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How to use the advanced (regulator) ocean current and tidal current power plant project finance model

July 13th, 2017 Posted in financial models

How to use the advanced (regulator) ocean current and tidal current power plant project finance model

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Finding an easy-to-use project finance model for an ocean current and tidal current power plant with built-in data is sometimes difficult as some models don’t have the sophistication of a regulator template model as well as the ease of using the model and viewing immediately the results of a sensitivity change in the inputs to the model.

This is now made easy because the Input & Assumptions worksheet (tab) has combined all the input and output information in a single worksheet and placing the reports in other worksheets such as Tariff Breakdown, Construction Period, Operating Period, Financial Reports and Levelized Tariff.

Following is a sample case study on a tidal current power plant. From the preliminary design and cost estimates, the top management would want to know if the business idea of going into tidal current power development, construction and operation is worth the effort – is it feasible and what are the economic and financial returns for risking capital.

Here are the inputs and outputs of the advanced template model from OMT ENERGY ENTERPRISES:

——————————————————————————————-

Here are the summary of inputs:

all-in capital cost (overnight cost) = 2,473 $/kW (target cost)

EPC cost portion = 1,112 $/kW (computed by model)

refurbishment cost = 5% of EPC cost on the 10th year (overhaul)

fixed O&M cost = 86.19 $/kW/year (target cost) = 203.36 ‘000$/unit/year (computed by goal seek)

variable O&M cost = 2.40 $/MWh (target cost) = 15.89 ‘000$/MW/year (computed by goal seek)

general admin cost = 500.00 ‘000$/year (target cost)

 

Thermal power plant inputs: (not used in tidal current)

Gross heating value of tidal current fuel = 5,198 Btu/lb

Plant heat rate = 13,500 Btu/kWh (25.28% thermal efficiency)

Cost of tidal current fuel = 1.299 PhP/kg = 1,299 PhP/MT

 

Lube oil consumption rate = 5.4 gram/kWh

Density of lube oil = 0.980 kg/Liter

Cost of lube oil = 200.00 PhP/Liter

 

capacity = 3.00 MW/unit x 10 units = 30.00 MW

 

Plant Availability Factor, %                                    86.42% (computed by goal seek)

Load Factor, %                                                      90.00% (assumed)

Allowance for losses & own use, %                      10.00% (assumed)

Net Capacity Factor after losses & own use, %    70.00% (target net capacity factor)

Degradation rate, %                                               0.2%

 

construction period = 24 months (start 2015)

operating period = 20 years (start 2017)

 

Capital cost estimation assumptions and % local cost (LC):

Power plant footprint (ha)                                   6.00

Cost of purchased land (PhP/sqm)                    25.00 (no land lease)

Land cost, $000 $29.82 100.0%
Equipment Cost ex BOP, Transport ($000/MW) $788.72 0.0%
Insurance, Ocean Freight, Local Transport, % of Equipment Cost 10.0% 100.0%
Balance of Plant (BOP), % of Equipment Cost 31.0% 66.0%
Transmission Line Distance (km) 10.00
T/L Cost per km, 69 kV ($000/km) $84.00 100.0%
Switchyard & Transformers ($000) $3,000.00 100.0%
Access Roads ($000/km) $2,200.00 100.0%
Distance of Access Road (km) 10.00
Dev’t & Other Costs (land, permits, etc) (% of EPC) 2.0% 100.0%
VAT on importation (70% recoverable) 12% 100.0%
Customs Duty 0% 100.0%
Initial Working Capital (% of EPC) 1.0% 100.0%
Contingency (% of Total Cost) 7.5% 59.0%

 

Capital cost breakdown (‘000$): (computed values)

Uses of Fund:
    Land Cost $30
   EPC (Equipment, Balance of Plant, Transport) $33,363
   Transmission Line Interconnection Facility $840
   Sub-Station Facility $3,000
   Development & Other Costs (Civil Works, Customs Duty) $22,667
   Construction Contingency $4,490
   Value Added Tax $3,360
   Financing Costs $5,958
   Initial Working Capital $334
Total Uses of Fund – $000 $74,041
                                 – PHP 000 3,724,071
Sources of Fund:
   Debt $51,829
   Equity $22,212
Total Sources of Fund $74,041

 

 

Local and Foreign Cost Components (from individual cost item):

Local Capital = 59 %

Foreign Capital = 41 %

 

Balance Sheet Accounts:

Receivables = 30 days of revenue

Payables    = 30 days of expenses

Inventory    = 60 days of consumables

 

Imported Capital Equipment:

Customs duty = 0%

Value added tax (VAT) = 12%

VAT recovery = 70% on 5th year of operation

 

Type of input / output VAT = 0 (none)

Type of incentives = 2 (BOI incentives)

 

Tax Assumptions:

