presentation-2 the project cycle
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The Project Cycle
Presentation 2 for Sotik Tea Company
Harrie Knoef10-11th January 2008
www.btgworld.com
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1. Phases in the project cycle
2. Pre-investment phase Opportunity study
Pre-feasibility study
Feasibility study
3. Investment phase
4. Operational phase
Contents
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Phases in the project cycle
Pre-investment
phase
Investmentphase
Operational
phase
Pre-feasibilitystudy
Feasibility
study
Opportunity
study
Project
recommendation
Negotiation,contracting
Engineering,
design
Construction
Pre-production
marketingTraining
Commissioning,
start-up
Maintenance,
improvements
Expansion,Innovation
Go/no-go
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Pre-investment phase
The pre-investment phase starts with a problem or anidea, and ends in a project recommendation
It may include a range of assessments and studies,
such as: Opportunity study
Pre-feasibility study
Feasibility study
Accuracy
Investment
costs
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Opportunity study
An opportunity study is an assessment to determine
whether there are opportunities for a project For example: whether there are possible solutions for
an existing problem (e.g. high energy costs,unreliable energy supply, environmental concerns)
Or, are there similar examples of success/failures Often not a formal study entrepreneurs usually
take the initiative, informally discuss their problemand possible solutions with their peers and experts
Outcome is a project idea (e.g. a cogenerationproject)
Sotik: completed
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Pre-feasibility study
A pre-feasibility study is a quick assessment of thebasic feasibility of a certain project idea.
It determines whether basic technical / organisational
requirements are met, and whether the solution is
cost effective.
Pre-feasibility studies are often executed by external
experts, and have a short lead time (weeks).
The study should indicate whether or not a feasibilitystudy is justified.
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Feasibility study
A feasibility study is an extensive assessment of thefeasibility of a certain project
Key elements include (see next slides): Technical issues
Environmental issues Financial feasibility
Organisational issues
Risk analyses
Financing
The feasibility study should result in a project
recommendation and a bankable project document
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Feasibility study: technical issues (1)
Technical assessments should determine whichsystem is required, and what are the inputs and
outputs
Basis for the technical assessment is an analysis of
on-site processes, for example: Determine current energy demand (heat and electricity) and
projected developments therein: energy consumption, peak
demand, load profiles, steam condition requirements, etc
Determine fuel availability and attributes (moisture, contaminants,morphology, ash content, density, calorific value)
Integration of CHP plant to the local project site
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Feasibility study: technical issues (2)
Technology selection, for instance: combustion/steam cycle or gasification/engine
steam turbine or steam engine or ORC
anaerobic digestion
Technology attributes heat and power output
efficiency
fuel requirements fuel pretreatment
O&M requirements
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Steam engine vs Steam turbine
Advantages Disadvantages
Steam engine Low cost at low power ratings
Robust design, long life
expectancy
Good performance at lower
loads
Low capacity (10%)
Possible higher temperature
heat supply
Low consumables
Higher capacity (>500 kW)
Higher cost in smaller scale
Less suitable for intermittent
use
Steam engines for smaller loads, intermittent operation, at low biomass price
Steam turbines for higher loads, continuous operation, biomass may be to be
bought
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ORC (Organic Rankine Cycle)
For instance in Ludwigsfelde, Germany Wood-fired boiler
Wood consumption: 18700 ton/yr
1,5 MWe, 10 MWth
7500 hrs/yr 86% availability
Fully remote controlled from Italy
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Feasibility study: environmental issues
Environmental assessment should indicate to whatextent the project can meet local / national
