Chapter Two

Project Studies and Formulation

 Project success factors
 Stakeholder involvement
 Executive management support
 Clear statement of requirements
 Proper planning
 Realistic expectations
 Smaller project milestones
 Competent staff
 Ownership
 Clear vision and objectives
 Hard working and focused staff
The triple constraint

Co
Tim

st
Quality
 Aspects of a project

Project aim Scope

Project

Organi
sation

Qua-
Time
lity

Cost
Turner, p.8
 Trade-offs when managing a project
Scope

Viability Performance

Cost Quality

Competi-
Effort
tiveness

Time
 Project Cycle Management (PCM)
 PCM
 Is a methodology for
 the preparation,
 implementation and evaluation of projects based on the principles of the logical
framework approach
 It describes management activities and decision-making procedures used during the
life cycle of a project (key tasks, roles and responsibilities, key documents and
decision options)
 Project cycle management (PCM)
 is useful in designing, implementing and monitoring a plan or a project
 A clear concise visual presentation of all the key components of a plan
and a basis for monitoring
 It clarifies:
 How the project will work
 What it is going to achieve
 What factors relate to its success
 How progress will be measured
 The project cycle

Programming

Evaluation Identification

Financing
decision

Implementation Formulation

Financing
decision
 The three PCM principles
1) Decision making criteria defined at each phase
2) The phases in the cycle are progressive
3) Project identification part of structured feedback

PCM is result based

 PCM requires the active participation of key stakeholders and aims to promote local
ownership
 PCM incorporates key assessment criteria into each stage of the project cycle
 PCM requires the production of good quality key documents in each phase to support
decision making
 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 / organizational 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.

 Feasibility study
A feasibility study is an extensive assessment of the feasibility of a certain project.

Key elements include:

1) Technical issues

2) Environmental issues

3) Financial feasibility

4) Organizational issues

5) Risk analyses

6) Financing

The feasibility study should result in a project recommendation and a bankable project
document
 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 combined heat and power (CHP) plant to the local project site
 Steam engine vs Steam turbine

Advantages Disadvantages
Steam engine > Low cost at low power ratings > Low capacity (<200-500 kW)
>Robust design, long life expectancy > Low efficiency (~6-7%)
> Good performance at lower loads > Low temperature heat (80-90 oC)
> High oil consumption
Steam turbine > Higher efficiency (>10%) > Higher capacity (>500 kW)
> Possible higher temperature heat supply > Higher cost in smaller scale
> Low consumables >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
 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 , EIA, Environmental Impact Assessment

 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)
 Feasibility study: environmental issues emission 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)

 Energy demand analysis
Load curves and load duration curves

Annual basis

Monthly basis

Daily basis

Hourly basis
 Feasibility study: financial issues (1)
• The financial assessments determine the cost-effectiveness of an
investment

Investment costs
Operating costs
Revenues
Other parameters

Indicators
Project Financial
Overviews
financing analyses
Sensitivity
parameters
 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

 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.
 Feasibility study: financial issues (3)

Financial analyses
1. Determine financial indicators, internal rate of return (IRR), net present
value (NPV), return on investment (RoI), Payback Period
2. Determine production costs, cash flow, profit-loss and balance sheets
3. Determine the sensitivity of indicators to parameter variations ,e.g.
investment costs, number of operating hours, etc.
 Feasibility study: financial issues (4)
 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 cash flows
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)
 Feasibility study: financial issues (5)

Financial overviews
Production costs: overview of costs of production (including operational
costs, overheads, depreciation, financial costs
Cash flows: 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
 Feasibility study: financial issues (6)

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
 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

Maximization 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
Feasibility study: financial issues (10) technical specification - case
Heat demand
Number of houses 56
Specific heat demand 90 GJ/yr
Total heat demand 5,040 GJ/yr
Maximum heat demand 2.2 GJ/hr
619 kW th
Heating season duration 30 weeks/yr

Boiler specifications
DH system losses 5%
Design capacity boiler 652 kW th

Fuel requirements
Boiler efficiency 75%
Heat input boiler 6,720 GJ/yr
Fuel type wood chips
Moisture content 40% wet basis
Net calorific value 10 GJ/ton
Total amount of wood 672 ton/yr
Average wood flow 133 kg/hr
Maximum wood flow 223 kg/hr
Feasibility study: financial issues (12) cost price analyses - case
Capital costs 13,427 EUR/yr
Fuel costs 2,688 EUR/yr
Labour costs 6,520 EUR/yr
Maintenance costs 3,260 EUR/yr
Total costs 25,896 EUR/yr

Cost price energy 5.14 EUR/GJ

Total annual costs 25,896 EUR/yr

Total annual
 revenues 50,400 EUR/yr
Net result 24,504 EUR/yr

Return on investment 19%

Simple payback time 5 yr
Feasibility study: financial issues (14) Sensitivity analyses - case

Remark: take into account probability of parameter variation

40%
Return on Investment [%]

35%
30% 150
25% 175
20% 200
15% 225
10% 250
5%
0%
- 4 8 12 16 20
Fuel price [EUR/ton]
Feasibility study: financial issues (15) Sensitivity analyses - case
Scenario analysis (Excel: Tools/Scenarios)
Remark: take realistic sets of parameters
Scenario 1 Scenario 2
Investment costs boiler 250 150
Efficiency boiler 85% 65%
Fuel costs 6 2
Labour costs 3% 8%
Maintenance costs 1% 5%

Return on Investment 15% 27%

 Feasibility study: organizational issues
Internal / external project

Ownership and partnership

What parties to include, responsibilities, shares

 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 (50% of the shares) in order
to keep control.
 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
 Thank you

Any Questions ?