the project cycle presentation 2 for sotik tea company harrie knoef 10-11 th january 2008
TRANSCRIPT
The Project Cycle
Presentation 2 for Sotik Tea CompanyHarrie Knoef
10-11th January 2008
www.btgworld.com
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1. Phases in the project cycle
2. Pre-investment phase– Opportunity study– Pre-feasibility study– Feasibility study
3. Investment phase
4. Operational phase
Contents
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Phases in the project cycle
Pre-investmentphase
Investmentphase
Operationalphase
Pre-feasibilitystudy
Feasibilitystudy
Opportunitystudy
Projectrecommendation
Negotiation,contracting
Engineering,design
Construction
Pre-productionmarketingTraining
Commissioning,start-up
Maintenance,improvements
Expansion,Innovation
Go/no-go
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Pre-investment phase
The pre-investment phase starts with a problem or an idea, and ends in a project recommendation
It may include a range of assessments and studies, such as:– Opportunity study– Pre-feasibility study– Feasibility study
AccuracyInvestment costs
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Opportunity study An opportunity study is an assessment to determine
whether there are opportunities for a project
For example: whether there are possible solutions for an existing problem (e.g. high energy costs, unreliable energy supply, environmental concerns)
Or, are there similar examples of success/failures
Often not a “formal” study – entrepreneurs usually take the initiative, informally discuss their problem and possible solutions with their peers and experts
Outcome is a project idea (e.g. a cogeneration project)
Sotik: completed
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Pre-feasibility study
A pre-feasibility study is a quick assessment of the basic feasibility of a certain project idea.
It determines whether basic technical / organisational requirements are met, and whether the solution is cost effective.
Pre-feasibility studies are often executed by external experts, and have a short lead time (weeks).
The study should indicate whether or not a feasibility study is justified.
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Feasibility study
A feasibility study is an extensive assessment of the feasibility of a certain project
Key elements include (see next slides):– Technical issues– Environmental issues– Financial feasibility– Organisational issues– Risk analyses– Financing
The feasibility study should result in a project recommendation and a bankable project document
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Feasibility study: technical issues (1)
Technical assessments should determine which system is required, and what are the inputs and outputs
Basis for the technical assessment is an analysis of on-site processes, for example:– Determine current energy demand (heat and electricity) and
projected developments therein: energy consumption, peak demand, load profiles, steam condition requirements, etc
– Determine fuel availability and attributes (moisture, contaminants, morphology, ash content, density, calorific value)
– Integration of CHP plant to the local project site
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Feasibility study: technical issues (2)
Technology selection, for instance:– combustion/steam cycle or gasification/engine– steam turbine or steam engine or ORC– anaerobic digestion
Technology attributes – heat and power output– efficiency– fuel requirements– fuel pretreatment– O&M requirements
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Steam engine vs Steam turbine
Advantages Disadvantages
Steam engine Low cost at low power ratings
Robust design, long life expectancy
Good performance at lower loads
Low capacity (<200-500 kW)
Low efficiency (~6-7%)
Low temperature heat (80-90 oC)
High oil consumption
Steam turbine Higher efficiency (>10%)
Possible higher temperature heat supply
Low consumables
Higher capacity (>500 kW)
Higher cost in smaller scale
Less suitable for intermittent use
Steam engines for smaller loads, intermittent operation, at low biomass price
Steam turbines for higher loads, continuous operation, biomass may be to be bought
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ORC (Organic Rankine Cycle)
For instance in Ludwigsfelde, Germany– Wood-fired boiler– Wood consumption: 18700 ton/yr– 1,5 MWe, 10 MWth– 7500 hrs/yr– 86% availability– Fully remote controlled from Italy
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Feasibility study: environmental issues
Environmental assessment should indicate to what extent the project can meet local / national environmental standards
