Download - Introduction to RELCOST
Farm Energy Assessments
Kick-Off Meeting
September 18, 2009
Carolyn Roos, PhD
Washington State University, Energy Program
An Overview of RELCOST Financial
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
Program Overview
Evaluate financial viability of energy projects
• General purpose analysis tool Multiple user-defined products and fuel-sources
• Intended for a variety of energy projects• Power generation• District energy• Combined heat and power• Alternative energy
Wind, Solar, Biomass, Geothermal, etc.
Especially tailored for anaerobic digester projects
Program Overview
MS 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
e.g country-specific tax structure
• Easy integration with other tools• Excel used as output and input for many programs• Extends reporting, analysis, and integration with the tools you use.
Program UseUse in design and analysis with other energy analysis toolsRequires information from other analyses, such as
• Energy use• Cost estimation• Emissions calculation• Systems design• Plant simulation• Power generation• Renewable energy
Develop Policy analysis• Tax, production credits• Tax relief, incentives• Environmental credits
Evaluate energy projects• RRanking, prioritization• Bid evaluation• Contract negotiation• Funding needs• Sales price, valuation
Sensitivity Factors FactorsMultipliers on inputs to test Multipliers on inputs to test variation from most likely values:variation from most likely values:
• Cost overrunsCost overruns• Sales price changesSales price changes• Etc.Etc.
InputsEnter detailed input on a number of sheets
InputsEnter expected values for:
• Plant Operating Factors• Capital Expenditures• Funding Plan• Purchased Fuels• O&M Expenses• Major expenses• Income, Sales• Carbon Offsets, RECs• Taxes, Fees• Dividends• Cost escalation• Cash accounts
Pro-Forma StatementsPro-Forma Statements• Income StatementIncome Statement• Cash Flow StatementCash Flow Statement• Balance SheetBalance Sheet• Use of FundsUse 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 CostsLevelized Costs
Four Types of Results More Than Life Cycle Cost Analysis
Pro Formas
Pro forma financial statements Income Statement Balance Sheet Use of Funds Cash Flow
Stakeholders need pro formas to support a project• Lenders• Equity investors • Policy analysts • Project developers
20 year analysis period
Presentation of Results
Quickly evaluate performance visually
“Financial Scorecard”• Red, yellow and green indicators• Decision values defined by user
Plots from Pro Forma Statements
Discounted Cash FLows
$-
$200
$400
$600
$800
$1,000
$1,200
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Year
Ca
sh
Flo
w (
$1
00
0)
Net Profit After Taxes
$(1,000)
$(500)
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Year
Co
sts
($1,
000)
Benefit/Cost Ratio(BCR =1 at payback)
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Year
BC
Rat
io
New graphs and charts easily added by user
Sensitivity Analysis
“What If” Analysis: e.g. What if I have a cost over run? 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 multiply inputs across many sheets all in one place.
• View results on same screen as sensitivity factors
Sensitivity AnalysisGraphical Results
Sensitivity Analysis
-40%
-30%
-20%
-10%
0%
10%
20%
30%
-4,0
00,0
00
-2,0
00,0
00 0
2,00
0,00
0
4,00
0,00
0
6,00
0,00
0
8,00
0,00
0
10,0
00,0
00
12,0
00,0
00
Net Present Value
Var
iati
on
in P
aram
eter
Sales Price
CapEx
Sensitivity diagrams are used to identify which factors most impact the viability of your project
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
General Information
• Facility Description
• Discount and inflation rates
Input 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 her
RELCOST Tab
of screen shot
Capital Expenditures
• Detailed or simple estimateDetailed or simple estimate
• 3 General Categories3 General Categories
• Expenditures can occur in each project year• Inputs in current dollars, escalated values calculated
Depreciation
• “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 depreciation schedule library
Funding Plan
Three fund 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 borrowed funds Short duration loans Construction financing or
working capital.
Purchased Fuels
• Can have multiple fuel types in same year Separate inputs for each project year
• Energy units can be changed
• Inputs in current dollars, escalated values calculated
Applies operating factors to Applies operating factors to all project yearsall project years
Operation & Maintenance
Multiple expense categories Sales & Administration Costs Overhead Operating Labor Insurance, property Taxes
Operating Reserve Deposits & Withdrawals
• “Cash Accounts” Current account Operating Reserve account
• Save up for major expenses Major Overhaul, bond payment
Major Expenses
• Repeating or one-time major expenses e.g Equipment overhaul e.g. Every 5 years starting in year 6
Income from Sales
• Nine sales income types• Can be user defined for
specific project needs
• Products• Power sales• Heat, cool sales• Co-products• Direct use by-products such
as greenhouse for flowers, plants, vegetables
Environmental Credits
• Carbon Offset, Renewable Energy Credits, Production Incentives
Income Taxes and Fees
• Tax incentives:• Refundable tax credits• Tax credit carry forward
• Multi-jurisdictional:• Federal, state, local• Tax rates can vary by project
year
Dividends
• Dividends are annual cash distributions made to investors
• Dividend payout policies vary greatly• User defined logic can be created for specific projects.
Cost Escalation ForecastsEscalated costs are calculated using factors from a forecast
Forecast values are user defined for each item e.g. 3% escalation on electricity sales but 3.5% on gas sales.
Four forecast types None – costs are not escalated Conservative – lowest cost escalation Likely – most probable escalation Aggressive – highest cost escalation
Questions ?Questions ?
Download blank spreadsheet, examples, and User’s Manual
http://www.energy.wsu.edu/software/relcost/
Carolyn Roos, PhD
Washington State University, Energy Program