Simple project evaluation

spreadsheet model

Africa Electricity Institute

Practitioner Workshop
15 November 2011 -- Dakar, Senegal
Chris Greacen
 Two very different models…
Excel financial model HOMER
Used by: “Financers” “Engineers”
(also project (also project
developers, developers,
regulators, regulators,
researchers) researchers)

What it does: Models cashflow Optimizes component

and return on selection to minimize
investment levelized cost of
energy (LCOE) in
hybrid minigrids
Simple project viability evaluation model
Inputs Outputs
Project Inputs Revenues Tsh /kwh US c/kwh Project Returns
Plant Capacity 500 KW Tanesco 87% 360.0 24.0 Project IRR 21.1%
Capacity Factor 68% Business 11% 360.0 24.0 Equity IRR 38.4%
Annual Generation 2,978 Mwh Households & Inst. 3% 100.0 6.7 Project NPV $1,436
# Connections 882 Average Tariff 355.8 23.7 Equity NPV $501
Carbon Revenues 9.0 0.6
Generation Costs USD 000s TSH Mn Operating Costs USD 000s TSH Mn US c /kwh Cost recovery Tariff
Generation 1,484 2,226 47% Salaries 30 $45 1.01 Capital Investments 6.28 $/W
Soft Costs 670 1,005 21% Maintenance 31 $47 1.05 Operating Costs 2.1 c/ kwh
Grid Connection 389 584 12% Fuel Costs 0 $0 0.00 Output Per Watt 5.96 Kwh / W
Grid Extension 596 894 19% Other 0 $0 0.00 Capital Recovery 15.35 c/ kwh
Total Investment 3,139 4,709 Total 61.4 92.1 2.1 Total 17.4 c/ kwh
REA Grants 441 $662 261 TSH / kwh
Investment (excl.
grants) $2,698 $4,047

Other Inputs Capital Structure USD 000s TSH Mn Schedule 1 2 3 4

Construction Time 1.5 Years Equity Share 30% Equity 501 751 Construction 67% 33% 0% 0%
Collection Efficiency 90% Required returns 15% REA grant 441 662 Operations 0% 67% 100% 100%
Distribution losses 5% Loan Rate 15% Loan 2,197 3,296
Tariff inflation 2.0% Loan Grace Period 3 Other Assumptions
CPI 6.0% Loan Term 15 Depreciation period 20 Years
Terminal value 0.0 times exit FCF WACC*** 11.9% Corporate Tax rate 30%
Exchange Rate 1,500 TSH / USD Tax holiday 0 Years

Residual
Cash Flow $ '000s 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Value*
Investment $2,093 $1,046 $0 $0 $0
Increase in WC $0 $31 $0 $0 $0
Equity $628 $314 $0 $0 $0
Debt $1,465 $732 $0 $0 $0

Revenue (c/ kwh) 24.3 24.8 25.3 25.8 26.3 26.8 27.3 27.8 28.4 28.9 29.5 30.1 30.7 31.3 31.9
Total Revenues $0 $492 $753 $768 $783 $798 $813 $829 $846 $862 $879 $896 $914 $932 $950
Operating Costs $0 $43 $69 $73 $78 $82 $87 $92 $98 $104 $110 $117 $124 $131 $139
Operating Cash flow ($2,093) ($597) $684 $694 $705 $716 $726 $737 $748 $758 $769 $780 $790 $801 $811

Depreciation $0 $157 $157 $157 $157 $157 $157 $157 $157 $157 $157 $157 $157 $157 $157

Loan Payments $0 $0 $0 $513 $513 $513 $513 $513 $513 $513 $513 $513 $513 $513 $513 $0
Interest $0 $220 $363 $417 $403 $386 $367 $345 $320 $291 $258 $220 $176 $125 $67 $0
Principal $0 ($220) ($363) $96 $110 $127 $146 $168 $193 $222 $255 $293 $337 $388 $446 $0
Loan Balance $1,465 $2,417 $2,780 $2,684 $2,574 $2,447 $2,301 $2,133 $1,941 $1,719 $1,464 $1,171 $834 $446 $0 $0

Effective tax $0 $0 $49 $36 $44 $52 $61 $70 $81 $93 $106 $121 $137 $156 $176 $0
Equity CF 38% ($628) $135 $635 $146 $149 $151 $153 $154 $154 $153 $150 $146 $140 $132 $122 $0
DSCR 0.00 0.00 0.00 1.35 1.38 1.40 1.42 1.44 1.46 1.48 1.50 1.52 1.54 1.56 1.58 0.00

* PV at year 15 for revenues from year 16-25 *** WACC = Equity share * ROE + Debt Share * Loan rate * (1- tax rate)
 Questions answered by
“Simple project viability evaluation model”

