geothermal power plant projects in central america - Orkustofnun
geothermal power plant projects in central america - Orkustofnun geothermal power plant projects in central america - Orkustofnun
Interest on loansFleischmann (2007) included in the financing issues for independent geothermal developers itemssuch as: construction financing (interest rates may be up to 10% or more and the construction lenderrequires a take-out guarantee at commissioning); and term financing (usually based on 30% equity,IRR in the high teens, interest 7% or more for 15 years). Hance (as cited in IEA, 2011b) states thatwhen considering geothermal development, in some countries such as the United States, interest ratesfrom 6% to 8% is usually requested for debt lenders.The IEA (2011b) in its recent report indicated an assumed 10% interest rate assumed for theproduction cost calculations related to geothermal heat and power technologies. In a study ofcost/size/risk analysis of geothermal projects (Elíasson and Smith, 2011), calculations assumed thatfirst time projects require 30% equity, a 7% interest rate on 12 year majority with a 3 year grace periodon the first project loan, and 25% equity, 6% interest and the same majority for subsequent projects.It is clear that different types of financing options (loans) may have different interest rates and terms.The work of Rodríguez and Henríquez (2007) revealed that, in Central America, all of the financingoptions: equity financing, bank financing (private banks and multilateral institutions) and debenturethrough the stock exchange, are used to some extent by different developers. In this study, a 9 %interest is assumed in the three loans considered for geothermal development.DepreciationA straight line depreciation method is assumed, as defined in Section 2.3.DividendsThe policy of dividend payments to owners is assumed to be 30% of the net income at the end of thefinancial year.Corporate taxA corporate tax of 30% is assumed is defined in Section 2.3. As explained in Section 2.4, in CentralAmerica each country has different tax incentive schemes for the development of renewable energies.The impact of the tax incentives on the financial returns of geothermal projects is discussed in Section6.7.Loss transferIn this study, loss transfer is not allowed.6.4 Model outputs for two resource scenarios and one power plant technology6.4.1 Cash flowsIn this analysis, two cash flows are considered: CCF and FCFE. Two different sizes of investments arediscussed, as results of two different geothermal resources expected. In the next section, a wide rangeof temperature resources and mass flow have been evaluated. Figure 39 shows the cash flows for twosingle-flash power plant projects: scenario 1 for 240°C, and 300 kg/s (27.7 MW); and scenario 2 for240°C, and 300 kg/s (55.5 MW).As Figure 39 indicates, the geothermal development project has negative cash flows during the first 7years, largely as a consequence of significant capital expenditures. Most of the high initial fixed costsoccur during the drilling and power plant construction phases. During this period, geothermaldevelopment projects finance a high proportion of their investment needs with debt.In this analysis, debt financing helps to obtain better IRR of Equity; this is because it is assumed in themodel that the payment of interest is tax deductible. FCFE reflects to the equity investor the effect ofchanges in the levels of debt, and repaying the principal on existing debt represents an outflow in theestimation of FCFE. After the geothermal power plant construction period, when commercial47
production starts, the revenue is spread out over the subsequent years; hence, the project showspositive cash flows. Note that after the debt repayment period payment is concluded, FCFE is similarto the CCF.FIGURE 39: CCF and FCFE, for: (a) Scenario 1 (27.7 MW): 300 kg/s and 240°C;(b) Scenario 2 (55.5 MW): 600 kg/s and 240°C6.4.2 Internal Rate of Return (IRR)Figure 40 shows the calculated IRR of Capital and IRR of Equity, for the two different investmentsselected in Section 6.4.1. The geothermal projects with IRR greater than the MARR, as stated inSection 6.2.1, should be technically considered as financially viable and accepted. Figure 40 illustratedthat the IRR of Capital increases more during the planning horizon than the IRR of Equity. As a result,the IRR of Capital will reach the minimum attractive rate of return in a shorter time than IRR ofEquity. It is important to note that equity investors face the greatest risk of not being paid;consequently, investors expect the highest return and, therefore, MARR for capital (16%) is lowerthan MARR for equity (20%).As shown in Figure 40, IRRs reach the MARRs in fewer years for a bigger sized development. Themagnitude of the geothermal development will affect the years horizon considered for reaching theMARR. It is important to note that the planning horizon could be reduced, and it is still possible toreach the MARR.48
- Page 7 and 8: TABLE OF CONTENTSPage1. INTRODUCTIO
- Page 9 and 10: PageAPPENDIX A: FINANCIAL MODEL ...
