jan h jansen, senior lecturer management accounting & (international) finance researcher chair...

Research Group TQM in Organisational Networks

Jan H Jansen, Senior lecturer Management Accounting & (International) FinanceResearcher Chair of TQM in Organisational Networks

Minor Wind Energy Project Management

http://www.out-smart.nl/

Minor Wind Energy Project Management

Project

Finance

Law

Supply Chain Management

Construction

Mechanical Engineering

Energy

Commercial

Engineering

Research Group TQM in Organistional Networks

Wind Energy Project Management

The exchange course in Wind Energy Project Management at HAN University of Applied Sciences is delivered in cooperation with OutSmart wind professionals.

This course deals with every aspect of harvesting wind energy using offshore wind farms.

It is a unique study designed for Engineering, Economics and Management students.

(www.han.nl/opleidingen/exchange-courses/wind-energy-project-management)


http://wepmprojectfinance.wikispaces.com/


Agenda


Agenda

• Project finance• Markets for energy and renewable energy• ETO’s & Engineering• Sustainable Investment Decisions (DOSIT)• Investment Model


Agenda

Project finance

Energy market

• Macro• Meso• Micro

ETO’s & Engineering

• QC, TCO & LCC

• Foundation• Mechanical

Engineering • Energy• Risk

Management

Sustainable Investment Decisions

• DOSIT

Investment Model

• Data & Assumptions

• Cash Flows• Decision

Criteria

Characteristics Project Finance

• Economic life > 20 years• PPP (Private Public Partnership)• Large investments

– Equity providers (Sponsors)– Debt providers (Banks)

• Off taker contract• S.H.E.Q.• People, Planet & Profit (PPP) • Ring fencing construction

– SPV ( Special Purpose Vehicle)

• …



Ring Fencing

Project Company

Finance• Equity

Investors• Lenders

Operator (O&M)

Government Support Agreement

Government Concession / License

Off taker

(Power Distributer)

Input Supplier

Contractor (Construction)

Project Risk (Source: Yescombe)


Project Risks

Commercial Risks

Completion Risk Environmental risk

Operating Risk Revenue Risk

Input Supply Risk

Force majeure risk

Contract mismatch risk

Sponsor support Risk

Macroeconomic Risks

Inflation Risk

Interest Rate Risk

Exchange Rate Risk

Political Risks

Currency Convertibility

RiskTransfer Risk

Expropriation Risk

War & Civil Disturbance Risk

Change of Law Risk

Quasi-political Risks

International Business Risk (Source: Eiteman)


International

Business Risk

Firm Specific Risks

Governance

Risks

Country

Specific

Risks

Transfer

Risks

(Blocked funds)

Cultural & Institutional

Risks

Global

Specific

Risks

Terrorism & war

Cyber attacks

Environment


Agenda

Project finance

Energy market



• QC, TCO & LCC



Management


• DOSIT

Investment Model



Criteria


Complexity Electricity Market

•Sources:• Traditional:

• Oil• Gas• Coal• Nuclear

• Renewable:• Wind• Hydro• Solar• Biomass• Geothermal

•(Direct) Storage of electricity• Losses during transport


Energy Prices in the future

Annual Energy Outlook 2010 of the U.S. Energy Information Administration:

The average annual increase in real electricity prices till 2035 is calculated; the expected annual increase is 0.85% for real electricity prices per KWh

0.85% = [ {(10.2 / 8.6)(1/27) -1)*100 ]


Agenda

Project finance

Energy market



• QC, TCO & LCC



Management


• DOSIT

Investment Model



Criteria



Some abbreviations and concepts

• QC: Quality Costs• TCO: Total Cost of Ownership• LCC: Life Cycle Costing


Quality Costs• Prevention Costs

– Engineering– Supplier evaluation – Preventive maintenance of equipment– Testing of new materials– Etc

• Appraisal Costs– Inspection (manufacturing process)– Product testing

• Internal Failure Costs– Rework– Scrap– Spoilage– Additional engineering– Etc

• External Failure Costs• Customer support• Additional repair and/or engineering• Warranty• Liability claims


