9.1 COURSE ON OF GEOTHERMAL ECONOMIC EVALUATION & MODELING, Gordon Bloomquist, Jeff Ponsness, EnSight and WSU PDF

Proceedings from World Banks GeoFund IGA International Geothermal Workshop
February 16-19, 2009 - Istanbul, Turkey
9. GEOTHERMAL ECONOMIC EVALUATION & MODELING
9.1 Gordon Bloomquist, Jeff Ponsness, EnSight and WSU
Copyright IGA 2008 2009

Download Workshop Proceedings at:
http://iga.igg.cnr.it/
http://www.partnership-international.com/

GeoFund
IGA -- Geothermal Workshop
Turkey 2009
February 15-20, 2009
Day 3
Introduction
to
Financial Modeling Considerations
by
Dr. Gordon Bloomquist, IGA
Mr. Jeff Ponsness, EnSight and WSU
2

Financial Modeling
Development of a geothermal project
Financial modeling is used throughout the development

phase by multiple stakeholders to support individual
interests and needs that can greatly vary across
stakeholder groups.
3
Multiple Stakeholders
Operator
Financial
Institution
Developer
Utility
Suppliers
Investor
Government
Consumers
4

Multiple interests, needs

Viability?
Grants?
Operating costs?
Debt repayment?
Return on equity?
Financing terms?
Incentives,
credits?
Risks?
Technology choice?
Resource depletion?
Policy,
sustainability?
Cash flow?
Power Purchase
Agreement terms?
Availability,
Dispatch ability?
Energy sales price?

Equipment costs?
5
Model Stakeholders Concerns

Lenders will want to make corporate financial
projections to see how the project will perform in the
short, medium and long term
Can the projects loans be repaid?
Equity investors will want corporate financial projections

to see if they will make enough return (profit) to justify
investing
NPV, investor IRR, dividend stream
Governments and policy analysts may want to see that

the project is selling energy at a fair price
Levelized Selling Price
Developers will want to prioritize projects and

technology alternatives
NPV, BCR
6

Flexible modeling tools needed

Flexible project-specific inputs
Extensible for project-specific modeling requirements

Multiple income and cost streams
Funding mix debt, equity, grants
Cost escalation, incentives, taxation, credits, franchise fees, royalties
Flexible outputs
Cash flows over plant life

Financial indicators, performance metrics
Extensible user-managed reporting
Flexible analysis and evaluation
Risk evaluation
Sensitivity analysis, what if scenarios
Common Financial Evaluation Tools

Pro
forma financials
Cash flow statement
Income Statement
Balance Sheet
Use of Funds
Financial Indicators
Payback, Net Present Value, Benefit Cost Ratio

Levelized Cost
Probability
Liquidity
and Leverage Ratios
Gross Margin, Operating Margin

Debt to equity, equity, debt
Measures
Current Ratio, Acid Test Ratio

Discount Rate (time value of money)

Interest rate used in determining the present
value of future cash flows
Addresses the time value of money
Allows for meaningful comparisons across years
Next years $$ is worth less than todays $$
Used in NPV, BCR, Levelized Cost, others
Weighted Average Cost Of Capital (WACC)
Includes both equity and debt funding sources
Funding plans vary by project so do WACCs
Taxable entities use tax-adjusted debt interest rates

9
Pro Forma Statements

Income Statement, Cash Flow
Statement, Balance Sheet, Use of Funds
Provides insight into how project generates

income,
ability to repay debt,
cash flow,
and cash available to provide equity investors a
return.
Pro Forma statements commonly used

by investors for valuation, risk
evaluation, and investment purposes.
10

Income Statement
EBITDA =
Earnings
Before Interest,
Taxes,
Depreciation,
Amortization
Sales, Income total for ALL income sources
Direct income = power sales, heat/cool sales

Other income = co-production (brine mineral extraction), environmental
credits, incentives, income from direct use (agriculture, greenhouse)
Retained earnings available for project use
Growth, expansion, unplanned expenditures