• How does the financial viability of an off-grid or on-

grid SPP project vary under diffent assumptions of
tariffs, subsidies, and carbon revenues, exchange
rates, etc.?
– Internal Rate of Return (IRR)?
• Project IRR
• Equity IRR
– Net Present Value (NPV)
• Project NPV
• Equity NPV
– Does cash flow meet debt service requirements?
 Model inputs

Input basic project data (yellow cells)

• Plant Capacity: generation capacity of power plant in kW

• Capacity factor: ratio of actual output to potential annual
output if it operated at nameplate capacity fulltime.
• # Connections: is applicable to systems that sell electricity
to retail customers and receive REA grants of $500 per
hookup
• Investment costs: costs to build project (generator, grid
connection, grid extension, etc.)
• Operating costs: costs to keep project going (salaries,
mainteannce, fuel)
 Model inputs (continued)

Input basic project data (yellow cells)

• Construction time:
• Collection efficiency: portion of tariff that can actually be
collected from users.
• CPI = consumer price index
• Terminal value = value of equipment at end of 15 years
• Exchange Rate: value of currency in USD
• Capital structure (% and rates): equity, loan, etc.
• Depreciation period: Number of years before asset has zero
value
• Tax holiday: tax holiday is a temporary elimination of a tax as an
incentive for businesses to invest.
 Model outputs

• Operating cash flow: cash generated from sales, minus

cash paid out to cover operations costs
• Depreciation: A reduction in the value of power plant with
the passage of time, due in particular to wear and tear
• Loan payments: installments paid by the SPP to the lender
• Loan balance: the amount owed, including principal and
interest;
• Effective Tax: Tax paid divided by taxable income
• Equity cash flow: Cash flow left over after depreciation,
loan payments, and taxes
• Debt Service Coverage Ratio (DCSR): the amount of debt
that can be supported by the cash flow generated from
the project.
 Model outputs (continued)

Input basic project data (yellow cells)

• WAAC: Weighted average cost of capital.

• # Connections: is applicable to systems that sell
electricity to retail customers and receive REA grants
of $500 per hookup
• Collection efficiency: portion of tariff that can
actually be collected from users.
• CPI = consumer price index
• Terminal value = value of equipment at end of 15
years
 Thank you
For more information, please contact
chrisgreacen (at) gmail.com

Excel file used here available at:

www.palangthai.org/docs/SPP-SimpleProjectViabilityEvaluationModel.xlsx
 Using HOMER to evaluate the
levelized costs of different mini-grid
generation options

Africa Electricity Institute

Practitioner Workshop
15 November 2011 -- Dakar, Senegal
Chris Greacen
 HOMER: Hybrid Optimization Model
for Electric Renewables
• Developed by National Renewable Energy Laboratory (NREL) of US
Department of Energy (DOE).
• Download free: http://homerenergy.com/download.asp
 Rural Electrification: Classics

Historically, the primary means of providing

power have been through grid extension and
diesel generators.

– Grid Extension: Very high initial cost, poor cost

recovery, time intensive (generation, transmission,
distribution) and usually must be subsidized. Most
often used.
– Diesel Generators: Inexpensive installation but
expensive to operate, environmental damage/pollution,
and subject to volatile fuel costs and availability.
 Hybrid Systems - Another option
A hybrid energy system consists of two or more renewable
energy sources used together to provide increased system
efficiency as well as greater balance in energy supply.
Higher Reliability (?)
– Hybrids reduce daily & seasonal resource variations
– … but more complex… more parts to break.
Lower Cost of Energy
– Hybrids reduce daily & seasonal resource variations
– Minimizes battery size and fuel usage
Existing Diesel & Distribution System Investment
 Questions HOMER answers

• How much of which technologies to use?

– diesel, solar, wind, biomass, hydro
• Fuel consumption, runtime, project economics?
• How do these answers depend on assumptions?
– Fuel price, interest rates, equipment costs, utility tariffs
– Electric and thermal load shapes, reliability
requirements and load management
– Resource quality and availability
– Sensitivities – variations in prices, resource availabilty
 Illustrating HOMER using Koh Po,
Thailand

Households: 150
location: Krabi, Southern, Thailand
coordinates: 7° 32' 0" North, 99° 8' 0" East
How to model with HOMER
How to model with HOMER
Load Load

8760 hours
Resources: Solar
Resources: Wind
Diesel inputs
PV: inputs
Generator: inputs
Converter (inverter): inputs
Battery: inputs
Results
Search space
Results
 Thank you
For more information, please contact
Chrisgreacen (at) gmail.com

HOMER file used here available at:

www.palangthai.org/docs/KohPo.hmr