environmental standards
Example:
Assessment of emission regulations (e.g. dust, NOx, SOx) Comparison with expected (rated) emissions from systems
Determine required emission control systems (flue gas filters, de-
NOx)
Legal requirement Kenya: EIA, Environmental ImpactAssessment
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Feasibility study: environmental issues
emission control [1]
Main contaminants: particles, NOx, CO
Aspects to consider Environmental legislation Local situation Technological state of the art BAT: Best Available Technology
Levels of control (and measures)
Fuel side (prevention) Conversion side (prevention) Flue gas side (end-of-pipe)
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Feasibility study: environmental issues
emission control [2]
Fuel side (prevention): moisture content, fuel size, no contaminants quality clauses in fuel delivery contracts
Conversion side (prevention): optimal process control (partial vs full load) multiple air supply/staged combustion flue gas circulation (NOx control)
Flue gas side (end-of-pipe): particles: (multi)cyclones, fabric filters, electrostatic filters NOx: catalytic reduction (combined with SOx)
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Energy demand analysis
Load curves and load duration curves
Annual basis
Monthly basis
Daily basis
Hourly basis
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Feasibility study: energy demand
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50
100
150
200
250
300
1 4 710
13
16
19
22
25
28
31
34
37
40
43
46
49
52
Duration [weeks]
heatdemand[GJ]
Load duration
curve
annual basis
Load curve
annual basis
0
50
100
150
200
250
300
1 4 710
13
16
19
22
25
28
31
34
37
40
43
46
49
52
weeks of the year
heatdemand[GJ]
Maximum
240
GJ/wkAverage
168
GJ/wk
Heat demand is
often leading
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Feasibility study: energy demand
Load duration curve
daily basis
0.00
0.50
1.00
1.50
2.00
2.50
0:0
0
2:0
0
4:0
0
6:0
0
8:0
0
10:00
12:00
14:00
16:00
18:00
20:00
22:00
time of the day
heatdemand
[GJ]
-
0.50
1.00
1.50
2.00
2.50
1 3 5 7 9 11 13 15 17 19 21 23
Duration per day [hours]
heatdema
nd[GJ]
Load curve
daily basis
Maximum
2.2 GJ/hr
620 kWth
Maximum day
Average day
0.00
0.50
1.00
1.50
2.00
2.50
0:0
0
2:0
0
4:0
0
6:0
0
8:0
0
10:00
12:00
14:00
16:00
18:00
20:00
22:00
time of the day
heatdemand
[GJ]
-
0.50
1.00
1.50
2.00
2.50
1 3 5 7 9 11 13 15 17 19 21 23
Duration per day [hours]
heatdema
nd[GJ]
Maximum
1.4 GJ/hr
388 kWth
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Feasibility study: financial issues (1)
The financial assessments determine the cost-effectiveness of an investment
Financial
analysesProject
financing
Investment costs
Operating costs
Revenues
Other parameters
Indicators
Overviews
Sensitivity
parameters
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Feasibility study: financial issues (2)
Investment costs Determine fixed investment costs (land, buildings, equipment,
installation, commissioning) Determine working capital (in comparison to current situation), e.g.
additional stock, accounts payable, accounts receivable
Annual costs and revenues Annual costs are for example fuel (biomass), personnel,
maintenance, administrative costs Annual revenues are for example fuel savings, avoided energy
costs, revenues from energy sales, carbon credits
Other parameters Depreciation rate, tax rate Project duration, equipment lifetime
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Investment costs (example)
Civil works and building 1 m
Fuel handling/feeding 1 m
CHP plant 10 m
Utilities / auxiliary equipment 2 m
Engineering 1 m
Start-up and commissioning 2 m
Total costs 17 m
? = What is inside the Capital expenses
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Operational costs
Fuel costs different suppliers, variation in time
Labour costs: ~ 5% of investment costs
labour requirements level of automation
Maintenance costs: ~ 2.5% of investment maintenance costs quality of boiler / investment costs
Other costs: costs for pre-treatment, capital,heat distribution, insurance, grid connection,
etc.
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Feasibility study: financial issues (3)
Financial analyses1. Determine financial indicators (IRR, NPV, RoI, Payback
Period)
2. Determine production costs, cashflow, profit-loss and
balance sheets3. Determine the sensitivity of indicators to parameter
variations (e.g. investment costs, number of operating
hours, etc.