11
Use of Funds
Provides a
summary of
how sources of
funds are used.
Sources = Uses
12

Cash Flow Statement

Shows how
much cash the
project is
generating
Negative
cash balances
project is
under funded,
has too little

income, or
expenses are
too high
13
Balance Sheet
Assets = Liabilities + Shareholder Funds + Grants
14

Levelized Cost
Often used by energy policy analysts and project
evaluators to develop first-order assessments of a projects
attractiveness.
Compare costs of alternate technologies electric power
generated by geothermal, natural gas, wind, etc.
Project benchmark for competitive analysis

Discount rate and time period must be same for
comparisons
15
Levelized Cost
Levelized cost is the annualized Total Cost of

investment, fuel, operations, and indirect income
(incentives, credits, etc) divided by annual quantity of
energy produced.
16

Levelized Electric Price in US
Geothermal
Levelized Cost of Energy by Lazard

National Association of Regulatory Utility Commissioners (NARUC)
S ummer Committee Meetings 2008
17
Net Present Value (NPV)

Benefit Cost Ratio (BCR)
Often used to rank projects or project alternatives
Technology choice flash steam or binary geo plant?
Prioritize multiple projects for funding approval
Includes financing, income, operating costs + uses discount rate
NPV = Present value (PV) of cash inflows - PV of cash

outflows.
NPV always calculated over a specific time period plant life is common.
Only projects with positive NPVs should be considered
BCR = PV of accumulated benefits / PV of accumulated costs
Only projects with BCR > 1.0 should be considered

18

BCR, NPV and Payback

NPV, BCR and Payback
$30,000
1.600
Payback occurs when BCR = 1.0

and NPV = 0
$10,000
1.400
1.200
$$(10,000)
10 11 12 13 14
15 16 17 18 19
20
1.000
0.800
$(20,000)
0.600
$(30,000)
$(40,000)
0.400
$(50,000)
0.200
$(60,000)
0.000
NPV (1,000s)
Benefit Cost Ratio
Net Present Value ($1,000)
$20,000
BCR
Larger BCRs and NPVs desirable

Lower paybacks desirable
19
NPV and IRR

Net Present Value (NPV)
Discount rate used to calculate PV.

NPV = PV of benefits PV of costs
The NPV method is a valuable indicator because it recognizes the
time value of money. Projects whose returns show positive NPVs
are attractive.
Internal Rate of Return (IRR)
Internal rate of return (IRR) is defined as the discount rate at

which the after-tax NPV is zero.
The calculated IRR is examined to determine if it exceeds a
minimally acceptable return, often called the hurdle rate.
The advantage of IRR is that, unlike NPV, its percentage results
allow projects of vastly different sizes to be easily compared.
20
10

Which evaluation method should be used?

Depends on the analysis goals
Comparing alternatives or projects? NPV, BCR, IRR,

Levelized Selling Price
Ability to repay debt? Leverage Ratios, Income Statement,
Cash Flow Statement
RFP or business case support? Pro Forma Statements
Multiple methods almost always used
Provides different perspectives on risk assessment
Other more complex methods also used
Monte-Carlo simulations for multi-variant risk assessment

21
Model Input Detail Vs Accuracy

Early model inputs can be high-level, not detailed
Feasibility, screening of alternatives

Break-even sales pricing
Estimating factors based on industry standards or past project
experience ($/KW system costs), localized for project conditions
Reusable financial model templates can save time
Model inputs to support contract or funding decisions

should be project-specific and more detailed
Specific funding plan based on negotiated arrangements with

financial institutions and investors
Sales price according to negotiated Power Sales Agreement
Line item details for costs, income, expenses based upon specific
technologies, site-specific conditions
Requires substantially more input time
22
11

Sensitivity Analysis
No project goes exactly according to plan!
Once the base model is established, use sensitivity
analysis to assess impact of variation in selected
parameters
interest rates, capital cost, funding plan, energy tariff
re-run the model as many times as necessary, altering one

parameter at a time
Its important to identify the parameter that is to be

used as the measure of change
IRR, Levelized Selling Price, etc.

