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Cogeneration Feed-In Tariff, Levelized Cost and Financial Model with CDM Carbon Credits

November 26th, 2009 Posted in financial models

Cogeneration Feed-In Tariff, Levelized Cost and Financial Model

The following is a snippet of my state-of-the-art project finance model for calculating feed-in tariff, levelized cost of energy, and financial model (generation, fuel requirement, income statement, cash flow statement, balance sheet and financial ratios).  To secure a copy of the spreadsheet, click the ENERGY DATA page for arrangements.

PROJECT FINANCE MODEL: CO-GENERATION Name: CO-GENERATION PLANT
(C) Copyright 2009 by Marcial T. Ocampo (November 2009)
INSTRUCTIONS NOTE: NEEDS TO BE UPDATED IN VIEW OF THE NEW RENEWABLES ENERGY LAW AND ITS IRR
(This example is in US$ Thousand, except for the unit prices which are in US$)
Year 0 reflects the starting assumptions, which will be applicable starting in year 1.
Blue cells must be filled out by the user.

0

1

press ctrl + d to converge model (set cell E9 to zero by changing cell E11)
CALCULATION OF GROSS OPERATING MARGIN

NPV-Dividends

NPV-Equity

used

IRR

years

24

(8,994.18)

(0.00)

(0.00)

15.00%

6.31

A) Operating income: ‘000 $

365

days per year

Year

0

1

2

2008

2009

2010

Days per year

days / year

366

365

365

Hours per day capacity factor

80%

hours / day

19.2

19.2

19.2

Rated Capacity rated capacity

22.00

MW

22.00

22.00

22.00

Gross Generation

MWh

154,598 154,176 154,176
Less: Power Plant Own Use

5%

MWh

7,730 7,709 7,709
Net Generation

MWh

146,868 146,467 146,467
Less: Transmission Line Lose

2%

MWh

2,937 2,929 2,929
Net Electricity Sales

MWh

143,931 143,538 143,538

PhP/kWh

PhP/$

Electricity tariff for sales to the network (US$/kWh)

8.7294

50.00

0.1746

0.1746

0.1746

Annual increase of the tariff

0%

0.00%

0.00%

0.0%

0.0%

Electricity volume of sales to the network (mWh)

MWh

143,931 143,538 143,538
Annual increase of the volume

0.0%

0.0%

Income from sales to the network, ‘000 US$

25,060

25,060

Tariff for sales to the production plant (US$/kWh)

0.030

0.000

0.000

0.000

Annual increase of the tariff

0.0%

0.0%

Electricity volume of sales to the production plant (mWh)

80,000

80,000 80,000
Annual increase of the volume

0.0%

0.0%

Income from electricity sales to the production plant, ‘000 US$

0

0

Price for sales of steam to the production plant (US$/Ton)

6.500

0.000

0.000

0.000

Annual increase of the price

0.0%

0.0%

Steam volume of sales to the production plant (Tons)

300,000

300,000 300,000
Annual increase of the volume

0.0%

0.0%

Income from steam sales to the production plant, ‘000 US$

0

0

TOTAL OPERATING INCOME

25,060

25,060

Annual increase

0.0%

B) Expenses: ‘000 $

33,000.00

Year

0

1

2

Price of normal gas (US$/therm)

0.012

0.012

0.012

Price of post-combustion gas (US$/therm)

0.010

0.010

0.010

Annual increase of these prices

0.0%

0.0%

Volume of normal gas consumption (Therm)

800,000

800,000 800,000
Volume of post-combustion gas consumption (Therm)

10,000

10,000 10,000
Annual increase of these volumes

% of EPC

months

working capital

0.0%

0.0%

Expenses from gas consumption

2

1,617

9,700

9,700

9,700

Maintenance of cogen plant (spares)

1.20%

2

66

396

396 396
Utilities (fuel, lubes, electricity, water)

