presentation-2 the project cycle

7/28/2019 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


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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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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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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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

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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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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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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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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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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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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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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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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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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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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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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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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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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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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

[email protected]

Ph: +31-53-4861190
http://www.btgworld.com/mailto:[email protected]:[email protected]://www.btgworld.com/

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