For investors, the IRR is probably most useful.
A spider diagram is a useful way to present the results

23
Sensitivity Spider Diagram

Capital Cost
Availability
30%
Geothermal resource capacity
% Change in
Through Life NPV
20%
10%
0%
-10%
-5%
5%
10%
-10%
-20%
-30%
24
12

Questions ?
25
Day 3
Presentation of RELCOST Software
by
26
13

RELCOST Program
Owned by Washington State University (Washington, USA)
Developed by EnSight, a consultancy (Oregon, USA)
Program distribution rights to IGA members from WSU
(add website address here)
Evolutionary application over past 15+ years
Original stand alone model (mid-1980s)
Embedded logic within WSUs HeatMap program (mid-1990s)
Recently released; stand alone model using Microsoft Excel

Spreadsheet template (includes multiple enhancements)
27
Program Overview
Evaluate financial viability of energy projects
General purpose analysis tool

Power generation, district energy, alternative energy (wind, geothermal, bio, solar, etc), combined heat and power
MS Excel spreadsheet template
Pro forma financial statements
20 year analysis period

Income Statement, Balance Sheet, Use of Funds, Cash Flow
Financial Scorecard
Template provides input of both common and project-specific factors

Users-defined logic and template extensions (unprotected spreadsheet); extends reporting, analysis, and integration
with other programs or spreadsheets.
Stoplight chart of financial indicators

User defined thresholds
Sensitivity Analysis
W hat If evaluation of key project inputs
28
14

Program Use
Design and
Analysis Programs
Energy projects
RELCOST
Discounted Cash FLows
$1,200
Energy use, cost

Emissions calculation
Systems design
Plant simulation
Power generation
Renewable energy
Cash Flow ($1000)
$1,000
$800
$600
$400
$200
Ranking,
prioritization
R
Bid evaluation
Contract negotiation
Funding needs
Sales price, valuation
$1
10 11 12 13 14 15 16 17 18 19 20
Project Year
Policy analysis
Economic viability
Risk assessment
Economic optimization
What if evaluation
Break-even, threshold analysis
Tax, production credits

Tax relief, incentives
Environmental credits
29
HeatMap is a District Energy program from

Washington State University, USA
Program flow
Inputs
Sensitivity Factors
Results
Calculations
Income Statement
Cash Flow Statement
Balance Sheet
Use of Funds

$1,200
$1,000
Cash Flow ($1000)
Plant Operating Factors

Capital Expenditures
Funding Plan
Purchased Fuels
O&M Expenses
Major expenses (overhauls)
Income, Sales
Taxes, Fees
Dividends (shareholder)
Cost escalation
Cash accounts
$800
$600
$400
$200
$1
10 11 12 13 14 15 16 17 18 19 20
Project Year
Financial Scorecard
30
15

Input: Plant Operating Factor
Dispatch factor indicates how much of the plant output that can
be generated occurs at times when there is a demand for it
Power production curtailment is modeled here
Availability factor indicates how much of the time the plant is

available to meet plant demands.
Geothermal source depletion (flow, temperature) is modeled here

Planned maintenance outages are also modeled here
Operating factor combines both dispatch and availability

factors.
Factor optionally used by other inputs; e.g., purchased fuels O&M

expenses.
31
Input: Capital Expenditures

3 categories
Itemized inputs
Expenditures can occur in each project year

Geothermal Modeling
Costs for exploration, environmental impact statements, licenses, permits, well drilling,
supply/injection pumps, gathering system, distribution system can detailed here.
Contingency and overheads included

Inputs in current dollars, escalated values calculated
32
16

Input: Tax Depreciation

Multiple depreciation classes
Varying depreciation life or

method for different types of
capital expenditures
Plant has longer depreciation life
than office equipment.
Depreciation schedule library
Accelerated depreciation (US tax

system)
Country-specific depreciation
methods can be defined
Geothermal Modeling
Accelerated depreciation in US tax

system improves economic
feasibility, especially in early years
Country-specific availability of
accelerated depreciation
33
Inputs: Funding Plan