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Feasibility study: financial issues (4)
Ad 1. Most commonly used financialindicators: IRR (Internal Rate of Return): average annual return of
the project, regardless of how it is financed
NPV (Net Present Value): value of the investment in thepresent year when discounting future cashflows RoI (Return on Investment): average annual return on
equity = annual profits / investment costs (%) Payback Period: indicates the number of years before
the initial investment is repaid = investment / annualprofit (yr)
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Feasibility study: financial issues (5)
Ad2. Financial overviews Production costs: overview of costs of production
(including operational costs, overheads, depreciation,
financial costs
Cashflows: projection of ingoing and outgoing cashflows, determining financing needs
Profit-loss accounts: projection of annual accounts,
determining annual profits or losses, and taxes
Balance sheets: projection of assets and liabilities
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Feasibility study: financial issues (6)
Ad3. Sensitivity analyses: Assessing how variations in certain parameters influence
the financial performance of the project
Determine the important parameters, to estimate risks
Determine at what level of variation the project is stillcost-effective
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Feasibility study: financial issues (8)
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Feasibility study: financial issues (9)
Financing Determine financing needs (fixed investments, interest during
construction, working capital)
Determine financing mix (equity, loans, subsidies)
Risk assessment
Some general observations Maximisation of subsidies and loans give the highest Return on
Investment, and reduces the risk for the investor
Often an iterative process, depending on the availability of equity
and loan conditions
F ibilit t d fi i l i (10)
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Feasibility study: financial issues (10)
technical specification - caseHeat demand
Number of houses 56
Specific heat demand 90 GJ/yr
Total heat demand 5,040 GJ/yr
Maximum heat demand 2.2 GJ/hr
619 kW th
Heating season duration 30 weeks/yr
Boiler specifications
DH system losses 5%
Design capacity boiler 652 kW th
Fuel requirements
Boiler efficiency 75%
Heat input boiler 6,720 GJ/yr
Fuel type wood chips
Moisture content 40% wet basis
Net calorific value 10 GJ/ton
Total amount of wood 672 ton/yr
Average wood flow 133 kg/hr
Maximum wood flow 223 kg/hr
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Feasibility study: financial issues (11)
financial analyses - case
Investment costsSpec. investment system 200 EUR/kWth
Investment costs 130,409 EUR
Financial parametersInterest rate 6%
Economic lifetime 15 yr
Fuel supply 672 ton/yr
Fuel costs 4 EUR/ton
Current price energy 10 EUR/GJ
Labour costs 5% of invest. boiler
Maintenance costs 2.5% of invest. boiler
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Feasibility study: financial issues (12)
cost price analyses - case
Capital costs 13,427 EUR/yr
Fuel costs 2,688 EUR/yr
Labour costs 6,520 EUR/yrMaintenance costs 3,260 EUR/yr
Total costs 25,896 EUR/yr
Cost price energy 5.14 EUR/GJ
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Feasibility study: financial issues (13)
Simple cost/benefit analyses - case
Total annual costs 25,896 EUR/yr
Total annual revenues 50,400 EUR/yrNet result 24,504 EUR/yr
Return on investment 19%
Simple payback time 5 yr
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Feasibility study: financial issues (14)
Sensitivity analyses - case
What if - analysis (Excel: Data/Table)
Remark: take into account probability of parametervariation
0%
5%
10%
15%
20%
25%
30%
35%
40%
- 4 8 12 16 20
Fuel price [EUR/ton]
ReturnonInvestment[%]
150
175
200
225
250
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Feasibility study: financial issues (15)
Sensitivity analyses - case
Scenario analysis (Excel: Tools/Scenarios)
Remark: take realistic sets of parameters
Scenario 1 Scenario 2
Investment costs boiler 250 150
Efficiency boiler 85% 65%
Fuel costs 6 2
Labour costs 3% 8%
Maintenance costs 1% 5%
Return on Investment 15% 27%
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Feasibility study: financial issues (16)
Financing scheme - case
Energy
company
Financial
Investors
Fuel
suppliers
Developers,
management
Commercial
bank
Development
bank
CDM, JI Fund
Environmental
fund
25%
50%
25%
project
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Feasibility study: organisational issues
Internal / external project
Ownership and partnership
What parties to include, responsibilities, shares
Planning Example
For industries, energy production is often not core business. Theymay prefer to undertake such activities in a separate company. Insuch a company, other shareholders can be sought: e.g. biomass
suppliers, utility companies or private equity companies. Theindustry may choose to retain a majority position (51% of theshares) in order to keep control.
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Feasibility study: non-techno/economics
Legislation (emission, energy, etc.)
