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RELCOST Industrial CHP Example Walk-Through of Input & Results. HEATMAP and RELCOST Workshop Accra, Ghana May 13 to 15, 2009. Carolyn Roos, PhD Washington State University, Energy Program [email protected] The Purpose of this Exercise.

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Relcost industrial chp example walk through of input results l.jpg

RELCOSTIndustrial CHP ExampleWalk-Through of Input & Results


Accra, Ghana

May 13 to 15, 2009

Carolyn Roos, PhD

Washington State University, Energy Program

[email protected]

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The Purpose of this Exercise

  • I am presenting a RELCOST example from an actual CHP project in the Northwest U.S.

  • The economics of Ghana differ significantly from the U.S.

    • Inflation and escalation, interest on loans, depreciation tables, labor and capital costs, energy costs, etc.

  • The purpose of this example is to change the RELCOST inputs so this U.S. example is transformed to represent a realistic CHP project in Ghana.

    • I will become more familiar with Ghanaian economics as you become familiar with RELCOST.

  • This is an interactive exercise. We will make changes together as we step through each screen.

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RELCOSTIndustrial CHP ExampleCombined Cycle Gas Turbine

An industrial site is considering a CHP system:

  • 7 MW gas turbine (natural gas )

  • Heat recovered by heat recovery steam generator

  • Steam from HRSG to a 3 MW steam turbine.

  • Low pressure exhaust steam recovered for use in the plant

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of screen shot

Industrial CHP ExampleCombined Cycle Gas Turbine

  • This system has been modeled in HEATMAP

  • The results have been imported into RELCOST

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Input & Output Cells

  • Inputs are in blue

  • Outputs in Green

  • Cells with Calculations in White

  • In general, don’t modify green or white cells unless you are very careful.

  • Keep a back-up copy in case equations are accidentally overwritten.

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Start on the “General” tab:

  • First tab to the left

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Industrial CHP ExampleCombined Cycle Gas Turbine

Project Description

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Financial AssumptionsDiscount Rate

  • Assume a discount rate of 7% for base case.

    • Conservative U.S. equity investors

    • U.S. government project may be less

  • Is this realistic for your projects?

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Recent Inflation in Ghana


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Financial AssumptionsGeneral Inflation Rate


  • Is a general inflation of 10% a good assumption for Ghana?

    • Inflation was 10.7% in Ghana in 2008 (but inflation varies significantly from year to year in Ghana)

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Plant Operating Factor


  • Project will be placed in service mid-year.

  • May require working some bugs out at first

    • Assume 30% availability in the first year and 80% in 2nd

  • Major repairs occur every five years

    • 75% availability in 5th, 10th and 15th years

  • Otherwise:

    • Dispatch factor of 95%

    • Availability of 95%

  • Is this representative of your projects? Are there other factors that could affect availability for your projects?

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Project Life


  • Project Life = 20 years

    • Used in life cycle cost analysis

    • Life also impacts depreciation (later)

Enter life on “WhatIf” tab:

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Capital Expenditures

  • A preliminary estimate received by project owner:

    • US$20M for the total installed 10MW system

    • This includes contractor overhead and profit.

    • $2000 per kW – Is this realistic here?

  • Contingency Funds:

    • Add a 10% to account for unexpected costs.

    • Is this a realistic contingency?

       Detailed cost estimate is required in final analysis:

    • Can be entered line by line in RELCOST

    • May use lump sum in RELCOST based on other documentation.

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Capital Expenditures

  • $20M Lump Sum

  • 10% contingency

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A More Detailed Cost Estimatefrom a Different Example

  • Detail required in final analysis

  • Not for this CCGT system

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More on Cost Estimates


Space is provided for detailed cost estimates

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  • “Recovery” of the cost of an asset whose value declines over time

    • Machinery, equipment, structures, etc.

  • Three classes of capital expenditures that can be accelerated at different rates.

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In the U.S. example it has been assumed:

  • Class: Assume capital assets have a 20 year life

  • Method: 150% declining balance

  • Half year convention

    • (placed in service in mid-year)

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Find depreciation schedule in drop down menu:

  • In this example, code is


  • Ghanaian schedules that you enter by hand on the “Depreciation Factor” tab might be given labels such as:


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Depreciation in Ghana

  • Extracted from Ernst & Young’s “Worldwide Corporate Tax Guide” 2008$file/2008_world_wide_corporate_tax_guide.pdf

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Depreciation Factors

  • Enter Ghanaian depreciation schedules on the “Depreciation Factors” tab.

  • U.S. tax schedules are provided by default, but any schedule can be added.

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  • No salvage value

    Amount has been entered as an equation from funding schedule

    … More about custom equations later

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Funding PlanGrants

Possible grants:

  • In the U.S. example, a grant of up to 70% of the capital cost may be available.

  • A local grant of up to 35% of the remaining cost may also be available.

    • Provided upon successful start up of the project.

      Assume in year 2

      Grants available for your project?

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Funding Plan

Notice along top of columns, these are source #s

…not years

Two grants:

  • #1 in year 1

    #2 in year 2


Even if annual payments, enter as separate lump sums if accurate life cycle cost results are desired

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Funding PlanBorrowed Funds


  • Short term loan

    • Tide project over until local grant disbursed.

