cost benefit analyses (cba), project...

Dr. Mario Ortner Biomass CHP training1

#8 Cost Benefit Analyses (CBA), Project development


Cost Benefit Analyses

The CBA will be structured in following seven steps:

1) Objectives definition,2) Project identification (LTIP - PIP),3) Feasibility and options analysis,4) Financial analysis,5) Economic analysis,6) Multicriteria analysis and7) Sensitivity and risk analysis.

LTIP..Long Term Investment ProgramPIP…Priority Investment Program

Dr. Mario Ortner Biomass CHP training

Objective definition

General ContractorTechnical, commercial, legal conditions

Project ManagementProject DesignExperticesPermission

TenderingScope of SupplyInterfaces Guarantees......

Supply contractsElectricityHeat

Purchase contractsFeedstockConsumables

Land

Project Financing

Operation & Maintenance

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Businessplan • Technical Conditions *)• Commercial Conditions and Financing *)• Legal Conditions• Environmental Conditions• Social Conditions

*) Benchmarking

Objective definition


Technical Frame Conditions

• Full load hours – Heat duration curve• Large heat consumers• Heat demand (pressure)• Forecast : Increase of heat sales /y• Availability of Feedstock (Price!)• Site of Plant (Emissions: noise, pollutants...)• Water quality• High efficiency• High Plant availability• Feed stock flexibility• Low electrical self demand• Plant automatisation


Commercial Frame Conditions

• Specific and Total Investment costs *)• Costs for building permit and water connection• Land costs (dedication (!))• Subsidies (grant, soft loan, feed in tariff, CO2-credits)• Equity demand, prefinancing costs and working capital• Mezzanine financing• Senior loan• ROE, ROA• DSCR

*)...Cogeneration: 2800 – 4500 EUR/kWel depending on size and quality


Legal Frame Conditions

• Land use right,• Location permission (conceptional design)• Building permission (base design)• Eligible Power Producer Status• PPA (Power Purchase Agreement)• Biomass long term contract; definition for price escalation• Feed tariff system• Heat Price


Environmental Frame Conditions

• Exhaust Gas Emission limits• IPPC report• EIA Study (sometimes precondition of some internEU funds)• Noise emission limits (eg. Wood chipper)• Traffic (Biomass)• Water and Waste Water (also substantial prefinancing costs)• Grid connection limits (important for larger units); 10kV/35

kV/110kV


Social Frame Conditions

• Acceptance of the plant (neighbours)

• Create workstations (e.g.for local companies)

• Reduction of workstations (e.g. chimney sweep)

• .....


Businessplan

Problem: Too optimistic CBA because of:• Too low investment costs estimations• Too low project development costs (DD)• No project prefinancing costs considered during building phase• Working capital during financing phase not considered• Too optimistic heat sale forecast• Too low personal costs especially for heating plants• Too low fuel cost (price escalation!) sensibility analyses• Escalation factors for price increase (e.g. operating costs… not

considered

Result: Project Standstill

Dr. Mario Ortner Biomass CHP training

Example Project schedule between Buildings Phase and end ofWarranty Period

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Typical payment conditions (e.g. Biomass CHP plant)

• 45% prepayment against BG (validity until start hot initial operation)• 55% BG from Investor to GC (conformance to requirements; will be

reduced according to contractual payment schedule)• 10% start of construction against BG (validity until start hot initial

operation)• 10% Completion of building foundation• 20% Delivery of Steam Turbine• 5% Completion of Steam Boiler• 5% Start up• 5% After successful test run in lieu Performance (BG) guarantee of

10%-15% until end of 2 years guarantee period.

Project Development


The payment conditions

• have considerable influence on the contract price• and have to be considered already during calculation• Influence the pre-financing costs (5-8% of GC price)

Project Development


Project Financing

•project development

main works

contract

grace period

completion

repaymentyearly instalments


down payment

project development construction

profit

contract completion, final payment

design

Design&Build Contract

Financing, “almost ideal case”


Private investors are entrusted with the design, financing, building and operating of a project.

Concession contracts

PFI in the United Kingdom, the Private Financing Initiative, today an example for many similar projects world-wide.

DBFO, Design, Build, Finance, Operate PPP, Public-Private Partnerships BOT, Build, Operate, Transfer, after 25 or 30 years BOO, Build, Operate, Own, without transfer, unlimited private ownership.

Build-Operate-Transfer (BOT), Concessions

cost benefit analyses (cba), project...

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