Three (3) fund source
types
Multiple types can be

used in same project
period
Ten (10) sources for

each type can be defined
Any project year

Multiple investors,
lenders
Monthly calculation
used for borrowed funds
The funding plan indicates the mix and timing of

resources used to finance the project.
Short duration loans

Construction financing
or working capital.
34
17

Inputs: Purchased Fuels

Applies operating
factors to all project
years
Multiple fuel types in

same year
Separate inputs for each

project year
Energy units can be

changed for countryspecific standards
Geothermal modeling
Purchase of geo hot

water or steam for
production
Power needed to run
pumps/plant
Peaking fuel to run fossil
boilers
Inputs in current dollars,

escalated values
calculated
35
Inputs: Operation and Maintenance

Applies plant operating factors to all project
years for this expense category
Itemized
inputs
Multiple expense categories
Direct Production
Selling & Admin
Overhead
Operating Labor
Insurance, property Taxes
Operating Reserves
Set aside funds for future expenses

Major overhaul
Municipal bond payment
Account earns interest
Inputs in current dollars, escalated

36
values calculated
18

Inputs: Major Expenses

Ten (10)
expenses can be
defined
Equipment
overhaul
Pipe scale
removal
Repeating or
one-time
expenses can be
defined
Geothermal Modeling
Well Replacement
Periodic well maintenance (example: scale removal)
Planned
maintenance
Every 3 years
shown
Inputs in current
dollars, escalated
values calculated37
Input: Income from Sales

Applies operating factors to all project years
Nine (9) pre-defined sales
income types
Type definitions can be

user defined for specific
project needs
Geothermal Modeling
Power sales, dispatch

ability, ramp-up,
curtailment payments
Heat, cool sales
Co-production
(metal/silica extraction
from brine)
Direct use by-products
such as greenhouse for
flowers, plants,
vegetables
Units can be user defined for

country standards
Inputs in current dollars,
escalated values calculated
38
19

Inputs:
Environmental, Production Credits
Four (4) types can
be defined
Treated as a
source of income
Subject to income
taxes
User defined units
Geothermal Modeling
Incentive type
Country-specific
standards
Inputs in current
dollars, escalated
values calculated
Carbon Credits offset

Energy credits or production incentives from government
39
Inputs: Income Taxes and Fees

Tax rules for
multiple countries
can be included in
same template
US tax
configuration
provided
Special handling for

US tax system shown
Refundable credits
Tax credit carry
forward
Multi-jurisdictional
Geothermal Modeling
Energy tax credits (reduces income tax payments)

Franchise fees or royalties paid to local municipality
Federal, state, local

Tax rates can vary
by project year
40
20

Inputs: Dividends
Dividends are annual cash distributions made to

investors (shareholders)
After-tax profits are used as the basis for dividends
Retained Earnings = After-tax profit dividend distributions
Dividend payout policies vary greatly
User defined logic can be readily created for specific projects.

41
Input: Cost Escalation Forecasts
Escalated costs are calculated using factors from a forecast
Forecast values are user defined

Forecasts enable rapid what if sensitivity evaluation
Escalation factors can optionally be incremental to general inflation rate
Four (4) forecast types
None costs are not escalated

Conservative lowest cost escalation
Likely most probable escalation
Aggressive highest cost escalation
42
21

What if analysis
Enables risk
evaluation of key
project factors
Geothermal modeling (examples)
Capital cost estimation accuracy (well drilling,

gathering system)
Environmental and production incentive impacts
Power, heat sales price impact
Funding plan impacts (cost of capital)
Are estimated input

values to high? Too
low?
Break-even analysis
Threshold analysis
Financial Scorecard
improvement
Multi-factor scenarios
43
Output: Financial Scorecard
User defined performance rules

determine stoplight indicators
Investor, financial institution targets
Threshold analysis
Visual project economic health check
44
22

