april 2012 - guest lectures icrep course - financial evaluation and risk assessment in emission...

FINANCIAL EVALUATION OF CDM PROJECTSRISK & RETURN IN EMISSION REDUCTION PROJECTSERIK JAN RODENHUIS 5 APRIL 2012RISK & RETURN IN EMISSION REDUCTION PROJECTSERIK JAN RODENHUIS 5 APRIL 2012

Erik Jan Rodenhuis MSc.

Industrial Engineering & Management at University of TwenteParticipation in ICREP course 2007

Consultant Renewable Energy & InnovationsLecturer Van Hall Larenstein University of Applied Sciences

Feasibility studies on biomass, wind & hydropowerAppropriate technology, emission reduction mechanisms, grant

writing technical and market innovationswww.linkedin.com/in/erikjanrodenhuis

SPEAKER INTRODUCTION

Erik Jan Rodenhuis MSc.

Industrial Engineering & Management at University of TwenteParticipation in ICREP course 2007

Consultant Renewable Energy & InnovationsLecturer Van Hall Larenstein University of Applied Sciences

Feasibility studies on biomass, wind & hydropowerAppropriate technology, emission reduction mechanisms, grant

writing technical and market innovationswww.linkedin.com/in/erikjanrodenhuis

5-4-2012Financial Evaluation of CDM Projects

Rationale behind emissions trading Financial Management crash-course

Investment Analysis of CDM projects

Development process of Renewable Energy and Carbon projects

Shadow pricing

Transaction Costs

Accuracy of estimates, uncertainties & risks

CDM-specific risks & returns

Risk evaluation

Questions

LECTURE OUTLINE

Rationale behind emissions trading Financial Management crash-course



Shadow pricing

Transaction Costs



Risk evaluation

Questions


Market-based system to realize emission reductions in most costeffective way

Emissions trading enables emitters of GHG to choose the least-costlyway to comply with the pollution regulation or voluntary reduceemissions, which will lead to reductions where the least expensivesolutions exist, while allowing emissions that are more expensive toreduce.

RATIONALE BEHIND EMISSIONS TRADINGCOST EFFECTIVE

Market-based system to realize emission reductions in most costeffective way

Emissions trading enables emitters of GHG to choose the least-costlyway to comply with the pollution regulation or voluntary reduceemissions, which will lead to reductions where the least expensivesolutions exist, while allowing emissions that are more expensive toreduce.


KYOTO FLEXIBLE MECHANISMS


(SOURCE: CD4CDM 2007)

RATIONALE BEHIND EMISSIONS TRADING


Source: http://www.sciencedirect.com/science/article/pii/S1462901105000559

ABATEMENT OF GHG OR EMISSIONS TRADING?


Source: http://www.mepa.org.mt/ets-introduction

PRODUCTION COSTS RENEWABLE ENERGY2006 FIGURE – GETTING CLOSER TO GRID PARITY


PRODUCTION COSTS


Source: IPCC-SRREN

CO2 ABATEMENT COSTGLOBAL COST CURVE FOR GREENHOUSE GAS ABATEMENT MEASURES


Rationale behind emissions trading

Financial Management crash-course Investment Analysis of CDM projects

Development process of Renewable Energy & Carbon projects

Shadow pricing

Transaction Costs



Risk evaluation

Questions

LECTURE OUTLINE


Financial Management crash-course Investment Analysis of CDM projects


Shadow pricing

Transaction Costs



Risk evaluation

Questions


Capital Expenditure “CAPEX”

Operating Expense “OPEX”

Earnings before Interest, Tax and Amortisation “EBITA” = operationalprofit -/- OPEX

FINANCIAL TERMINOLOGY

Capital Expenditure “CAPEX”

Operating Expense “OPEX”

Earnings before Interest, Tax and Amortisation “EBITA” = operationalprofit -/- OPEX


Balance sheet

Assets Equity

Debt

“Carbon Finance”