1.10%

2

61

363

363 363
Maintenance of the rest of the plant

5.00%

2

275

1,650

1,650 1,650
Personnel expense

4.00%

2

220

1,320

1,320 1,320
Land lease, rent

4.00%

2

220

1,320

1,320 1,320
Taxes, Insurance, services, and others

4.00%

2

220

1,320

1,320 1,320
Annual increase of these expenses

19.30%

0.0%

0.0%

Total O&M expenses

$/kW/yr

0.2550

5,610

6,369

6,369

DSRF Expense

0.30%

9 9
Special Privilege Tax – 2%

2.00%

of Electricity Revenue

501

501

Special Realty Tax – 2.5%

2.50%

of Depreciated Project Cost

1,057

952

DOE 1-94 : 0.01 PhP/kWh sales

0.01

PhP/kWh sales

0.000200

29

29

Total Regulatory Expenses

1,587

1,482

TOTAL OPERATING EXPENSE 17,665 17,560
Annual increase

-0.6%

GROSS OPERATING MARGIN 7,395 7,500
Annual increase

1.42%

PROFIT AND LOSS STATEMENTS
In ‘000 US$

Year

0

1

2

Operating income

25,060

25,060

Operating expense

17,665

17,560

Operating gross margin

7,395

7,500

– Depreciation & amortization

4,180

4,180

– Interest

3,245

2,904

PROFIT BEFORE TAX

-30

416

(Tax rate) and Income Tax Holiday (ITH) years

30%

0

30%

30%

– Income tax

0

125

PROFIT AFTER TAX

-30

291

Percentage of increase

-1061.3%

NET CASH FLOW

Year

0

1

2

Net profit after tax

-30

291

Addback:
Depreciation & Amortization

4,180

4,180

Working Capital
Salvage Value
Add:
DSRF Income

4.00%

DSRF Income

122

115

Less:
Principal Repayment

2,847

2,847

Profit Sharing

0.00%

of income after tax

0

0

Social Benefit Fund – Host Community

0

per month

0

0

NET CASH FLOW

1,425

1,740

Percentage of increase

22.1%

Total Initial investment

47,447

Project Cash Flow

-3.89%

11.70%

WACC

-47,447

1,425

1,740

IRR

NPV

-33,213

-47,447

1,239

1,316

check

-30,473

-47,447

1,276

1,394

cumulative

0

-47,447

-46,022

-44,282

project payback

0.00

Invested capital

30.00%

14,234

Equity Cash Flow

15.00%

15.00%

Equity IRR

-14,234

1,425

1,740

IRR

NPV

0

-14,234

1,239

1,316

check

0

-14,234

1,239

1,316

cumulative

0

-14,234

-12,809

-11,069

equity payback

6.31

CALCULATION OF CASH FLOW FOR DEBT SERVICE

Year

0

1

2

Operating gross margin

7,395

7,500

– Income tax

0

125

– Increase in working capital needs (WCN)

2,399

0

– Profit Sharing

0

0

+ DSRF Income

122

115

– Social Benefit Fund

0

0

Cash flow available for debt service (CFD)

5,118

7,490

CALCULATION OF DEBT SERVICE COVERAGE RATIO (DSCR)

Year

0

1

2

Cash flow available for debt service (CFD)

5,118

7,490

Annual debt service (DS)

6,092

5,751

min

ave

max

DEBT SERVICE COVERAGE RATIO (DSCR)

0.840

1.656

2.387

0.84

1.30

CALCULATION OF DIVIDENDS PAYABLE

Year

0

1

2

Cash flow available for debt service (CFD)

5,118

7,490

Annual debt service (DS)

6,092

5,751

CF available for dividends (CFDiv = CFD-DS)