Output: Graphs
Net Profit After Taxes
$1,200
$4,000
$1,000
$3,500
Cash Flow ($1000)
Costs ($1,000)
$3,000
$2,500
$2,000
$1,500
$1,000
$800
$600
$400
$500
$200
$$(500) 1
10
11
12
13
14
15
16
17
18
19
20
$-
$(1,000)
Project Year
10 11 12 13 14 15 16 17 18 19 20
Project Year
Benefit/Cost Ratio
(BCR =1 at payback)
Selected graphs only

shown
1.4
1.2
BC Ratio
1
0.8
New graphs and charts

easily added by user
0.6
0.4
0.2
0
-0.2 1
10
11
12
13
14
15
16
17
18
19
20
Requires MS Excel skills
Project Year
45
Reports
Four (4) types of financial reports included
Cash flow statement
Income Statement
Balance Sheet
Use of Funds Statement
Shows how the project makes a profit for each project year
Shows the projects financial performance for each project year
Shows the projects financial position for each project year
Shows how fund sources are used for each project year
New reports added by user
Requires Microsoft Excel Skills
Intended use of reports
Gain understanding of modeled results

Supporting data for project proposals
Project prioritization, funding decision support
46
23

Report: Income Statement
47
Report: Balance Sheet
48
24

Report: Cash Flow Statement
49
Report: Use of Funds Statement
50
25

Questions ?
51
Day 3
Modeling Examples
by
52
26

Module 1: Basics
Objectives
Demonstrate how to create a new model
Calculate and review model results
Show program input and output features
Show navigation, data, and tab relationships
Illustrate how to create templates for future modeling efforts
Illustrate how to extend model with user fields and logic
53
Module 1: Basics
Sample Project Description
Geothermal power generation
25 MW capacity
10% parasitic loss (2.5 MW, 22.5 MW net capacity)
Onsite power consumed (e.g., geo pumps)
2% transmission loss (0.5 MW)
22 MW effective capacity at full load
Production begins in year 2 (18-month construction)
Operational Information
Dispatch
Power sales agreement allows curtailment of 500 hours
per year (500/8760 = 5.7% total hours)
Availability
Annual geothermal resource degradation = 1%
Scheduled maintenance = 0.5%
54
27

Module 1: Basics
Capital Costs
Total capital cost = $66,500,000 ($2,660 per kW)
Exploration = $3,000,000
Well field development = $16,000,000
Plant equipment = $38,000,000
Permitting = $500,000
Interconnection = $250,000
Overheads, profit, contingency = $8,750,000
18 months construction schedule
55
Module 1: Basics
Operating Costs
Operating labor = $1,067,500/Yr (including overhead)
Plant manager (1 @ $80,000 per year)

Plant operators (8 @ $55,000 per year)
Mechanic (1 @ $55,000 per year)
Other labor (1 @ $40,000 per year)
Overhead factor 1.75 (benefits, etc)
$97,050 average per FTE with overheads
Plant costs = $184,000/Yr
Turbine/generator = $25,000
Electric, control systems = $43,000
Cooling systems = $6,000
Auxiliary systems = $13,000
Cooling water, chemicals = $47,000
Misc. Consumables = $50,000
Well field costs = $177,000/Yr
Well clean out = $92,000

Brine chemicals = $50,000
Miscellaneous = $35,000
56
28

Module 1: Basics
Major Overhaul, Fees, Resource Costs
Major overhaul
Plant $774,000 every 3 years
Labor = $24,000 (400 hours @ $60 per hour)

Materials, parts = $750,000
Well maintenance $50,000 every 2 years

Well replacement $2,300,000 every 5 years
A reserve account is used to set aside funds for replacement

Annual reserve account deposits = 2,300,000 / 5 = $460,000
Interest earned on reserve account = 2%
Fuel, resource costs
Franchise fee to local municipality = 3% Gross Sales