Example:– Assessment of emission regulations (e.g. dust, NOx, SOx)– Comparison with expected (rated) emissions from systems– Determine required emission control systems (flue gas filters, de-
NOx)
Legal requirement Kenya: EIA, Environmental Impact Assessment
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Feasibility study: environmental issues emission control [1]
Main contaminants: particles, NOx, CO
Aspects to consider – Environmental legislation– Local situation– Technological state of the art – BAT: Best Available Technology
Levels of control (and measures)– Fuel side (prevention)– Conversion side (prevention)– Flue gas side (end-of-pipe)
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Feasibility study: environmental issuesemission control [2]
Fuel side (prevention):– moisture content, fuel size, no contaminants– quality clauses in fuel delivery contracts
Conversion side (prevention):– optimal process control (partial vs full load)– multiple air supply/staged combustion– flue gas circulation (NOx control)
Flue gas side (end-of-pipe):– particles: (multi)cyclones, fabric filters, electrostatic filters– NOx: catalytic reduction (combined with SOx)
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Energy demand analysis
Load curves and load duration curves
Annual basis
Monthly basis
Daily basis
Hourly basis
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Feasibility study: energy demand
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50
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150
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250
300
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Duration [weeks]
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J]
Load duration curveannual basis
Load curveannual basis
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weeks of the year
he
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[G
J] Maximum
240 GJ/wk
Average168 GJ/wk
Heat demand is often leading
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Feasibility study: energy demand
Load duration curvedaily basis
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time of the day
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Duration per day [hours]
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Load curvedaily basis
Maximum2.2 GJ/hr620 kWth
Maximum day
Average day
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time of the day
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Duration per day [hours]
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Maximum1.4 GJ/hr388 kWth
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Feasibility study: financial issues (1)
The financial assessments determine the cost-effectiveness of an investment
Financialanalyses
Project financing
Investment costs
Operating costs
Revenues
Other parameters
Indicators
Overviews
Sensitivity
parameters
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Feasibility study: financial issues (2)
Investment costs– Determine fixed investment costs (land, buildings, equipment,
installation, commissioning)– Determine working capital (in comparison to current situation), e.g.
additional stock, accounts payable, accounts receivable
Annual costs and revenues– Annual costs are for example fuel (biomass), personnel,
maintenance, administrative costs– Annual revenues are for example fuel savings, avoided energy
costs, revenues from energy sales, carbon credits
Other parameters– Depreciation rate, tax rate– Project duration, equipment lifetime
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Investment costs (example)
Civil works and building 1 m€
Fuel handling/feeding 1 m€
CHP plant 10 m€
Utilities / auxiliary equipment 2 m€
Engineering 1 m€
Start-up and commissioning 2 m€
Total costs 17 m€
? = What is inside the Capital expenses
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Operational costs
Fuel costs– different suppliers, variation in time
Labour costs: ~ 5% of investment costs– labour requirements level of automation
Maintenance costs: ~ 2.5% of investment– maintenance costs quality of boiler / investment costs
Other costs: costs for pre-treatment, capital, heat distribution, insurance, grid connection, etc.
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Feasibility study: financial issues (3)
Financial analyses1. Determine financial indicators (IRR, NPV, RoI, Payback
Period)2. Determine production costs, cashflow, profit-loss and
balance sheets3. Determine the sensitivity of indicators to parameter
variations (e.g. investment costs, number of operating hours, etc.
