How to use the advanced (regulator) ocean current and tidal current power plant project finance model

How to use the advanced (regulator) ocean current and tidal current power plant project finance model

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Finding an easy-to-use project finance model for an ocean current and tidal current power plant with built-in data is sometimes difficult as some models don't have the sophistication of a regulator template model as well as the ease of using the model and viewing immediately the results of a sensitivity change in the inputs to the model.

This is now made easy because the Input & Assumptions worksheet (tab) has combined all the input and output information in a single worksheet and placing the reports in other worksheets such as Tariff Breakdown, Construction Period, Operating Period, Financial Reports and Levelized Tariff.

Following is a sample case study on a tidal current power plant. From the preliminary design and cost estimates, the top management would want to know if the business idea of going into tidal current power development, construction and operation is worth the effort - is it feasible and what are the economic and financial returns for risking capital.

Here are the inputs and outputs of the advanced template model from OMT ENERGY ENTERPRISES:

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Here are the summary of inputs:

all-in capital cost (overnight cost) = 2,473 $/kW (target cost)

EPC cost portion = 1,112 $/kW (computed by model)

refurbishment cost = 5% of EPC cost on the 10th year (overhaul)

fixed O&M cost = 86.19 $/kW/year (target cost) = 203.36 '000$/unit/year (computed by goal seek)

variable O&M cost = 2.40 $/MWh (target cost) = 15.89 '000$/MW/year (computed by goal seek)

general admin cost = 500.00 '000$/year (target cost)

Thermal power plant inputs: (not used in tidal current)

Gross heating value of tidal current fuel = 5,198 Btu/lb

Plant heat rate = 13,500 Btu/kWh (25.28% thermal efficiency)

Cost of tidal current fuel = 1.299 PhP/kg = 1,299 PhP/MT

Lube oil consumption rate = 5.4 gram/kWh

Density of lube oil = 0.980 kg/Liter

Cost of lube oil = 200.00 PhP/Liter

capacity = 3.00 MW/unit x 10 units = 30.00 MW

Plant Availability Factor, %                                    86.42% (computed by goal seek)

Load Factor, %                                                      90.00% (assumed)

Allowance for losses & own use, %                      10.00% (assumed)

Net Capacity Factor after losses & own use, %    70.00% (target net capacity factor)

Degradation rate, %                                               0.2%

construction period = 24 months (start 2015)

operating period = 20 years (start 2017)

Capital cost estimation assumptions and % local cost (LC):

Power plant footprint (ha)                                   6.00

Cost of purchased land (PhP/sqm)                    25.00 (no land lease)

Land cost, $000                                                  $29.82     100.0%

Equipment Cost, Transport ($000)                   $788.72         0.0%

Insurance, Ocean Freight, Local Transport         10.0%     100.0%

Balance of Plant, % of equipment cost                31.0%     100.0%

Transmission Line Distance (km)                        10.00

 T/L Cost per km, 69 kV ($000/km)                    $84.00      100.0%

Switchyard & Transformers ($000)                $3,000.00     100.0%

Access Roads ($000/km)                              $2,200.00      100.0%

Distance of Access Road (km)                             10.00

Dev't & Other Costs (% of EPC)                           10.0%     100.0%

VAT on importation (70% recoverable)                  2.0%      100.0%

Customs Duty                                                         0%        100.0%

Initial Working Capital (% of EPC)                        1.0%       100.0%

Contingency (% of Total Cost)                               7.5%        59.0%

Capital cost breakdown ('000$): (computed values)

Uses of Fund:

  Land Cost                                                                    $30

  EPC (Equipment, Balance of Plant, Transport)    $33,363

  Transmission Line Interconnection Facility                $840

  Sub-Station Facility                                                  $3,000

  Development & Other Costs                                  $22,667

  Construction Contingency                                       $4,490

  Value Added Tax                                                    $3,000

  Financing Costs                                                      $5,958

  Initial Working Capital                                                $334

Total Uses of Fund - $000                                      $74,041

Sources of Fund:

   Debt                                                                     $51,829

  Equity                                                                   $22,212

Total Sources of Fund                                            $74,041

Local and Foreign Cost Components (from individual cost item):

Local Capital = 59 %

Foreign Capital = 41 %

Balance Sheet Accounts:

Receivables = 30 days of revenue

Payables    = 30 days of expenses

Inventory    = 60 days of consumables

Imported Capital Equipment:

Customs duty = 0%

Value added tax (VAT) = 12%

VAT recovery = 70% on 5th year of operation

Type of input / output VAT = 0 (none)