Reservoir management = $25,000/Yr
Make-up water = $6,500/Yr
Land lease fees = $5,600/Yr
57
Module 1: Basics
Funding Plan
Equity
20% equity = 0.2 x 66M = $13.3M

100% paid at project start
2 equity investors @ 50% each
Construction Financing (first 18 months)
$10M at project start, 8% APR, interest only

$25M after 6 months, 8% APR, interest only
$25M after 12 months, 8% APR, interest only
All construction financing rolled over into Long Term debt financing
Long Term Debt financing
80% debt @ ~ $53.5M

20 years, 6% APR, 1% loan fee
Begins after 18 month construction period
Working Capital
$1M @ 5-years, 8% APR, 1.5% loan fee
58
29

Model 1: Basics
Model Results
Financial performance results
Cash Balance graph, Cash flow statement
Income Statement
Cash account should never be negative!!

Earnings Before Interest and Taxes (EBIT)
Profits before and after taxes
Balance Sheet
Use of Funds
Assets = Liabilities + Shareholder Funds (Equity) + Grants

Summarizes how funds are used (Sources, Uses)
Two statement types
Income Statement and Balance Sheet

(1) Income tax taxable income calculated using tax depreciation
(2) Shareholder Income, profits using depreciation from funding
Accelerated tax depreciation (US tax system)

Accelerated depreciation not used
59
Module 1: Basics
Model Results
Common project ranking indicators
Levelised selling price (before tax)

Lowest price best
Uses discounted costs over a specific time period
Financing, labor, O&M, overhauls, credits, incentives
Benefit-Cost Ratio (after tax)

Larger values > 1.0 desired
Discounted payback when BCR = 1.0
Net Present Value (NPV, after tax)

Larger, positive values desired
Positive when BCR > 1.0
60
30

Module 2: What If, Sensitivity Analysis

Objectives
(Use simple model from module 1)
Show how results are used to create a
Financial Scorecard
Discuss selected financial indicators
Show how users can control scorecard indicator preferences
Show how to use sensitivity factors and cost

escalation forecasts
Show to do a break-even and thresh-hold
analysis
61

About the Financial Scorecard
Visual financial health check
Available for each project year

Color-coded dash board display
Risk assessment, economic viability
(Red, Yellow, Green) for multiple items in each scorecard category
Uses calculated values from financial statements
Example: Cost of Sales and Operating Expenses

Calculations details on the Calcs_Financial_Indicators tab
User configurable (see next slide)
Stoplight threshold values

Stoplight threshold logic (requires MS Excel skills)
62
31


Financial Scorecard Configuration
Risk Values on Calcs_Financial Indicators

Indicators tab
Risk level cells contain stoplight logic (can be
changed by user)
Color-coded min, max columns contain stoplight
value thresholds (user defined)
63

Financial Scorecard Categories
Financial Indicators (Payback, NPV, BCR)
Indicates general economic viability, often used as funding hurdles (Go, No Go) or
project ranking
Probability Ratios (Gross Margin, Operating Margin)

Indicators used to determine how likely a project is to turn a rpofit
Liquidity Measures (Current Ratio, Acid Test Ratio)
Indicates how quickly assets can be turned into cash to support unexpected business
conditions or market-driven needs such as growth
Leverage Ratios (Debt to equity, equity, debt)
Provides insight into projects method of financing and ability to meet financial
obligations
Levelised selling price (power sales, heat/cool sales)
Common comparative indicator calculating the unit sales cost (example: $/MWhr)
Used discounted costs over a specific time period (example: 20 year plant life)
64
32


About sensitivity analysis
Allows What if analysis without changing base inputs
Scorecard and financial statement impacts

Multiple factors can be used at the same time
Allows risk evaluation of base assumptions to be tested
How sensitive is viability to capital cost?
Use +/- percentage variations of Capital Expenses sensitivity factor to see