- Page 12 and 13: 1. INTRODUCTIONRecent research on r
- Page 14 and 15: 2. CENTRAL AMERICAN DATA2.1 Power p
- Page 16 and 17: 2.2.3 HondurasThe Honduran electric
- Page 18 and 19: NET INJECTION BY SOURCE (2010)INSTA
- Page 20 and 21: income taxes for a period of 10 yea
- Page 22 and 23: annual temperature ranges from 17 t
- Page 24 and 25: egional reconnaissance in 1981ident
- Page 26 and 27: 4. GEOTHERMAL ELECTRICAL POWER ASSE
- Page 28 and 29: The net contribution of that power
- Page 30 and 31: Introducing , = , and , = ,
- Page 32 and 33: 9ProductionWellBoiler5Turbine~1046P
- Page 34 and 35: TABLE 3: Parameters and boundary co
- Page 36 and 37: eaches the maximum limit, and for h
- Page 38 and 39: 160180140160tc vap[i], th vap[i]120
- Page 40 and 41: average results, and combining them
- Page 42 and 43: The base cost ( ) can be calculate
- Page 44 and 45: calculation for another separator c
- Page 46 and 47: mass flow rate (kg/s) on the plant
- Page 48 and 49: Table 11 shows a summary of costs f
- Page 50 and 51: 5.6.4 Comparison of capital costs b
- Page 52 and 53: 6. FINANCIAL FEASIBILITY ASSESSMENT
- Page 54 and 55: 6.2 Model structureThe financial fe
- Page 56 and 57: CCF = EBITDA − ∆Working Capital
- Page 60 and 61: IRR30%25%IRR CapitalIRR Equity20%Si
- Page 62 and 63: FIGURE 42: Allocation of funds for:
- Page 64 and 65: 340IRR Free Cash Flow to Equity [ %
- Page 66 and 67: flash technology is between 0.3 and
- Page 68 and 69: Energy Price Availability Factor O&
- Page 70 and 71: FIGURE 50: Density and cumulative p
- Page 72 and 73: In Chapter 6, Figure 44 illustrated
- Page 74 and 75: The internal rate of return is offs
- Page 76 and 77: Cengel, Y. and Tuner, R., 2005: Fun
- Page 78 and 79: IEAb, 2011: Technology roadmap: Geo
- Page 80 and 81: Salmon, J., Meurice, J., Wobus, N.,
- Page 82 and 83: APPENDIX A: SUMMARY OF FINANCIAL MO
- Page 84 and 85: APPENDIX C: INVESTMENT AND FINANCIN
- Page 86 and 87: APPENDIX E: BALANCE SHEETBALANCE SH
production starts, the revenue is spread out over the subsequent years; hence, the project showspositive cash flows. Note that after the debt repayment period payment is concluded, FCFE is similarto the CCF.FIGURE 39: CCF and FCFE, for: (a) Scenario 1 (27.7 MW): 300 kg/s and 240°C;(b) Scenario 2 (55.5 MW): 600 kg/s and 240°C6.4.2 Internal Rate of Return (IRR)Figure 40 shows the calculated IRR of Capital and IRR of Equity, for the two different <strong>in</strong>vestmentsselected <strong>in</strong> Section 6.4.1. The <strong>geothermal</strong> <strong>projects</strong> with IRR greater than the MARR, as stated <strong>in</strong>Section 6.2.1, should be technically considered as f<strong>in</strong>ancially viable and accepted. Figure 40 illustratedthat the IRR of Capital <strong>in</strong>creases more dur<strong>in</strong>g the plann<strong>in</strong>g horizon than the IRR of Equity. As a result,the IRR of Capital will reach the m<strong>in</strong>imum attractive rate of return <strong>in</strong> a shorter time than IRR ofEquity. It is important to note that equity <strong>in</strong>vestors face the greatest risk of not be<strong>in</strong>g paid;consequently, <strong>in</strong>vestors expect the highest return and, therefore, MARR for capital (16%) is lowerthan MARR for equity (20%).As shown <strong>in</strong> Figure 40, IRRs reach the MARRs <strong>in</strong> fewer years for a bigger sized development. Themagnitude of the <strong>geothermal</strong> development will affect the years horizon considered for reach<strong>in</strong>g theMARR. It is important to note that the plann<strong>in</strong>g horizon could be reduced, and it is still possible toreach the MARR.48
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