SOURCES OF FINANCE

Balance sheet

Assets Equity

Debt

“Carbon Finance”


PROFIT & LOSS STATEMENT

Profit & loss statement

OPEX Revenues

- energy sales

- carbon sales

If OPEX< revenues if OPEX > revenues

Nett profit Nett loss


Profit & loss statement

OPEX Revenues

- energy sales

- carbon sales

If OPEX< revenues if OPEX > revenues

Nett profit Nett loss

TYPE OF FINANCING


(SOURCE: MAKINSON 2005)

DEBT RATIO


(SOURCE: FIELDSTONE PRIVATE CAPITAL GROUP LIMITED 2000)

OPERATIONAL & FINANCIAL CASH FLOWS



Solvency ratio’s

Profitability ratio’s

FINANCIAL RATIO’S

assetsTotaldebtTotalratioDebt

Solvency ratio’s

Profitability ratio’s


assetsTotalincomeNett(ROA)AssetsonReturn

EquityDebti)-(ROAROA

EquityTotalinterest-EBITA(ROE)EquityonReturn taxbefore

)EquityDebti)-(ROA(ROArate)tax-(1(ROE)EquityonReturn after tax

Assume:

16 MW wind park

Total investment € 20 million

EBITA = Earnings before Interest, Tax, Amortization = € 2 million

Questions:

1. What is the Return-on-Investment ROI?

2. What is the Return-on-Equity assuming that you are able to:

Attract debt up to an debt ratio of 75%

At an interest rate of 6%

APPLYING THE FINANCIAL RATIO’SEXERCISE 1

Assume:

16 MW wind park

Total investment € 20 million

EBITA = Earnings before Interest, Tax, Amortization = € 2 million

Questions:

1. What is the Return-on-Investment ROI?

2. What is the Return-on-Equity assuming that you are able to:

Attract debt up to an debt ratio of 75%

At an interest rate of 6%


ANSWER EXERCISE 1THIS IS WHAT WE CALL “LEVERAGE”

22% ROE = ? %ROE = 22 %


Totalinvestment: €20M

ROA: 10%

Equity: € 5 M Debt: € 15 M

Interest rate: 6%

10%

6%

The value of $ 1 in 2013?

Nett Present Value

Internal Rate of Return

TIME-VALUE OF MONEY

ni)(1FVPV

The value of $ 1 in 2013?

Nett Present Value

Internal Rate of Return


T

1tt

t

r)(1CNPV

T

1tt

t

IRR)(1CNPV then0NPVif

Excel Syntax:

NPV(rate, value1, value2, ..., value N)

IRR(value1,value 2, …, value N, guess)

Debt Service Coverage Ratio

TIME-VALUE OF MONEY

Excel Syntax:

NPV(rate, value1, value2, ..., value N)

IRR(value1,value 2, …, value N, guess)

Debt Service Coverage Ratio


repaymentloaninterestEBITA

servicedebtTotalEBITADSCR

OPERATIONAL & FINANCIAL CASH FLOWS



CUMULATIVE CASH FLOWS & NET PRESENT VALUE



Pay-back periodBreak-even


INTEREST RATES & EXPECTED ROE


(SOURCE: FIELDSTONE PRIVATE CAPITAL GROUP LIMITED 2000)

TOOLS



Financial Management crash-course

Investment Analysis of CDM projects Development process of Renewable Energy and Carbon projects

Shadow pricing

Transaction Costs



Risk evaluation

Questions

LECTURE OUTLINE



Investment Analysis of CDM projects Development process of Renewable Energy and Carbon projects

Shadow pricing

Transaction Costs



Risk evaluation

Questions


ADDITIONALITYINVESTMENT ANALYSIS AS A TOOL FOR PROVING ADDITIONALITY


Additionality tool: http://cdm.unfccc.int/Reference/tools/index.html

STEP 2 – Investment analysis

The project needs to be less financial attractive than realistic &credible alternatives

