Vantage Energy Consulting, LLC

POWERFIN - Power Project Economics

As the electric markets deregulate, utilities need to clarify the real cost of generation and the market value of generation assets. The cost of generation is significant not only to customer retention strategies, but also to developing new opportunities.

Issue Background

“The future isn’t what it used to be”, said Yogi Berra. Nowhere is this more true today than in the electricity utility markets. To retain existing customers, utilities not only need to assess their regional competitors, but also customer’s self generation threats. In the process, utilities may develop new opportunities.

Opportunities will include building or acquiring power projects. In the emerging competitive marketplace, traditional rate based, busbar costs hold only historical significance. Looking ahead, the cost and value of power generation projects should be viewed differently, closer to the approach used by the independent power industry. The independent approach views power projects as stand alone businesses. They have the tools to accurately evaluate existing and new projects. Do you?

Beyond new project development, existing utility customers may revisit cogeneration or self generation options to establish negotiation positions with utilities. Here too, there is a demonstrated need for utilities to accurately evaluate project economics.

Product Description

POWERFIN is a consultative process that utilizes a comprehensive computer model designed to evaluate and clarify power project investment decisions. The product provides salient guidance on: “greenfield” project development; existing plant valuation; plant refurbishment and modifications; as well as power plant acquisitions. The objective of this tool is to screen and analyze all facets of power projects, providing a complete project economics picture.

Part of the value of POWERFIN is the “process”. In using POWERFIN, all relevant aspects of power projects must be addressed. The beginning process is rigorous but enlightening. The goal of the process is to establish a credible base case of assumptions from which sage management decisions can be made.

POWERFIN is also flexible. It allows preliminary economic screening as well as detailed financial guidance. In other words, this product can accomplish “quick and dirty” screening as well as provide support for detailed bank financing requirements.

Specifically, POWERFIN provides a detailed breakdown and multiple scenario evaluation options for critical project issues including capital, construction & start-up, fixed & variable O&M, alternative financing scenarios, tax considerations, fuel options, technical parameters, and dispatch implications. In addition to detailed project economics, POWERFIN provides automated graphics and rigorous sensitivity analysis.

Functionally, POWERFIN is a powerful tool for project development, rate design, contract negotiations, financing, acquisitions, and dynamic economic evaluation

Vantage Implementation Approach

Our consultants work with project development and senior management to define and develop the goals and objectives of the project opportunity. In the process, a strategic review is accomplished and the project boundaries are determined. From here, engineering, fuel supply, plant operations, and finance personnel are consulted as appropriate to develop a “base case” set of assumptions. The preliminary base project economics emerge along with critical assumption sensitivities. Vantage consultants work with project development and senior management to successful guide the project development process.

The benefits of owning and using this product are both quantitative and qualitative. On the qualitative side, confidence and salient guidance provided to senior management through use of a proven, comprehensive tool can be invaluable. Quantitatively, this product can substantially minimize a utilities’ project development costs by quickly and accurately providing a total project economic picture.

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