Environmental impacts
Permissions
Socio-economic benefits
Success factors include: Fuel availability
Technical reliability
Profitability Organization structure
Public perception
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Feasibility study: challenges
Obtaining correct data of current and futuresituation Input data on wood availability, power and heat demand
Assessment of local boundary conditions and desires
Selecting the proper technology (define criteria) Dimensioning of the cogen plant
Financing
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Project Recommendation phase
Go No Go decision to be taken by project management team,
shareholders,
project developers,
investors,
bankers,
Public perception Emissions (pollutants, smell)
Visual (building, steam, smoke)
Noise Transport
General perception towards bio-energy
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Recommendations (1)
Set-up an organization scheme: taking into account the interest of all parties involved:
fuel supplier(s), operating entity of bio-energy plant,
energy consumer, financing parties, authorities,
technology suppliers
identify relations and necessary agreements between
parties involved (i.e. fuel delivery agreements, energy
supply agreements)
evaluate different organization models
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Recommendations (2)
Special attention to fuel supply: characteristics
seasonal aspects
base price
transport (+costs)
pretreatment requirements (+costs) storage (+costs)
contractability
Special attention to energy consumers
delivery conditions consumption assurance
price assurance
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Recommendations (3)
Involve local parties and authorities in anearly stage
Take into consideration all potential succes
and failure factors also seemingly less important factors
its better to mention and refute than not to mention at all
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Negotiation & Contracting phase
Permit preparation and application Environmental permit
Building permit
Biomass fuel contracting
Negotiations with equipment suppliers
Contracts with project team
Negotiations with financing institutes
Risk mitigation and allocation
Negotiations with local community (NIMBY?)
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Negotiation and contracting
Fuel supply
Availability is not the same as contractability
Logistic aspects
Guarantees and assurances: price assurance (long term contracts) delivery assurance (seasonal fluctuations)
quality assurance (fuel characteristics vs boiler
requirements)
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Engineering design [1]
Data collection / analyses Definition, quality and quantity of the biomass fuel to be
delivered to the project facility
Economic parameters like fuel costs, electric power and
heat sales price, local labor rates, availability and costsof utilities, estimated time schedule
Location of the plant and its environment, road access,
grid connection point, availability of water, gas and other
requirements (dependent on type of plant)
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Engineering design [2]
Plant Conceptual design Preliminary process design and flow diagram
Heat and mass balance
Process description
Plant control philosophy Conceptual lay-out and plot plan
List of major equipment
Time schedule for EPC of the plant
Identify major environmental issues connected with theproposed project
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Engineering design [3], plot plan
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Detailed design [1]
Optional: mostly done by technology supplier
Process description
HAZOP study on Health and Safety
what-if questions
PFDs Process Flow Diagram
PIDs Process Instrumentation Diagrams
Cost price determination (quotations)
Financial evaluation of the project
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Detailed design [1], PID
TE = thermocouple
TT = T-transmitter
A = alarm
TIR = T-indicator
and recording
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Detailed design [2], I/O listing
(Instrumentation & Operating range)
To excell sheet
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Detailed design [3], M&E-balance
General M&E balance: to excell sheet (BTG)
Detailed M&E balance:
at each main gas stream (engineering company)
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Investment phase
Finance
Civil works
Fabrication main components
Construction on-site
Permitting
Training
Documentation
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Tendering of equipment supply
Optional
Systematic approach using internationallyaccepted procurement procedures for therequired equipment and services supply
Tender document details the scope andspecs of the equipment and services supply
Supply offer should provide provisions for: After-sales service Spare parts Training of operators
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Operational phase
Commissioning
Optimation, modifications
Operation, maintenance
Expansion, innovation
Replication
Portfolio projects
Monitoring (technical performance andoptional carbon credits)
F ibilit lt ti
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Feasibility results vs practice Investment tend to become higher than expected,
because of:
Delays Too optimistic planning and cost estimate (often to secure finance
from banks)
Additional desires
Mistakes during engineering phase
New legislation on HSE, emissions,
This results often in lack of working capital
Fuel switch and portfolio projects are very successful
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CHP problems in practice
Trained/skilled operators
Wrong technology selected (Burundi)
No stable load conditions or changing load
Sustainable wood supply chains
Managing a new CHP installation
Lack of spare parts (remote areas)
Bad matching of boiler vs turbine
Lower efficiency, higher maintenance
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Financing route (1)
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Financing route (2)
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Stakeholders
So, can become complex
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Video - BIM
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Thank you for your attention!
Harrie Knoef
BTG biomass technology group BV
www.btgworld.com
Knoef@btgworld.com
Ph: +31-53-4861190
http://www.btgworld.com/mailto:Knoef@btgworld.commailto:Knoef@btgworld.comhttp://www.btgworld.com/
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