Engineering

We distinguish three main technical aspects of wind farms:

• Foundation– Soil– Jacket– Currents / Stream

• Mechanical Engineering– Corrosion– Fatigue– Performance (long term)

• Electricity & Energy– Power generators– Power electronic converters– Power cables– Grids– Sensors– Controllers– Converters– Computers– Batteries– Motors– Lighting– Climate control


Risk Management

Risk categories Enterprise Risk Management - Integrated Framework (COSO) : •Strategic•Operational•Compliance•Financial


Risk Modelling Process (EQECAT)


Agenda

Project finance

Energy market



• QC, TCO & LCC



Management


• DOSIT

Investment Model



Criteria


PPP principle

DOSIT (Dutch) SESIT (English)Duurzaam SustainableOndernemen EntrepreneurialSelectie SelectionInnovatieve InnovativeTechnologie Technology

Principle of ‘rentmeesterschap’ /Stewardship


DOSIT triangle


Sustainable Supply Chain

Supply Chain →

Raw materials & Components

Business development

Logistic Processes & Production

Packaging

Warehousing & Distribution

Product & Market Development

Product Use & Reversed Logistics

Aspects ↓

People

Planet

Profit


Agenda

Project finance

Energy market



• QC, TCO & LCC



Management


• DOSIT

Investment Model



Criteria


SIM model


Structure Excel model


Assumptions & Data• Investment amount (From the Cash Outflow section / CAPEX)• Required Financial Structure for the total investment (100%)

– Equity share or ε (For instance: 30%)– Debt share or λ (For instance:70%)

• Expected Energy prices• Expected Inflation• Expected Increase in labour rate (wages)• Expected increase in maintenance costs

• Project Risk Beta (βp)

• Risk free interest rate (RRF)

• Interest rate Debts (RD)

• Required Return on Equity (RE )

• Exchange rates• Tax rate = τ (30%)• Governmental policies

– Tax facilities– Subsidies

• Per kWh produced• Investment amount

• Straight-line depreciation (Economic life wind farm: 20 years)• Straight-line repayment schedule (Duration loan: 15 years)• Of course the corporate tax rate can differ per country (we assumed no VAT in the model)


Cash Outflows

• Investment (CAPEX)– License & Concessions– Foundation & Construction– Mechanical equipment

• Gearing box• Transmission system

– Energy• Computer & Communication system• Electricity system • DC > AC• High voltage• Cable

• Scrap value (CAPEX)– Remove fee (negative / positive value)– Upgrade for new investment

• Maintenance (OPEX)– Volume– Price


Cash Inflows

• Wind production (with a link to Volume)• Revenue (Energy contract with the Off taker,

normally energy distributer))– Volume (with a link to Wind production)– Price per kWh


Some nasty financial assumptions

• Required Return on Equity (Based on CAPM model):

RE = RRF + βP * (RM – RRF)

• Project WACC: RPWACC = RE * ε + RD * (1 – τ ) * λ


Financial decision criteria

• Equity providers (sponsors)– Pay Back Period (PBP)– Break Even Time (BET)– Return On Investment (ROI)– Net Present Value (NPV)– Profitability Index or Net Present Value

Investment Ratio (NPV / INV)– Internal Rate of Return (IRR)

• Providers of loans (banks)– Debt Service Coverage Ratio(DSCR)


Scenarios

• MR: Middle of the road (12% RPWACC)

• PS: Pessimistic Scenario (<12% RPWACC)

• OS: Optimistic Scenario (>12% RPWACC)


Scenario analysis

0 5 10 15 20 250%

5%

10%

15%

20%

25%

PPNP_MRNP_PSNP_OS


Agenda

Project finance

Energy market



• QC, TCO & LCC



Management


• DOSIT

Investment Model



Criteria


Some financial formulas

DSCR = (NCF + Interest Payments) / (Installments + Interest Payments)

r = RPWACC

r = IRR

jan h jansen, senior lecturer management accounting & (international) finance researcher chair...

Documents