0

1,740

Accumulated CFDiv

0

0

1,740

Current year profit after tax

-30

291

Accumulated profit: limit for dividend payable

0

-30

261

-30

261

Accumulated dividend payable

0

0

261

Annual dividend payable

0

261

CALCULATION OF NPV, IRR AND PAY-BACK ACCORDING TO INVESTED CAPITAL AND DIVIDENDS PAYABLE

Year

0

1

2

Invested capital

14,234

Annual dividend payable

0

0

261

Discount rate to be applied for NPV calculation

15.00%

15%

15%

Discount factor for this rate

1

1.0000

1.1500

1.3225

Discounted dividends

0

0

197

Present value of dividends

5,240

NPV of the investment

-8,994

Year

0

1

2

Investment schedulle

-0.28%

15.00%

Equity IRR

-14,234

0

261

IRR of Invested Capital

IRR

NPV

-8,994

-14,234

0

197

check

-8,994

-14,234

0

197

cumulative

0

-14,234

-14,234

-13,973

Pay-back term of invested capital, years

equity payback

0.00

BALANCE SHEET ACCOUNTS
Calculation of WCN:

Cash needed for operations

1.000

months of expenses

2.12%

531

531

Receivables

1.000

months of revenue

8.33%

2,088

2,088

Stocks

1.000

months of fuel & chemicals

3.36%

841

841

Suppliers

1.000

months of payables

4.23%

1,061

1,061

WCN

9.57%

% of operating income

2,399

2,399

CALCULATION OF DEPRECIATION
In ‘000 US$

1 ha = 10,000 m2

Year

0

1

2

Initial investment in land, $/ha

$100

10

1,000
Freight on Board = FOB USA = $/kW

$1,032

22.00

22,714

Ocean Freight = FRT = 5% x FOB

5%

1,136

Insurance = INS = 1% x FOB

1%

227

Cargo, Insurance & Freight = CIF = FOB + FRT + INS

24,077

Value Added Tax = VAT = 12% x CIF

12%

2,889

Customs Duty = (CIF + VAT) x (% Duty) x (1 + % VAT)

3%

906

Duty-Paid Landed Cost = DPLC = CIF + VAT + Duty

27,872

Local Freight Cost = LFC = 3% x CIF

3%

722

Delivered Cost at Site = DCS = DPLC + LFC

28,594

Installation Cost = IC = 5% x FOB

5%

1,136

Total EPC = DCS + IC

29,730

Contingency (10%) = EPC x 10%

10%

2,973

Documentary Stamps (1%) = EPC x 1% = DS

1%

297

Total Fixed Assets (EPC + Contingency + DS)

33,000

Depreciation term (years)

salvage value

10.00%

2,970

10

34,000

Development costs (modeler)

2.00%

680
Other Costs including taxes, contingencies

12.00%

4,080
Initial investment in capitalized expenses 7,438
Amortization term (years)

salvage value

10.00%

669

10

Working Capital:
Working capital (initial stocks – biomass fuel) – 2 months 1,617
Working capital (initial stocks – chemical materials) – 2 months 66
Working capital (mobilization – utilities) – 2 months 61
Working capital (mobilization – maintenance) – 2 months 275
Working capital (mobilization – personnel expense) – 2 months 220
Working capital (pre-paid expense – advance rent) – 2 months 220
Working capital (pre-paid expense – taxes, insurances, etc) – 2 months

2,678

220

41,438

Interest During Construction:
Dev’t fees (loan arranger)

1.00%

414
Front end fees (loan arranger)

1.00%

414
Commitment fees (bank)

0.50%

207
Interest During Construction (bank) – 12 months

12.00%

4,973
Amortization term (years)

salvage value

10.00%

541

10

Total Investment (land, fixed, capitalized expenses, working capital) 47,447
Depreciation of fixed assets

2,970

2,970

Amortization of capitalized expenses

669

669

Amortization of capitalized interest during construction

541

541

TOTAL DEPRECIATION & AMORTIZATION EXPENSE

4,180

4,180

Evolution of fixed assets and capitalized expenses

Year

0

1

2

Land (non-depreciable)

1,000

1,000

1,000

Gross fixed assets

33,000

33,000

33,000

Accumulated depreciation

0

2,970

5,940

Net fixed assets

33,000

30,030

27,060

Gross capitalized expenses

7,438

7,438

7,438

Accumulated amortization

0

669

1,339

Net capitalized expenses

7,438

6,769

6,099

Gross capitalized interest during construction

6,009

6,009

6,009

Accumulated amortization

0

541

1,082

Net capitalized intereset during construction

6,009

5,468

4,927

Total Depreciable Assets (fixed assets, capitalized expenses, IDC)

