Credits, Production Incentives

Income Taxes and Fees

• Tax incentives:• Refundable tax credits• Tax credit carry forward

• Multi-jurisdictional:• Federal, state, local• Tax rates can vary by project

year

Dividends

• Dividends are annual cash distributions made to investors

• Dividend payout policies vary greatly• User defined logic can be created for specific projects.

Cost Escalation ForecastsEscalated costs are calculated using factors from a forecast

Forecast values are user defined for each item e.g. 3% escalation on electricity sales but 3.5% on gas sales.

Four forecast types None – costs are not escalated Conservative – lowest cost escalation Likely – most probable escalation Aggressive – highest cost escalation

Questions ?Questions ?

Download blank spreadsheet, examples, and User’s Manual

http://www.energy.wsu.edu/software/relcost/

Carolyn Roos, PhD

Washington State University, Energy Program

roosc@energy.wsu.edu