The project is less financial attractive than continuation of thecurrent situation

The proposed project activity is not financial attractive withoutcarbon revenues

STEP 3 – Barrier analysis

There are investment barriers (lack of capital, risks, current similaractivities only with grant money)

ADDITIONALITYREQUIREMENTS

STEP 2 – Investment analysis

The project needs to be less financial attractive than realistic &credible alternatives

The project is less financial attractive than continuation of thecurrent situation

The proposed project activity is not financial attractive withoutcarbon revenues

STEP 3 – Barrier analysis

There are investment barriers (lack of capital, risks, current similaractivities only with grant money)


ADDITIONALITY?



Project lifetime

Residual value after project lifetime

Sunk costs

Project IRR

Required Rate-of Return should reflect risk profile of the project

Guidelines on the Assessment of Investment Analysis

http://cdm.unfccc.int/Reference/Guidclarif/reg/reg_guid03.pdf

GUIDELINES ON INVESTMENT ANALYSISISSUES

Project lifetime

Residual value after project lifetime

Sunk costs

Project IRR

Required Rate-of Return should reflect risk profile of the project

Guidelines on the Assessment of Investment Analysis

http://cdm.unfccc.int/Reference/Guidclarif/reg/reg_guid03.pdf




Development process of Renewable Energy and Carbon projects Shadow pricing

Transaction Costs

Accuracy of estimates, Uncertainties & Risks

CDM-specific Risks & Returns

Risk evaluation

Questions

LECTURE OUTLINE



Development process of Renewable Energy and Carbon projects Shadow pricing

Transaction Costs

Accuracy of estimates, Uncertainties & Risks

CDM-specific Risks & Returns

Risk evaluation

Questions


Stage-gating with identification of “show-stoppers”

Sources of finance during project development

CDM specific project cycle

PROJECT DEVELOPMENT OF RENEWABLE ENERGYAND CARBON PROJECTS

Stage-gating with identification of “show-stoppers”

Sources of finance during project development

CDM specific project cycle


PROCESS


DEVELOPMENT STAGES


(SOURCE: MAKINSON 2005)

CDM PROJECT CYCLE







Shadow pricing Transaction Costs



Risk evaluation

Questions

LECTURE OUTLINE





Shadow pricing Transaction Costs



Risk evaluation

Questions


Shadow price: the marginal rate of substitution between outputs inquestion, i.e. the amounts of one output we have to sacrifice to obtainanother output, or price in well functioning market

Opportunity cost / opportunity value

SHADOW PRICESDISTORTED MARKETS

Shadow price: the marginal rate of substitution between outputs inquestion, i.e. the amounts of one output we have to sacrifice to obtainanother output, or price in well functioning market

Opportunity cost / opportunity value


FINANCIAL EVALUATION OF CDM PROJECTSRISK & RETURN IN EMISSION REDUCTION PROJECTSERIK JAN RODENHUIS 10 APRIL 2012RISK & RETURN IN EMISSION REDUCTION PROJECTSERIK JAN RODENHUIS 10 APRIL 2012





Shadow pricing

Transaction Costs Accuracy of estimates, uncertainties & risks


Risk evaluation

Questions

LECTURE OUTLINE





Shadow pricing

Transaction Costs Accuracy of estimates, uncertainties & risks


Risk evaluation

Questions


ADDITIONALITY?