Income Tax Holiday (yrs) 7
Income Tax Rate % (after ITH) 10%
Property tax (from COD) 1.5%
Property tax valuation rate (% of NBV) 80%
Local Business Tax 1.0%
Government Share (from COD) 1.0%
ER 1-94 Contribution (PHP/kWh) 0.0100
Withholding Tax on Interest (Foreign Currency) – WHT 10%
Gross Receipts Tax on Interest (Local Currency) – GRT 5%
Documentary Stamps Tax (DST) 0.5%
PEZA Incentives (% of gross income) – 0% / 5% 0%
Royalty 0%

 

Capital Structure:

Equity Share = 30% at 16.44% p.a. target equity returns (IRR)

Debt Share = 70% (59% local, 41% foreign)

 

Debt Terms:

Local & Foreign Upfront & Financing Fees 2.00%
Local & Foreign Commitment Fees 0.50%
Local All-in Interest Rate excluding tax 10.00%
Local Debt Payment Period (from end of GP) (yrs) 10
Foreign All-in Interest Rate excluding tax 8.00%
Foreign Debt Payment Period (from end of GP) (yrs) 10
Local and Foreign Grace Period from COD (mos) 6
Local and Foreign debt Service Reserve (mos) 6

 

Foreign Exchange Rate:

Base Foreign Exchange Rate (PhP/US$) – 2013            48.0000 (construction)

Forward Fixed Exchange Rate (PhP/US$) – 2014           50.2971 (operating)

 

Escalation (CPI):

Annual Local CPI – for OPEX      0.0%            4.0%     for CAPEX (to model construction delay)

Annual US CPI – for OPEX           0.0%            2.0%     for CAPEX (to model construction delay)

 

Weighted Average Cost of Capital:

WACC pre-tax       11.66%

WACC after-tax     10.49%

WACC                   11.36%

 

Results of Financial Analysis:

 

First year tariff (Feed-in-Tariff) = 4.149573 P/kWh = 0.08342 USD/kWh

(at zero equity NPV)

 

Short run marginal cost (SRMC) and Long run marginal cost (LRMC)

Item PhP 000 PhP/kWh
Fuel                     – 0.000
Lubes                4,420 0.001
Var O&M            479,679 0.133
Total            484,099 0.134
MWh net          3,609,295
SRMC            484,099 0.134
Fix O&M          3,365,945 0.933
Capital Cost        11,293,574 3.129
LRMC        15,143,618 4.196

 

Equity Returns: (30% equity, 70% debt)

IRR          = 16.44    % p.a. (target returns)

NPV        = 0.00    ‘000$

PAYBACK = 7.51    years

 

Project Returns: (100% equity, 0% debt)

IRR          = 13.19        % p.a.

NPV        = (522,705)  ‘000$ (negative since IRR < 16.44%)

PAYBACK = 6.30        years

——————————————————————————————-

The above runs were based on goal-seek to make equity NPV = 0 (to meet equity IRR target of 16.44% p.a.).

You can perform sensitivity analysis and save the results in a case column (copy paste value).

You can breakdown the tariff ($/kWh) into its capital ($/kW-month) and variable cost recovery ($/kWh) portions.

You can prepare all-in capital cost breakdown showing interest cost during construction and does model the impact of project construction delays.

You can show the evolution of capacity and generation (degradation) during the operating period and show other revenues, expenses and balance sheet accounts as they change over time during operation years.

You can show the income & expense statement.

You can show the cash flow statement.

You can show the balance sheet.

You can show the debt service cover ratio (DSCR) as it computes the cash flow available for debt service.

It also computes the benefits to cost ratio (B/C) of the project.

Finally, it computes the other financial ratios such as:

LIQUIDITY RATIOS

SOLVENCY RATIOS

EFFICIENCY RATIOS

PROFITABILITY RATIOS

MARKET PROSPECT RATIOS

 

Download the sample file below:

Model Inputs and Results – Tidal Current

 

Download the complete demo model for a tidal current power plant in PHP and USD currencies are shown below:

ADV Tidal Current Model3_30 MW – demo5b

ADV Tidal Current Model3_30 MW (USD) – demo5b

If you have actual data from your OEM and EPC suppliers, kindly share the data with me or simply enter your live data into the above models and see how the results will change immediately before your eyes. Please email me back the updated demo model with your new data so you may share it will all our readers of this blog.

 

To purchase the PHP and USD models at a discount (only USD400 for two models), click the link below:

 

30 mw Tidal Current Project Finance Model Ver. 3 – in USD and PHP Currency

 

You may place your order now and avail of a package for the unlocked model with free guidance on using it. The list price of the tidal current model is USD1,400 and I will give you one-hour free for assistance in putting your input data into the model (via telephone or email or FB messenger).

 

Your energy technology selection expert.

Email me for more details and how to order off-line:

energydataexpert@gmail.com

Visit our on-line digital store to order on-line

www.energydataexpert.com

www.energytechnologyexpert.com

 

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