46,447

42,266

38,086

DEBT SERVICE CALCULATION
In ‘000 US$

Year

0

1

2

Total Initial investment

47,447

% to be financed by capital

Equity IRR

15.00%

30%

% to be financed by non refundable subsidy

Subsidy

0.00%

10%

% to be financed by debt

Debt Interest

12.00%

60%

Initial amount of capital

WACC

11.70%

14,234

Amount of subsidy

4,745

Initial amount of debt

28,468

Repayment term (years) 2,847

10

Constant Repayment Method:
Annual repayment 2,847 2,847
Amount of debt at year end

28,468

25,621

22,774

Average amount of debt

27,045

24,198

Reference interest rate (Libor or other)

10.00%

10.00%

10.00%

Spread

2.00%

2.00%

2.00%

Interest rate of debt

1

12.00%

12.00%

12.00%

Interest based on average amount of debt

3,245

2,904

Declining Balance Method:
Beginning Balance 28,468 26,846
Interest

0

17.70%

12.00%

3,416 3,221
Principal repayment 5,038

10

1,622 1,817
Remaining balance

28,468

26,846 25,029

Year

0

1

2

Beginning Balance

28,468

25,621

Annual amount of interest

3,245

2,904

Annual amount of principal

2,847

2,847

Annual debt service (principal + interest)

6,092

5,751

Ending Balance

28,468

25,621

22,774

Debt Service Reserve Fund

6

months

3,046

2,875

DSRF Income

4.00%

DSRF Income

122

115

Withholding Tax on Forex Fund

7.50%

WhTax
DSRF Expense

0.30%

DSRF Expense

9

9

BALANCE SHEET
BALANCE SHEET BEFORE DIVIDEND PAYMENT
In ‘000 US$

Year

0

1

2

Cash needed for operations

0

531

531

Additional cash (if negative, it would represent additional debt)

0

-1,096

529

Receivables

0

2,088

2,088

Stocks

0

841

841

Land

1,000

1,000

1,000

Fixed assets (net)

33,000

30,030

27,060

Capitalized expenses (net)

7,438

6,769

6,099

Capitalized IDC (net)

6,009

5,468

4,927

Total assets

47,447

45,631

43,076

Suppliers

0

1,061

1,061

Debt

28,468

25,621

22,774

Shareholder’s Advances
Current year profit after tax

0

-30

291

Accumulated reserves

0

0

-30

Subsidy

4,745

4,745

4,745

Capital

14,234

14,234

14,234

Total liabilities and net worth

47,447

45,631

43,076

variance

BALANCE SHEET AFTER DIVIDEND PAYMENT

Year

0

1

2

Cash needed for operations

0

531

531

Additional cash (if negative, it would represent additional debt)

0

-1,096

268

Receivables

0

2,088

2,088

Stocks

0

841

841

Land

1,000

1,000

1,000

Fixed assets (net)

33,000

30,030

27,060

Capitalized expenses (net)

7,438

6,769

6,099

Capitalized IDC (net)

6,009

5,468

4,927

Total assets

47,447

45,631

42,814

Suppliers

0

1,061

1,061

Debt

28,468

25,621

22,774

Shareholder’s Advances
Current year profit after tax
Reserves

0

-30

0

Subsidy

4,745

4,745

4,745

Capital

14,234

14,234

14,234

Total liabilities and net worth

47,447

45,631

42,814

variance

Calculation of Dividends Payable
Gross Margin

7,395

7,500

Income Tax (-)

0

125

Increase in Working Capital (-)

2,399

0

Profit Sharing (-)

0

0

DSRF Income (+)

122

115

Social Benefit Fund (-)

0

0

Cash flow available for debt service (CFD)