FINANCING REQUIREMENTS

10-4-2012Financial Evaluation of CDM Projects(SOURCE: CD4CDM 2007)

Transaction costs are all costs incurred in making an economicexchange

Search and information costs

Bargaining costs

Enforcement costs

TRANSACTION COSTS

Transaction costs are all costs incurred in making an economicexchange

Search and information costs

Bargaining costs

Enforcement costs


CDM-SPECIFIC COSTS

Phase Cost(large-scale)

Cost(small-scale)

Activities

Planning phase $ 38,500 –$ 610,000

$ 18,500 –$ 117.000

PINPDDNew methodologyValidationRegistration



PINPDDNew methodologyValidationRegistration

Constructionphase

Usually minimal relative to total plant &equipment cost

Monitoringequipment

Operation phase Variable – minimum 2% of CERs plus$5000/year for annual verification

UN Adaption FundFeeVerification feesSOP-admin

TRANSACTION COSTS FOR CDM PROJECTSINDICATIVE CDM COST PROFILE FOR A TYPICAL CDM PROJECT

53,000

Pre-RegistrationCDM Costs

Post-RegistrationCDM Costs

US$

164,500Assumes a 10-year

project.

Recurrent costsdiscounted at 3%

annual rate to expressin present-value terms.

Registration costs,Administration Fee andAdaptation Fund Levy

not included.

Assumes a 10-yearproject.




not included.


13,000

38,000

16,50010,000

34,000

PDD

Validation

InitialMonitoring

OngoingVerification

ByDOE

OngoingAnnual

Monitoring

51,00067,50077,500

111,500

PIN





not included.





not included.

Assume:

CER price $ 5 / tCO2

CDM planning cost $ 75,000

CDM verification cost $ 5,000

Yearly CER’s 20.000 tCO2

2% of CERs to UN Adaption Fund Fee

How long does the project has to be operational before the CDMspecific costs are recovered?

EXERCISE 1SIMPLE PAY-BACK OF CDM-SPECIFIC INVESTMENT

Assume:

CER price $ 5 / tCO2

CDM planning cost $ 75,000

CDM verification cost $ 5,000

Yearly CER’s 20.000 tCO2

2% of CERs to UN Adaption Fund Fee

How long does the project has to be operational before the CDMspecific costs are recovered?


Simple pay-back of CDM-specific costs

EXERCISE 1SIMPLE PAY-BACK OF CDM-SPECIFIC INVESTMENT

costion verificatannual-price)CERyearly t(0.98costplanningCDMt

CO2

Simple pay-back of CDM-specific costs


years0.85,000-$5)20,000(0.98

75,000$t

Assume:

VER price $ 5 / tCO2

VCM planning cost $ 40,000

VCM verification cost $ 10,000

ERPA 7 years

What is the minimum project size to recover the Carbon specificcosts?

EXERCISE 2CALCULATION OF MINIMUM PROJECT SIZE

Assume:

VER price $ 5 / tCO2

VCM planning cost $ 40,000

VCM verification cost $ 10,000

ERPA 7 years

What is the minimum project size to recover the Carbon specificcosts?


Break-even VCM project size

EXERCISE 2CALCULATION OF MINIMUM PROJECT SIZE

price)CER(Tcost)ion verificatannual*(TcostplanningVCM/year)(tx e-CO2

Break-even VCM project size


/year t3,142$5)(7

$10,000)*(7$40,000/year)(tx e-CO2e-CO2





Shadow pricing

Transaction Costs

Accuracy of estimates, uncertainties & risks CDM-specific risks & returns

Risk evaluation

Questions

LECTURE OUTLINE





Shadow pricing

Transaction Costs

Accuracy of estimates, uncertainties & risks CDM-specific risks & returns

Risk evaluation

Questions


•Accuracy of estimates

• Is my estimate of the total investment accurate?

•Uncertainties & risks

• Does my project obtain the necessary licenses/permits to operate?

• What will be the price for a MWh?

• What will be the price for a carbon credit?

ACCURACY OF ESTIMATES, UNCERTAINTIES & RISKS

•Accuracy of estimates

• Is my estimate of the total investment accurate?

•Uncertainties & risks

• Does my project obtain the necessary licenses/permits to operate?

• What will be the price for a MWh?

• What will be the price for a carbon credit?