    • 12 month term

  • Long term loan

    • 5 years term

  • For U.S. example, interest rate is 4% with a 1% loan initiation fee

  • What is a more realistic interest rate in Ghana?

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Funding PlanBorrowed Funds

Funds in 1st Year

Start paying after 12 months

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Funding PlanBorrowed Funds

  • Other loan types in RELCOST

Drop down menu for loan type

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Funding PlanEquity Investments

Proportion of loans to equity was calculated in RELCOST using equations with sensitivity factors

…We will get to this later

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Other Possible Financial Incentives

These are entered later:

  • A production tax incentive

    • Entered on “Sales, Income” tab

  • Tax credit

    • Entered on “Taxes & Fees” tab

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Purchased Fuels

  • This system has been modeled in HEATMAP.

“HeatMap” tab contains

  • Electricity generated

  • Fuel Consumed

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Purchased Fuels

  • RELCOST has the option of importing HEATMAP results or entering purchased fuel data by hand

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Purchased Fuels

Since HEATMAP results are used, entries in blue are ignored.

Notice purchased fuels in white area is from HEATMAP.

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  • Five year O&M contract from gas turbine manufacturer

    • $40,000/month fixed .

    • Includes a turbine replacement at the beginning of year 5.


  • General maintenance of other equip = 2% of revenues.

  • Major steam turbine maintenance every five to seven years.

    • Cost still unknown (Need to know in final)

    • Assume $50,000

  • Labor: 1.0 FTE for an operator (Labor requirements are typically greater than this.)

  • Administrative costs: Assume 1% of 2nd year sales.

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Notes and Calculation Space

For convenience use N&C space at top:

  • Much is assumed in preliminary analysis

  • Make it easy to change

    • As we firm up preliminary estimates, or

    • Perform sensitivity studies to see how critical the unknown is.

Enter figures in N&C space to easily

use them in equations.

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  • “Variable Costs” vary with plant operating factor.

  • “Fixed Cost” do not

    • Labor, fixed O&M contract, etc.

Titles are in blue = user inputs

I’ve named them “variable” and “fixed” but you can call them whatever you want

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Fixed O&M Costs

  • Fixed O&M costs are escalated but are not multiplied by plant operating factor

  • “Cost of sales” (variable) versus “operating expenses” (fixed) on Income Statement.

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Variable O&M Costs

  • Multiplied by plant operating factor

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Gas Turbine O&M Contract

  • Fixed until 5th year.

  • Escalation in year 5 is entered on “Cost Escalation” tab

Jump in cost

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  • Add FTE and Full Time Rate

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Operating Reserve Deposits & Withdrawals

  • See “Cash Accounts”

    • Current account

    • Operating Reserve account

  • Save up for major expenses

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Major Expenses

Starting in 5th year

Every 5 years

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Electricity Sales

Since HEATMAP results are imported

… input in blue is ignored

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Production Incentive as Income

Production Incentive is proportional to units generated so it belongs on “Sales, Income” tab.

Units do change by HEATMAP vs Stand-Alone option.

Enter manually (by equation)

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Taxes & Fees

Tax Rates as % of NPBT

Fees as % of gross sales of product

Royalties as amount paid to recipient.

What is tax rate in Ghana?

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Tax Credits

Are tax credits refundable if credit exceeds liability?

Can credit be carried forward into future years if it exceeds liability?

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Tax Credit

Tax credit of up to 7% of the CapEx minus grants with a carry-forward of 5 years.

  • Total of $307,230 allowed.

    • $109,242 taken in year 1

    • $197,988 carried forward to year 2

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  • Many ways of calculating dividends.

    • Default is % of NPAT up to a maximum

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Cash Accounts

  • Current Account ~ checking

  • Operating Reserve ~ savings


  • Interest rates on accounts

  • Accounts receivable and payable floats

    (what is due that gets rolled into following year)

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Cost Escalation

  • If general inflation is included escalation multipliers will be inflation plus whatever rates are entered on “Cost Escalation” tab.

  • Enter for likely, aggressive & conservative forecasts

High values likely because of Ghana’s high inflation rate.

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Cost Escalation Forecast

Defined at top of “WhatIf” sensitivity factors

  • likely, aggressive, conservative, none

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Cost Escalation

  • Use Notes & Calculation space for convenience

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Cost Allocation

  • For calculation of levelized costs of sales

  • Only one product in this example so 100%

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Now let’s look at results…

  • Pro Forma Statements

    • Cash Flow

    • Use of Funds

    • Income Statement

    • Balance Sheet

  • Financial Ratios

  • Levelized Costs

  • Life Cycle Cost Analysis

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Cash Flow Statement

  • Shows how the project makes a profit for each project year

Inflows & Outflows

  • Operations

  • Financing Activities

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Use of Funds Statement

  • Shows how fund sources are used for each project year

  • Sources of funds

  • Uses of funds

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Income Statement (Tax and SH)

  • Shows the project’s financial performance for each project year

  • Difference between Tax and SH is depreciation.

  • SH uses straight line

  • “Tax” specified on “Cap Ex”

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Detail on Income Statement

  • Sales, Income

  • Cost of Sales

  • Operating Expense

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Balance Sheet(Tax and SH)

  • The Balance

    • