Developing and Deploying CHP _ Renewable Energy Technologies

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					            An Overview of

World Energy Engineering Congress
Carolyn Roos, Ph.D.
Northwest Clean Energy Application Center
Washington State University Extension Energy Program

December 8, 2010                                       1
        RELCOST Financial:
Financial Analysis of Energy Projects

 Presentation Outline
 • General overview
 • Program use
 • Overview of inputs
 • Summary of results
 • A review of input screens
   A quick look at each input screen to give you a
    sense of its look and feel and comprehensiveness.
   More content in this PPT than we can cover

                 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

Developed by
• Washington State University Energy Extension Program
• Northwest Clean Energy Regional Application Center

                  Find it On the Web

• Northwest Clean Energy Regional Application Center
  Click on “Software, Resources and Links”

• Direct link:

• Also, available on our website
  Example analyses
  User’s Manual
  PowerPoint presentations

                 Program Overview

• General purpose analysis tool
  Can be used for any project with income streams and

• But intended for a variety of energy projects
   •   Power generation
   •   District energy
   •   Combined heat and power
   •   Alternative energy
        Wind, Solar, Biomass, Geothermal, etc.
        Anaerobic digestion with multiple revenue streams

                  Program Overview

A MicroSoft 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
   • All calculations visible

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

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

Policy analysis for most effective incentives
• Tax credits and exemptions
• Production incentives
• Bonus depreciation
• Grants and low interest loans
• Environmental credits

                    What It Does Not Do

Must be used with other tools for analyses of:
   • Energy use
   • System design and sizing
   • Cost estimation
   • Emissions calculation
   • Plant simulation
   • Power generation
   • Renewable energy
    Requires input, such as system sizing, from other tools.

Does not include a database of incentives available
  • Refer to DSIRE database

                Overview of Inputs
         Enter detailed input on a number of sheets

Expected Values                    Sensitivity Factors
Enter most likely values for:      Multipliers to test variation from
• Plant Operating Factors          most likely values:
• Capital Expenditures
• Funding Plan                     Investigate
• Purchased Fuels                  • Cost overruns
• O&M Expenses                     • Sales price changes
• Major Expenses                   • Etc.
• Income, Sales
• Offsets, RECs, Prod Incentives
• Taxes, Fees
• Dividends
• Cost Escalation                         Input sheets will be discussed
• Cash Accounts                           in more detail later…
• Cost Allocation
             Four Types of Results
           More Than Life Cycle Cost Analysis

Pro-Forma Statements
• Income Statement
• Cash Flow Statement
• Balance Sheet
• Use 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 Costs
                          Pro Formas
Proforma financial statements that can be printed out for
 records, funding applications, tax purposes, etc.
    Income Statement
    Balance Sheet
    Use of Funds
    Cash Flow

Stakeholders want to know your cash flow, earnings,
 expenses, etc. in every year of the project
    Lenders
    Equity investors
    Policy analysts
    Project developers

               20 Year Analysis Period
• Results Example: Income statement has a column for each year

                                                        20 columns, one for each year

• Input Example: Carbon offsets in initial years of project is set to zero
  to account for M&V and registration.

                                         20 columns to enable input in any project year
     Visuals of Pro Forma Statements
Example: Net profit before taxes over 20 year period

Example: Income statement in a particular year

                                 New graphs and charts
                                 easily added by user

                ”Financial Score Card”
Visual indicators of viability
   • Red, yellow and green indicators
   • Decision values defined by user

                  Sensitivity Analysis
Sensitivity or “What If” Analysis
  What if I have a cost overrun?
  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 and Results Shown Side-by-Side
  Identify which factors most impact the viability of your project
  Multiply inputs across many sheets all in one place for easy
   exploration of scenarios

                                    In example, electricity sales
                                    price is 90% of what is
                                    expected, multiplied through all   15
                                    input sheets
                   Sensitivity Analysis
Spider Diagrams
  Used to identify parameters that most affect viability
  Created using sensitivity factors to obtain several scenarios
     Horizontal: Variation of a parameter from its expected value
     Vertical: Indicator of project viability (e.g. NPV or IRR)
  The steeper the slope, the less sensitive viability is to a variation
   in the parameter
   Focus investigation on parameters with low slopes

         Automatic Spider Diagrams

New version of RELCOST includes automatic creation of
  spider diagrams for easy investigation of scenarios
• Select performance measure and parameters
• Enter sensitivity factors to define scenarios
• Click the button to recalculate the spider diagram.

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

              First Input Sheet                       RELCOST Tab
             General Information                      of screen shot

Enter basic info on plant and financial assumptions
• Facility Description
• Discount and inflation rates
• Dispatch and availability factors

                                         Inputs are blue.
                                         Calculated cells are green.

                 General Information
                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 here

Other factors
  Optionally can use other factors, such as resource depletion and
   parasitic plant losses, to calculate dispatch and availability factors.

                                                         Low plant operating factor in
                                                         first year to model start up of

                                                         Declining resource depletion
                                                         due to plant age.

Capital Expenditures

       Plenty of space
       •   Three user-defined general categories, plus
           “below the line” expenses.
       •   Expenditures can occur in any project year
       •   Sufficient for detailed cost estimate, but
           does not preclude simplified estimate

           Current dollars
           •   All inputs are entered in current dollars
               with escalated values calculated

“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 MACRS depreciation
                                    schedule library on drop-down

                            Funding Plan
                                   Three funding 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
Example shows one loan,
one equity investment and           borrowed funds
three grants.                        Short duration loans
                                     Construction financing or
                                      working capital.

       Income from Sales
   • Nine sales income types
          • Can be user defined for specific
            project needs

   • Example income streams
          • Power sales
          • Heat, cooling sales
          • Co-products
          • Tipping fees
          • Savings due to efficiency
          • Direct use by-products, such as
            flowers from heated greenhouse

Example illustrates multiple
products possible at
anaerobic digester projects                    24
Applies operating factors to
all project years              Purchased Fuels

                                    Can have multiple fuel types or
                                    sources in same year
                                     Separate inputs for each project year
                                     Energy units can be changed

                                     Current dollars
                                     • Input in current dollars
                                     • Escalated values are calculated
     Example has low fuel
     usage in first year due                                             25
     to project start up
                            Operation & Maintenance
Plant operating factor applied to
variable but not fixed costs.

                                      Multiple user-defined expense

                                      For example
                                       Misc. Fixed & Variable
                                       Property taxes & insurance
                                       Labor & benefits
                                       Overhead

               Major Expenses

• Repeating or one-time major expenses
  In example, a major maintenance expense of $30,000
   occurs every 3 years beginning in year 5

              Environmental Credits
                                 Incentives proportional
                                   to production:
                                 • Carbon Offsets
                                 • Renewable Energy Credits
                                 • Production Incentives

                                   In example, carbon offsets are
                                   set to zero and ramp up in 3rd
                                   year to account for time
                                   required for registration and

In example, sensitivity factor
for production incentive was
set to zero because project
took the ITC and so was not

Where to account for incentives
•   Grants and low interest loans are entered on “Funding Plan”
•   Incentives proportional to production such as production
    incentives, carbon offsets and RECs can be entered on “Offsets,
    RECs” or on “Sales, Income”
•   Tax exemptions, credits and holidays are entered on “Taxes &
•   Bonus depreciation entered on “Depreciation”
     As indicated in the notes for this example

                                                         Notes for this Biomass
                                                         CHP example illustrates   29
Income Taxes and Fees

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

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

   In this example, the state
   has a tax holiday for first
   year of project.
      Cash Accounts

• Current Account and
 Operating Reserve Account
  Interest bearing
  Accounts receivable & payable floats

• Transfers between current and
 reserve accounts
  e.g. for major overhaul, bond payment,
• Annual cash distributions made to investors
•   Dividend payout policies vary greatly
     • User-defined logic can be created for specific projects.

                                  Cost Escalation
     Escalation factors can be selected for each item.
      Can be entered as relative to inflation
      In this example
        •   Option to add escalation factors and inflation is selected
        •   General inflation rate is 3%
        •   Electricity sales escalate at rate of 2% per year
        •   O&M under maintenance contract escalates at 12% every 5 years

Option to add
escalation factors to
3% general inflation                                                           Electricity sales escalated
                                                                               at rate of 2% per year
                                                                               -- 3% inflation minus 1%

                                                                            In this example, the facility
                                                                            has an O&M contract that
                                                                            specifies a 12% increase
                                                                            every 5 years.
                                                                            -- 9% plus 3% inflation          33
              Escalation Forecasts
Four escalation forecast types can be entered
    None – costs are not escalated
    Conservative – lowest cost escalation
    Likely – most probable escalation
    Aggressive – highest cost escalation
                                             “Likely” forecast
                                             selected in this example.
Forecast is selected on “What If”
drop down menu

                      Cost Allocation
         Allocation of costs of sales
            Used in calculating levelized costs

                                                      In this example, 56% of costs
                                                      are associated with electricity
                                                      sales and 44% with steam

                                                    Resulting levelized costs
                                                    shown on “What If” tab.

 In this example, allocation was calculated by “efficiency method”

            User’s Manual
Guide to financial analysis using RELCOST
• Background on financial concepts
• References for cost data and typical values
• Modeling tips
• Information on incentives
… more

                       Questions ?

Carolyn Roos, Ph.D.
Northwest Clean Energy Application Center
Washington State University Extension Energy Program

Download blank spreadsheet, examples, and User’s Manual at


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