jan h jansen, senior lecturer management accounting & (international) finance researcher chair...
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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
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Minor Wind Energy Project Management
Project
Finance
Law
Supply Chain Management
Construction
Mechanical Engineering
Energy
Commercial
Engineering
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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)
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Research Group TQM in Organistional Networks
http://wepmprojectfinance.wikispaces.com/
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Research Group TQM in Organistional Networks
Agenda
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Research Group TQM in Organistional Networks
Agenda
• Project finance• Markets for energy and renewable energy• ETO’s & Engineering• Sustainable Investment Decisions (DOSIT)• Investment Model
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
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
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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)
• …
Research Group TQM in Organistional Networks
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Research Group TQM in Organistional Networks
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)
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Project Risk (Source: Yescombe)
Research Group TQM in Organistional Networks
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
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International Business Risk (Source: Eiteman)
Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
Complexity Electricity Market
•Sources:• Traditional:
• Oil• Gas• Coal• Nuclear
• Renewable:• Wind• Hydro• Solar• Biomass• Geothermal
•(Direct) Storage of electricity• Losses during transport
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Research Group TQM in Organistional Networks
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 ]
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Research Group TQM in Organistional Networks
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
ETO’s & Engineering
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Research Group TQM in Organistional Networks
ETO’s & Engineering
Some abbreviations and concepts
• QC: Quality Costs• TCO: Total Cost of Ownership• LCC: Life Cycle Costing
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
Risk Management
Risk categories Enterprise Risk Management - Integrated Framework (COSO) : •Strategic•Operational•Compliance•Financial
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Research Group TQM in Organistional Networks
Risk Modelling Process (EQECAT)
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
PPP principle
DOSIT (Dutch) SESIT (English)Duurzaam SustainableOndernemen EntrepreneurialSelectie SelectionInnovatieve InnovativeTechnologie Technology
Principle of ‘rentmeesterschap’ /Stewardship
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Research Group TQM in Organistional Networks
DOSIT triangle
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
SIM model
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Research Group TQM in Organistional Networks
Structure Excel model
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Research Group TQM in Organistional Networks
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)
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
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)
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Research Group TQM in Organistional Networks
Scenarios
• MR: Middle of the road (12% RPWACC)
• PS: Pessimistic Scenario (<12% RPWACC)
• OS: Optimistic Scenario (>12% RPWACC)
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Research Group TQM in Organistional Networks
Scenario analysis
0 5 10 15 20 250%
5%
10%
15%
20%
25%
PPNP_MRNP_PSNP_OS
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Research Group TQM in Organistional Networks
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
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Research Group TQM in Organistional Networks
Some financial formulas
DSCR = (NCF + Interest Payments) / (Installments + Interest Payments)
r = RPWACC
r = IRR