ACCURACY OF ESTIMATES


(SOURCE: RETSCREEN)

CER SPOT MARKET PRICES (ONE YEAR AGO…)


(SOURCE: BLOOMBERG NEW ENERGY FINANCE 2011)

CER SPOT MARKET PRICES (TODAY)


(SOURCE: BLOOMBERG NEW ENERGY FINANCE 2012)

• Knight (1921):“risk is an uncertainty with a probability that is known through pastexperience”

• Risk = (probability of occurrence) x (severity of theconsequences)

• Risk volatility = variability in possible outcomes within a certainconfidence interval

UNCERTAINTY & RISK

Uncertainties

• Knight (1921):“risk is an uncertainty with a probability that is known through pastexperience”

• Risk = (probability of occurrence) x (severity of theconsequences)

• Risk volatility = variability in possible outcomes within a certainconfidence interval


RisksUncertainties

•Technical risks

•Wind resources•Sufficient grid capacity•Municipality zoning plan

•“Safety assessment”

UNCERTAINTY & RISK IN RENEWABLE ENERGY

•Technical risks

•Wind resources•Sufficient grid capacity•Municipality zoning plan

•“Safety assessment”


RISK VERSUS RETURN

(Source: Sonntag-O’Brien &Usher 2004)


TYPICAL PLANNING RISKS



TYPICAL CONSTRUCTION RISKS



TYPICAL OPERATIONAL RISKS



PROJECT RISKS







Shadow pricing

Transaction Costs


CDM-specific risks & returns Risk evaluation

Questions

LECTURE OUTLINE





Shadow pricing

Transaction Costs


CDM-specific risks & returns Risk evaluation

Questions


CDM EMISSIONS REDUCTION OTC PRICESCARBON FINANCE


(SOURCE: NISHIDA, CARBON EXPO 2007)

CARBON FINANCE


(SOURCE: UNEP ENERGY & ENVIRONMENT GROUP 2003)

MORE FLEXIBLE DEAL STRUCTURES


(SOURCE: UNEP ENERGY & ENVIRONMENT GROUP 2003)

VOLUNTARY CARBON MARKET OTC PRICES


(SOURCE: STATE OF THE VOLUNTARY CARBON MARKET 2009)

CDM RISK ADJUSTED PRICES



PROBABILITY OF OCCURRENCE CER PRICE RISK

frequent probable casual imaginable improbable unthinkable

Future spot markettrades of CERs

Carbon Finance andfixed-price agreementfor Verified EmissionReductions delivered

ERPA states a fixedannual amount of

CERs to be delivered


frequent probable casual imaginable improbable unthinkable

Future spot markettrades of CERs

Carbon Finance andfixed-price agreementfor Verified EmissionReductions delivered

ERPA states a fixedannual amount of

CERs to be delivered

“RISK-RETURN HURDLE LINE”

RE project with carbon credits


RE project without carbon credits

ADDITIONALITY? (REPRISE)







Shadow pricing

Transaction Costs



Risk evaluation Questions

LECTURE OUTLINE





Shadow pricing

Transaction Costs



Risk evaluation Questions


RISK EVALUATION

•Identification of risks

•Use scenario’s (with/without carbon credits; sensitivity analysis)

•Risk management

•Qualitative/semi-quantitative risk evaluation

•Sensitivity analysis

•Quantitative risk analysis using Monte-Carlo simulations


•Identification of risks

•Use scenario’s (with/without carbon credits; sensitivity analysis)

•Risk management

•Qualitative/semi-quantitative risk evaluation

•Sensitivity analysis

•Quantitative risk analysis using Monte-Carlo simulations

IDENTIFICATION OF RISKS

•Risk classification according to successive project phases

• Planning risks

• Construction risks

• Operational risks

•Functional risk categories

• Regulatory risks

• Development & Construction risks


• Revenue risks

• Financial risks


•Risk classification according to successive project phases

• Planning risks

• Construction risks


•Functional risk categories

• Regulatory risks

• Development & Construction risks


• Revenue risks

• Financial risks

RISK MANAGEMENT

no

yes

Risk assessed

Acceptable? Monitor risk


(SOURCE: SADGROVE 2005)

