How to use the advanced (regulator) large hydro power plant project finance model
Finding an easy-to-use project finance model for a large hydro 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 large hydro power plant. From the preliminary design and cost estimates, the top management would want to know if the business idea of going into large hydro 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:
Here are the summary of inputs:
all-in capital cost (overnight cost) = 2,936 $/kW (target cost)
EPC cost portion = 2,109 $/kW (computed by model)
refurbishment cost = 5% of EPC cost on the 15th year (overhaul)
fixed O&M cost = 14.13 $/kW/year (target cost) = 4,728.61 ‘000$/unit/year (computed by goal seek)
variable O&M cost = 2.00 $/MWh (target cost) = 8.61 ‘000$/MW/year (computed by goal seek)
general admin cost = 100.00 ‘000$/year (target cost)
Thermal power plant inputs: (no applicable to large hydro)
Gross heating value of large hydro fuel = 5,198 Btu/lb
Plant heat rate = 13,500 Btu/kWh (25.28% thermal efficiency)
Cost of biomass 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 = 500.00 MW/unit x 1 unit = 500.00 MW
Plant Availability Factor, % 57.68% (computed by goal seek)
Load Factor, % 92.00% (assumed)
allowance for losses & own use, % 2.00% (assumed)
Net Capacity Factor after losses & own use, % 52.00% (target net capacity factor)
Degradation rate, % 0.5%
construction period = 36 months (start 2014)
operating period = 30 years (start 2017)
Capital cost estimation assumptions and % local cost (LC):
Power plant footprint (ha) 40.00
Cost of purchased land (PhP/sqm) 25.00 (no land lease)
|Land cost, $000||$198.82||100.0%|
|Equipment Cost ex BOP, Transport ($000/MW)||$1,842.20||43.0%|
|Insurance, Ocean Freight, Local Transport, % of Equipment Cost||4.5%||100.0%|
|Balance of Plant (BOP), % of Equipment Cost||10.0%||80.0%|
|Transmission Line Distance (km)||25.00|
|T/L Cost per km, 69 kV ($000/km)||$84.00||100.0%|
|Switchyard & Transformers ($000)||$500.00||100.0%|
|Access Roads ($000/km)||$20.00||100.0%|
|Distance of Access Road (km)||15.00|
|Dev’t & Other Costs (land, permits, etc) (% of EPC)||2.5%||100.0%|
|VAT on importation (70% recoverable)||12%||100.0%|
|Initial Working Capital (% of EPC)||5.0%||100.0%|
|Contingency (% of Total Cost)||7.5%||55.7%|
Capital cost breakdown (‘000$): (computed values)
|Uses of Fund:|
|EPC (Equipment, Balance of Plant, Transport)||$1,054,662|
|Transmission Line Interconnection Facility||$2,100|
|Development & Other Costs (Civil Works, Customs Duty)||$47,263|
|Value Added Tax||$69,536|
|Initial Working Capital||$52,733|
|Total Uses of Fund – $000||$1,467,443|
|– PhP 000||73,808,108|
|Sources of Fund:|
|Total Sources of Fund||$1,467,443|
Local and Foreign Cost Components (from individual cost item):
Local Capital = 56 %
Foreign Capital = 44 %
Balance Sheet Accounts:
Receivables = 30 days of revenue
Payables = 30 days of expenses
Inventory = 60 days of consumables
Imported Capital Equipment:
Customs duty = 3%
Value added tax (VAT) = 12%
VAT recovery = 0% on 5th year of operation
Type of input / output VAT = 1 (with VAT)
Type of incentives = 1 (NO incentives)
|Income Tax Holiday (yrs)||0|
|Income Tax Rate % (after ITH)||30%|
|Property tax (from COD)||2.0%|
|Property tax valuation rate (% of NBV)||80%|
|Local Business Tax||1.0%|
|Government Share (from COD)||0.0%|
|ER 1-94 Contribution (PhP/kWh)||0.01|
|Withholding Tax on Interest (Foreign Currency) – WHT||10%|
|Gross Receipts Tax on Interest (Local Currency) – GRT||1%|
|Documentary Stamps Tax (DST)||0.5%|
|PEZA Incentives (% of gross income) – 0% / 5%||0%|
Equity Share = 30% at 14.00% p.a. target equity returns (IRR)
Debt Share = 70% (56% local, 44% foreign)
|Local & Foreign Upfront & Financing Fees||2.00%|
|Local & Foreign Commitment Fees||0.50%|
|Local All-in Interest Rate excluding tax||10.00%|
|Local Debt Payment Period (from end of GP) (yrs)||10|
|Foreign All-in Interest Rate excluding tax||8.00%|
|Foreign Debt Payment Period (from end of GP) (yrs)||10|
|Local and Foreign Grace Period from COD (mos)||6|
|Local and Foreign debt Service Reserve (mos)||6|
Foreign Exchange Rate:
Base Foreign Exchange Rate (PhP/US$) – 2013 48.0000 (construction)
Forward Fixed Exchange Rate (PhP/US$) – 2014 50.2971 (operating)
Annual Local CPI – for OPEX 0.0% 4.0% for CAPEX (to model construction delay)
Annual US CPI – for OPEX 0.0% 2.0% for CAPEX (to model construction delay)
Weighted Average Cost of Capital:
WACC = 10.58% p.a.
WACC pre-tax = 12.11% p.a.
WACC after-tax = 8.48% p.a.
Results of Financial Analysis:
First year tariff (Feed-in-Tariff) = 6.19949 P/kWh = 0.12326 USD/kWh
(at zero equity NPV)
Short run marginal cost (SRMC) and Long run marginal cost (LRMC):
SRMC = 0.10263 PHP/kWh (variable O&M + fuel + lubes)
LRMC = 6.19949 PHP/kWh (capital cost + fixed O&M + regulatory + SRMC)
Equity Returns: (30% equity, 70% debt)
IRR = 14.00 % p.a. (target returns)
NPV = 0.00 ‘000$
PAYBACK = 10.02 years
Project Returns: (100% equity, 0% debt)
IRR = 11.65 % p.a.
NPV = (9,394,578) ‘000$ (negative since IRR < 14.00%)
PAYBACK = 7.08 years
The above runs were based on goal-seek to make equity NPV = 0 (to meet equity IRR target of 14.00% 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:
MARKET PROSPECT RATIOS
Download the sample file below:
Download the complete demo model for a large hydro power plant in PHP and USD currencies are shown below:
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.
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