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Feasibility study: financial issues (4)
Ad 1. Most commonly used financial indicators:– IRR (Internal Rate of Return): average annual return of
the project, regardless of how it is financed– NPV (Net Present Value): value of the investment in the
present year when discounting future cashflows– RoI (Return on Investment): average annual return on
equity = annual profits / investment costs (%)– Payback Period: indicates the number of years before
the initial investment is repaid = investment / annual profit (yr)
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Feasibility study: financial issues (5)
Ad2. Financial overviews– Production costs: overview of costs of production
(including operational costs, overheads, depreciation, financial costs
– Cashflows: projection of ingoing and outgoing cash flows, determining financing needs
– Profit-loss accounts: projection of annual accounts, determining annual profits or losses, and taxes
– Balance sheets: projection of assets and liabilities
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Feasibility study: financial issues (6)
Ad3. Sensitivity analyses:– Assessing how variations in certain parameters influence
the financial performance of the project– Determine the important parameters, to estimate risks– Determine at what level of variation the project is still
cost-effective
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Feasibility study: financial issues (8)
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Feasibility study: financial issues (9)
Financing– Determine financing needs (fixed investments, interest during
construction, working capital)– Determine financing mix (equity, loans, subsidies)– Risk assessment
Some general observations– Maximisation of subsidies and loans give the highest Return on
Investment, and reduces the risk for the investor– Often an iterative process, depending on the availability of equity
and loan conditions
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Feasibility study: financial issues (10)technical specification - case
Heat demandNumber of houses 56 Specific heat demand 90 GJ/yrTotal heat demand 5,040 GJ/yrMaximum heat demand 2.2 GJ/hr
619 kWth
Heating season duration 30 weeks/yr
Boiler specificationsDH system losses 5%
Design capacity boiler 652 kWth
Fuel requirementsBoiler efficiency 75%Heat input boiler 6,720 GJ/yrFuel type wood chipsMoisture content 40% wet basisNet calorific value 10 GJ/tonTotal amount of wood 672 ton/yrAverage wood flow 133 kg/hrMaximum wood flow 223 kg/hr
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Feasibility study: financial issues (11)financial analyses - caseInvestment costsSpec. investment system 200 EUR/kWthInvestment costs 130,409 EUR
Financial parametersInterest rate 6%Economic lifetime 15 yrFuel supply 672 ton/yrFuel costs 4 EUR/tonCurrent price energy 10 EUR/GJLabour costs 5% of invest. boilerMaintenance costs 2.5% of invest. boiler
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Feasibility study: financial issues (12)cost price analyses - case
Capital costs 13,427 EUR/yrFuel costs 2,688 EUR/yrLabour costs 6,520 EUR/yrMaintenance costs 3,260 EUR/yrTotal costs 25,896 EUR/yr
Cost price energy 5.14 EUR/GJ
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Feasibility study: financial issues (13)Simple cost/benefit analyses - case
Total annual costs 25,896 EUR/yrTotal annual revenues 50,400 EUR/yrNet result 24,504 EUR/yr
Return on investment 19% Simple payback time 5 yr
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Feasibility study: financial issues (14)Sensitivity analyses - case “What if” - analysis (Excel: Data/Table)
Remark: take into account probability of parameter variation
0%
5%
10%
15%
20%
25%
30%
35%
40%
- 4 8 12 16 20
Fuel price [EUR/ton]
Ret
urn
on
In
vest
men
t [%
]
150
175
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225
250
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Feasibility study: financial issues (15)Sensitivity analyses - case Scenario analysis (Excel: Tools/Scenarios)
Remark: take realistic sets of parameters
Scenario 1 Scenario 2Investment costs boiler 250 150Efficiency boiler 85% 65%Fuel costs 6 2Labour costs 3% 8%Maintenance costs 1% 5%
Return on Investment 15% 27%
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Feasibility study: financial issues (16)Financing scheme - case
Energy company
Financial Investors
Fuelsuppliers
Developers, management
EQ
UIT
YL
OA
NS
Commercialbank
Development bank
CDM, JI Fund
Environmental
fund
SUPPORT FACILITIES
25%
50%
25%
project
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Feasibility study: organisational issues
Internal / external project
Ownership and partnership
What parties to include, responsibilities, shares
Planning
Example– For industries, energy production is often not core business. They
may prefer to undertake such activities in a separate company. In such a company, other shareholders can be sought: e.g. biomass suppliers, utility companies or private equity companies. The industry may choose to retain a majority position (51% of the shares) in order to keep control.
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Feasibility study: non-techno/economics
Legislation (emission, energy, etc.)