no yes

no

Risk treatment- Minimize- Spread

Acceptable?Avoid

UNEP/MARSH RISK PRIORITY 100 MW WIND FARMCHINA100 MW WIND FARM CHINA

1. Contract bankability (risk of being unable to secure bankable off-takercontracts)

2. Warranty non-performance (risk of the warranty provider failing tomeet contractual obligations)

3. Off-taker default (risk of the electricity off-taker defaulting oncontractual obligations under PPA)

Based on survey voting by 31 qualified experts

UNEP Marsh 2007, available athttp://www.unep.fr/energy/activities/frm/publications.htm


1. Contract bankability (risk of being unable to secure bankable off-takercontracts)

2. Warranty non-performance (risk of the warranty provider failing tomeet contractual obligations)

3. Off-taker default (risk of the electricity off-taker defaulting oncontractual obligations under PPA)

Based on survey voting by 31 qualified experts

UNEP Marsh 2007, available athttp://www.unep.fr/energy/activities/frm/publications.htm

SEMI-QUANTITATIVE RISK EVALUATION

frequent

probable

casual Risk Priority


imaginable

improbable

unthinkable

inessential marginally critical disastrous

SEMI-QUANTITATIVE RISK EVALUATIONEXAMPLE FOR OPERATIONAL RISK WIND TURBINE

frequent

probable

casual

imaginable

Probability ofoccurrence

SimpleMaintenance

without insurance


imaginable

improbable

unthinkable


Severity of the consequences

Complete O&Mincl. Insurance

SimpleMaintenance

without insurance

O&M and insuranceincrease operational costand lower IRR.But also decrease riskprofile!!!

SEMI-QUANTITATIVE RISK EVALUATIONRISK TREATMENT STRATEGIES

frequent

probable

casual

imaginable

improbable

unthinkable



Probabilityof

occurrence

Showstoppers that leadto avoidance of theproject

Showstoppers that couldpossibly be mitigated

Risks that are beingassumed to occur byusing a conservativeestimate

Acceptable risk range


frequent

probable

casual

imaginable

improbable

unthinkable



Probabilityof

occurrence

Showstoppers that leadto avoidance of theproject

Showstoppers that couldpossibly be mitigated

Risks that are beingassumed to occur byusing a conservativeestimate

Acceptable risk range

SENSITIVITY ANALYSISSensitivity analysis

Perform analysis onSensitivity rangeThreshold 10 %

€/MWh76,50 80,75 85,00 89,25 93,50

€ -10% -5% 0% 5% 10%16.650.000 -10% 9,9% 12,0% 14,1% 16,1% 18,1%17.575.000 -5% 8,3% 10,4% 12,3% 14,3% 16,2%18.500.000 0% 6,9% 8,9% 10,8% 12,6% 14,5%19.425.000 5% 5,6% 7,5% 9,3% 11,1% 12,9%20.350.000 10% 4,3% 6,2% 8,0% 9,8% 11,5%

€/MWh76,50 80,75 85,00 89,25 93,50

€ -10% -5% 0% 5% 10%612.000 -10% 7,7% 9,6% 11,5% 13,4% 15,2%646.000 -5% 7,3% 9,3% 11,2% 13,0% 14,8%680.000 0% 6,9% 8,9% 10,8% 12,6% 14,5%714.000 5% 6,5% 8,5% 10,4% 12,3% 14,1%748.000 10% 6,1% 8,1% 10,0% 11,9% 13,7%

€/MWh76,50 80,75 85,00 89,25 93,50

€/tCO2 -10% -5% 0% 5% 10%5,40 -10% 6,8% 8,7% 10,6% 12,5% 14,3%5,70 -5% 6,8% 8,8% 10,7% 12,6% 14,4%6,00 0% 6,9% 8,9% 10,8% 12,6% 14,5%6,30 5% 6,9% 8,9% 10,8% 12,7% 14,5%6,60 10% 7,0% 9,0% 10,9% 12,8% 14,6%