Type of incentives = 2 (BOI incentives)

Tax Assumptions:

Income Tax Holiday (yrs)                                                7

Income Tax Rate % (after ITH)                                      10%

Property tax (from COD)                                                1.5%

Property tax valuation rate (% of NBV)                           80%

Local Business Tax                                                         1.0%

Government Share (from COD)                                       1.0%

ER 1-94 Contribution (PhP/kWh)                                      0.01

Withholding Tax on Interest (Foreign Currency) - WHT   10%

Gross Receipts Tax on Interest (Local Currency) - GRT   5%

Documentary Stamps Tax (DST)                                     0.5%

PEZA Incentives (% of gross income)                               0%

Royalty                                                                               0%

Capital Structure:

Equity Share = 30% at 16.44% p.a. target equity returns (IRR)

Debt Share = 70% (59% local, 41% foreign)

Debt Terms:

Local & Foreign Upfront & Financing Fees                    2.00%

Local & Foreign Commitment Fees                                0.50%

Local All-in Interest Rate excluding tax                         10.00%

Local Debt Payment Period (from end of GP) (yrs)       10

Foreign All-in Interest Rate excluding tax                       8.00%

Foreign Debt Payment Period (from end of GP) (yrs)    10

Local and Foreign Grace Period from COD (mos)          6

Local and Foreign debt Service Reserve (mos)              6

Foreign Exchange Rate:

Base Foreign Exchange Rate (PhP/US$) - 2013             48.0000 (construction)

Forward Fixed Exchange Rate (PhP/US$) - 2014           50.2971 (operating)

Escalation (CPI):

Annual Local CPI - for OPEX      0.0%            4.0%     for CAPEX (to model construction delay)

Annual US CPI - for OPEX           0.0%            2.0%     for CAPEX (to model construction delay)

Results of Financial Analysis:

First year tariff (Feed-in-Tariff) = 4.149573 P/kWh = 0.08342 USD/kWh

(at zero equity NPV)

Short run marginal cost (SRMC) and Long run marginal cost (LRMC)

SRMC = 0.134 PhP/kWh (variable O&M + fuel + lubes)

LRMC = 4.196 PhP/kWh (capital cost + fixed O&M + regulatory + SRMC)

Equity Returns: (30% equity, 70% debt)

IRR          = 16.44    % p.a. (target returns)

NPV        = 0.00    '000$

PAYBACK = 7.51    years

Project Returns: (100% equity, 0% debt)

IRR          = 13.19        % p.a.

NPV        = (522,705)  '000$ (negative since IRR < 16.44%)

PAYBACK = 6.30        years

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The above runs were based on goal-seek to make equity NPV = 0 (to meet equity IRR target of 16.44% p.a.).

You can perform sensitivity analysis and save the results in a case column (copy paste value).

You can breakdown the tariff ($/kWh) into its capital ($/kW-month) and variable cost recovery ($/kWh) portions.

You can prepare all-in capital cost breakdown showing interest cost during construction and does model the impact of project construction delays.

You can show the evolution of capacity and generation (degradation) during the operating period and show other revenues, expenses and balance sheet accounts as they change over time during operation years.

You can show the income & expense statement.

You can show the cash flow statement.

You can show the balance sheet.

You can show the debt service cover ratio (DSCR) as it computes the cash flow available for debt service.

It also computes the benefits to cost ratio (B/C) of the project.

Finally, it computes the other financial ratios such as:

LIQUIDITY RATIOS

SOLVENCY RATIOS

EFFICIENCY RATIOS

PROFITABILITY RATIOS

MARKET PROSPECT RATIOS

Download the sample file below:

Model Inputs and Results - Tidal Current

Download the complete demo model for a tidal current power plant in PHP and USD currencies are shown below:

ADV Tidal Current Model3_30 MW - demo5b

ADV Tidal Current Model3_30 MW (USD) - demo5b

If you have actual data from your OEM and EPC suppliers, kindly share the data with me or simply enter your live data into the above models and see how the results will change immediately before your eyes. Please email me back the updated demo model with your new data so you may share it will all our readers of this blog.

To purchase the PHP and USD models at a discount (for two models), click the link below:

30 mw Tidal Current Project Finance Model Ver. 3 – in USD and PHP Currency

You may place your order now and avail of a package for the unlocked model and I will give you one-hour free for assistance in putting your input data into the model (via telephone or email or FB messenger).

Your energy technology selection expert.

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