Scorecard/Statement impacts
Enables rapid break-even or thresh-hold analysis
What first year energy price is needed to achieve a Benefit-Cost-Ratio

before year 10?
Use +/- percentage variations of the Electric Sales sensitivity factor to observe
changes in BCR values.
Cost escalation forecasts allow rapid evaluation of escalation

impacts
Four (4) escalation forecasts: Likely, Conservative, Aggressive, None

User defined cost escalation factors in each forecast library
65
Model 3: Modeling Concepts

Objectives
Show how to use model for phased projects
Show how government incentives and grants (tax credits,
production incentives, environmental credits) improve economics
Discuss model treatment of income taxes

Add tax credits, production incentives and grants to simple model
Illustrate use of analysis tool (HeatMap) to determine model

inputs
Use pre-defined HeatMap model, do a quick drive thru HeatMap
Other topics (TBD) based upon workshop participant request
66
33

Questions ?
67
RELCOST Information
RELCOST spreadsheet template, user

manual, workshop models, and workshop
slides can be downloaded:
(web site address to be provided at workshop)
Questions, please contact:
Jeff Ponsness, Ensight (ensight@msn.com)
Carolyn Roos, WSU (Roos@energy.wsu.edu)
68
34

9.1 COURSE ON OF GEOTHERMAL ECONOMIC EVALUATION & MODELING, Gordon Bloomquist, Jeff Ponsness, EnSight and WSU PDF

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Proceedings from World Banks GeoFund IGA International Geothermal Workshop

February 16-19, 2009 - Istanbul, Turkey

9. GEOTHERMAL ECONOMIC EVALUATION & MODELING

9.1 Gordon Bloomquist, Jeff Ponsness, EnSight and WSU

Copyright IGA 2008 2009

Proceedings from World Banks GeoFund IGA International Geothermal Workshop

Copyright IGA 2008 2009

Proceedings from World Banks GeoFund IGA International Geothermal Workshop

Development of a geothermal project

Financial modeling is used throughout the development

Copyright IGA 2008 2009

Proceedings from World Banks GeoFund IGA International Geothermal Workshop

Multiple interests, needs

Energy sales price?

Model Stakeholders Concerns

Can the projects loans be repaid?

Equity investors will want corporate financial projections

NPV, investor IRR, dividend stream

Governments and policy analysts may want to see that

Levelized Selling Price

Developers will want to prioritize projects and

Copyright IGA 2008 2009

Proceedings from World Banks GeoFund IGA International Geothermal Workshop

Flexible modeling tools needed

Extensible for project-specific modeling requirements

Cash flows over plant life

Flexible analysis and evaluation

Common Financial Evaluation Tools

Payback, Net Present Value, Benefit Cost Ratio

and Leverage Ratios

Gross Margin, Operating Margin

Current Ratio, Acid Test Ratio

Copyright IGA 2008 2009

Proceedings from World Banks GeoFund IGA International Geothermal Workshop

Discount Rate (time value of money)

Addresses the time value of money

Allows for meaningful comparisons across years

Next years $$ is worth less than todays $$

Used in NPV, BCR, Levelized Cost, others

Weighted Average Cost Of Capital (WACC)

Includes both equity and debt funding sources

Funding plans vary by project so do WACCs

Taxable entities use tax-adjusted debt interest rates

Pro Forma Statements

Provides insight into how project generates

Pro Forma statements commonly used

Copyright IGA 2008 2009

Proceedings from World Banks GeoFund IGA International Geothermal Workshop

Sales, Income total for ALL income sources

Direct income = power sales, heat/cool sales

Retained earnings available for project use

Growth, expansion, unplanned expenditures

Copyright IGA 2008 2009

Proceedings from World Banks GeoFund IGA International Geothermal Workshop

Cash Flow Statement

has too little

Assets = Liabilities + Shareholder Funds + Grants

Copyright IGA 2008 2009

Proceedings from World Banks GeoFund IGA International Geothermal Workshop

Project benchmark for competitive analysis

Levelized cost is the annualized Total Cost of

Copyright IGA 2008 2009