RETScreen Sensitivity and Risk Analysis - Power project

After-tax IRR - equity10%

Electricity export rateInitial costs

Electricity export rateO&M

Electricity export rateGHG reduction credit rate


Sensitivity analysis

Perform analysis onSensitivity rangeThreshold 10 %

€/MWh76,50 80,75 85,00 89,25 93,50

€ -10% -5% 0% 5% 10%16.650.000 -10% 9,9% 12,0% 14,1% 16,1% 18,1%17.575.000 -5% 8,3% 10,4% 12,3% 14,3% 16,2%18.500.000 0% 6,9% 8,9% 10,8% 12,6% 14,5%19.425.000 5% 5,6% 7,5% 9,3% 11,1% 12,9%20.350.000 10% 4,3% 6,2% 8,0% 9,8% 11,5%

€/MWh76,50 80,75 85,00 89,25 93,50

€ -10% -5% 0% 5% 10%612.000 -10% 7,7% 9,6% 11,5% 13,4% 15,2%646.000 -5% 7,3% 9,3% 11,2% 13,0% 14,8%680.000 0% 6,9% 8,9% 10,8% 12,6% 14,5%714.000 5% 6,5% 8,5% 10,4% 12,3% 14,1%748.000 10% 6,1% 8,1% 10,0% 11,9% 13,7%

€/MWh76,50 80,75 85,00 89,25 93,50

€/tCO2 -10% -5% 0% 5% 10%5,40 -10% 6,8% 8,7% 10,6% 12,5% 14,3%5,70 -5% 6,8% 8,8% 10,7% 12,6% 14,4%6,00 0% 6,9% 8,9% 10,8% 12,6% 14,5%6,30 5% 6,9% 8,9% 10,8% 12,7% 14,5%6,60 10% 7,0% 9,0% 10,9% 12,8% 14,6%

RETScreen Sensitivity and Risk Analysis - Power project

After-tax IRR - equity10%

Electricity export rateInitial costs

Electricity export rateO&M

Electricity export rateGHG reduction credit rate

QUANTITATIVE RISK ANALYSISPROBABILITY DISTRIBUTION


(SOURCE: MARSH 2007)

QUANTITATIVE RISK ANALYSISIMPACT OF VARIOUS RISK

Risk analysis

Perform analysis on

Parameter Unit Value Range (+/-) Minimum MaximumInitial costs € 18.500.000 15% 15.725.000 21.275.000O&M € 680.000 20% 544.000 816.000Electricity export rate €/MWh 85,00 10% 76,50 93,50GHG reduction credit rate €/tCO2 6,00 60% 2,40 9,60Net GHG reduction - credit duration tCO2 232.801 232.801 232.801Debt ratio % 60% 60% 60%Debt interest rate % 7,00% 7,00% 7,00%Debt term yr 15 15 15

Impact - After-tax IRR - equity

Relative impact (standard deviation) of parameter

After-tax IRR - equity

-1 -0,8 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8

Net GHG reduction - credit duration

Debt ratioDebt interest rateDebt termGHG reduction credit rateO&MElectricity export rateInitial costs


Risk analysis

Perform analysis on

Parameter Unit Value Range (+/-) Minimum MaximumInitial costs € 18.500.000 15% 15.725.000 21.275.000O&M € 680.000 20% 544.000 816.000Electricity export rate €/MWh 85,00 10% 76,50 93,50GHG reduction credit rate €/tCO2 6,00 60% 2,40 9,60Net GHG reduction - credit duration tCO2 232.801 232.801 232.801Debt ratio % 60% 60% 60%Debt interest rate % 7,00% 7,00% 7,00%Debt term yr 15 15 15