Environmental impacts
Permissions
Socio-economic benefits
Success factors include:– Fuel availability– Technical reliability– Profitability– Organization structure– Public perception
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Feasibility study: challenges
Obtaining correct data of current and future situation– Input data on wood availability, power and heat demand– Assessment of local boundary conditions and desires– Selecting the proper technology (define criteria)– Dimensioning of the cogen plant
Financing
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Project Recommendation phase
Go – No Go decision to be taken by – project management team, – shareholders, – project developers, – investors, – bankers,…
Public perception– Emissions (pollutants, smell)– Visual (building, steam, smoke)– Noise– Transport– General perception towards bio-energy
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Recommendations (1)
Set-up an organization scheme:– taking into account the interest of all parties involved:
fuel supplier(s), operating entity of bio-energy plant, energy consumer, financing parties, authorities, technology suppliers
– identify relations and necessary agreements between parties involved (i.e. fuel delivery agreements, energy supply agreements)
– evaluate different organization models
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Recommendations (2)
Special attention to fuel supply: – characteristics– seasonal aspects– base price– transport (+costs)– pretreatment requirements (+costs)– storage (+costs)– contractability
Special attention to energy consumers – delivery conditions– consumption assurance– price assurance
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Recommendations (3)
Involve local parties and authorities in an early stage
Take into consideration all potential succes and failure factors– also seemingly less important factors– it’s better to mention and refute than not to mention at all
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Negotiation & Contracting phase
Permit preparation and application– Environmental permit– Building permit
Biomass fuel contracting
Negotiations with equipment suppliers
Contracts with project team
Negotiations with financing institutes
Risk mitigation and allocation
Negotiations with local community (NIMBY?)
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Negotiation and contracting Fuel supply
Availability is not the same as contractability
Logistic aspects
Guarantees and assurances:– price assurance (long term contracts)– delivery assurance (seasonal fluctuations)– quality assurance (fuel characteristics vs boiler
requirements)
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Engineering design [1]
Data collection / analyses– Definition, quality and quantity of the biomass fuel to be
delivered to the project facility– Economic parameters like fuel costs, electric power and
heat sales price, local labor rates, availability and costs of utilities, estimated time schedule
– Location of the plant and its environment, road access, grid connection point, availability of water, gas and other requirements (dependent on type of plant)
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Engineering design [2]
Plant Conceptual design– Preliminary process design and flow diagram– Heat and mass balance– Process description– Plant control philosophy– Conceptual lay-out and plot plan– List of major equipment– Time schedule for EPC of the plant– Identify major environmental issues connected with the
proposed project
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Engineering design [3], plot plan
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Detailed design [1]
Optional: mostly done by technology supplier
Process description
HAZOP study on Health and Safety– “what-if” questions
PFD’s Process Flow Diagram
PID’s Process Instrumentation Diagrams
Cost price determination (quotations)
Financial evaluation of the project
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Detailed design [1], PID
TE = thermocouple
TT = T-transmitter
A = alarm
TIR = T-indicator and recording
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Detailed design [2], I/O listing(Instrumentation & Operating range)
To excell sheet
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Detailed design [3], M&E-balance
General M&E balance: – to excell sheet (BTG)
Detailed M&E balance:– at each main gas stream (engineering company)
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Investment phase
Finance
Civil works
Fabrication main components
Construction on-site
Permitting
Training
Documentation
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Tendering of equipment supply
Optional
Systematic approach using internationally accepted procurement procedures for the required equipment and services supply
Tender document details the scope and spec’s of the equipment and services supply
Supply offer should provide provisions for:– After-sales service– Spare parts– Training of operators
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Operational phase
Commissioning
Optimation, modifications
Operation, maintenance
Expansion, innovation
Replication
Portfolio projects
Monitoring (technical performance and optional carbon credits)
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Feasibility results vs practice Investment tend to become higher than expected,
because of:– Delays– Too optimistic planning and cost estimate (often to secure finance
from banks)– Additional desires– Mistakes during engineering phase– New legislation on HSE, emissions, …
This results often in lack of working capital
Fuel switch and portfolio projects are very successful
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CHP problems in practice
Trained/skilled operators
Wrong technology selected (Burundi)
No stable load conditions or changing load
Sustainable wood supply chains
Managing a new CHP installation
Lack of spare parts (remote areas)
Bad matching of boiler vs turbine
Lower efficiency, higher maintenance
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Financing route (1)
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Financing route (2)
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Stakeholders
So, can become complex
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Video - BIM
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Thank you for your attention!
Harrie Knoef
BTG biomass technology group BV
www.btgworld.com
Ph: +31-53-4861190