5,118

7,490

Annual debt service (DS) = Interest + Principal

6,092

5,751

CF available for dividends (CFDiv = CFD-DS)

0

1,740

Accumulated CFDiv

0

0

1,740

Current year profit = Income After Tax

-30

291

Accumulated profit: limit for dividend payable

0

-30

261

Accumulated dividend payable

0

-30

261

Annual dividend payable

-14,234

0.00

261.11

Investor 1

60.00%

-8,540

0

157

Investor 2

30.00%

-4,270

0

78

Investor 3

10.00%

-1,423

0

26

100.00%

CASH FLOW STATEMENT

Year

0

1

2

OPERATIONS
Net Income (after tax)

-30.31

291.42

Add:  Depreciation & Amortization

4,180.20

4,180.20

(Increase) / Decrease in Receivables

-2,088.33

0.00

(Increase) / Decrease in Inventories

-841.33

0.00

Increase / (Decrease) in Accounts Payable

1,061.33

0.00

Net Cash flow from Operations

2,281.56

4,471.63

INVESTMENTS
Additions to PP&E

33,000.00

-33,000.00

0.00

0.00

Additions to Capitalized Expenses

7,438.17

-7,438.17

0.00

0.00

Additions to Capitalized IDC

6,008.53

-6,008.53

0.00

0.00

Additions to Land

1,000.00

-1,000.00

0.00

0.00

Net Cash flow Used for Investments

47,446.70

-47,446.70

0.00

0.00

Cash flow before Financing

-47,446.70

2,281.56

4,471.63

FINANCING
Increase (Decrease) in Shareholder Advances

0.00

0.00

0.00

Increase (Decrease) in Long-term Debt

28,468.02

28,468.02

-2,846.80

-2,846.80

Increase (Decrease) in Subsidy

4,744.67

4,744.67

0.00

0.00

Increase (Decrease) in Capital Stock

14,234.01

14,234.01

0.00

0.00

Net Cash flow from Financing

47,446.70

47,446.70

-2,846.80

-2,846.80

NET CASH FLOW

0.00

-565.24

1,624.82

Add: Beginning Cash Balance

0.00

-565.24

ENDING CASH BALANCE

0.00

-565.24

1,059.58

Levelized Price and Generation Cost of Electricity

Year

0

1

2

Discounting Rate, % p.a.

15.00%

50.00

NPV

Electricity sales MWh

PhP/kWh

$/kWh

720,737

143,538

143,538

TOTAL OPERATING INCOME (levelized price) 000 PhP

8.7294

0.1746

125,832

25,060

25,060

Expenses from gas consumption 000 PhP

3.3772

0.0675

48,682

9,700

9,700

Maintenance of cogen plant (spares) 000 PhP

0.1379

0.0028

1,987

396

396

Utilities (fuel, lubes, electricity, water) 000 PhP

0.1264

0.0025

1,822

363

363

Maintenance of the rest of the plant 000 PhP

0.5745

0.0115

8,281

1,650

1,650

Personnel expense 000 PhP

0.4596

0.0092

6,625

1,320

1,320

Land lease, rent 000 PhP

0.4596

0.0092

6,625

1,320

1,320

Taxes, Insurance, services, and others 000 PhP

0.4596

0.0092

6,625

1,320

1,320

DSRF Expense 000 US$

2.578

0.0516

37

9

9

Special Privilege Tax – 2% 000 US$

174.588

3.4918

2,517

501

501

Special Realty Tax – 2.5% 000 US$

244.798

4.8960

3,529

1,057

952

DOE 1-94 : 0.01 PhP/kWh sales 000 US$

10.000

0.2000

144

29

29

– Depreciation & amortization 000 PhP

1.4554

0.0291

20,979

4,180

4,180

– Interest 000 PhP

0.7275

0.0146

10,487

3,245

2,904

– Income tax 000 PhP

0.1565

0.0031

2,255

0

125

Total Generation Cost

8.3661

0.1673

120,595

25,090

24,769

Net Profit

0.3633

0.0073

5,236

-30.31

291.42

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