Impact - After-tax IRR - equity

Relative impact (standard deviation) of parameter

After-tax IRR - equity

-1 -0,8 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8

Net GHG reduction - credit duration

Debt ratioDebt interest rateDebt termGHG reduction credit rateO&MElectricity export rateInitial costs

QUANTITATIVE RISK ANALYSISDISTRIBUTION AFTER 100 SIMULATIONS

Median % 10,8%Level of risk % 5,0%Minimum within level of confidence % 7,1%Maximum within level of confidence % 15,2%

Distribution - After-tax IRR - equity

0%

2%

4%

6%

8%

10%

12%

14%

16%

5,8% 7,1% 8,5% 9,9% 11,3% 12,7% 14,1% 15,4% 16,8% 18,2%


Median % 10,8%Level of risk % 5,0%Minimum within level of confidence % 7,1%Maximum within level of confidence % 15,2%

Distribution - After-tax IRR - equity

0%

2%

4%

6%

8%

10%

12%

14%

16%

5,8% 7,1% 8,5% 9,9% 11,3% 12,7% 14,1% 15,4% 16,8% 18,2%





Shadow pricing

Transaction Costs



Risk evaluation

Questions

LECTURE OUTLINE





Shadow pricing

Transaction Costs



Risk evaluation

Questions


Essential reading:Guidebook to Financing CDM Projects

http://www.unep.org/climatechange/Home/ClimateChangeFinance/tabid/612/language/en-US/Default.aspx

Recommended reading concerning Carbon Finance:World Bank Carbon Finance Libraries:

http://go.worldbank.org/D2V9XWYHM0

http://wbcarbonfinance.org/Router.cfm?Page=DocLib&ItemID=24703

FURTHER READING

Essential reading:Guidebook to Financing CDM Projects

http://www.unep.org/climatechange/Home/ClimateChangeFinance/tabid/612/language/en-US/Default.aspx

Recommended reading concerning Carbon Finance:World Bank Carbon Finance Libraries:

http://go.worldbank.org/D2V9XWYHM0

http://wbcarbonfinance.org/Router.cfm?Page=DocLib&ItemID=24703


Recommended reading concerning Voluntary Carbon MarketEcosystem Marketplace (e.g. State Voluntary Carbon Market 2009)

http://www.ecosystemmarketplace.com/pages/dynamic/carbon_market.landing_page.php

Recommended reading concerning Sustainable Energy Finance

UNEP Sustainable Energy Finance Initiative

http://sefi.unep.org/

FURTHER READING

Recommended reading concerning Voluntary Carbon MarketEcosystem Marketplace (e.g. State Voluntary Carbon Market 2009)

http://www.ecosystemmarketplace.com/pages/dynamic/carbon_market.landing_page.php

Recommended reading concerning Sustainable Energy Finance

UNEP Sustainable Energy Finance Initiative

http://sefi.unep.org/


Recommended reading concerning Risk and Renewable EnergyProjectsUNEP Financial Risk Management Instruments for Renewable EnergyProjects in Emerging and Developing Countries

http://www.unep.fr/energy/activities/frm/

Risk analysis tool for renewable energy project development

http://purl.org/utwente/e58464

FURTHER READING

Recommended reading concerning Risk and Renewable EnergyProjectsUNEP Financial Risk Management Instruments for Renewable EnergyProjects in Emerging and Developing Countries

http://www.unep.fr/energy/activities/frm/

Risk analysis tool for renewable energy project development

http://purl.org/utwente/e58464


Erik Jan Rodenhuis MSc

Rodenhuis Energy & Innovation

The Netherlands

I. www.rodenhuisenergy.eu

E. [email protected]

THANK YOU FOR YOUR ATTENTION

Erik Jan Rodenhuis MSc

Rodenhuis Energy & Innovation

The Netherlands

I. www.rodenhuisenergy.eu

E. [email protected]


april 2012 - guest lectures icrep course - financial evaluation and risk assessment in emission...

Education

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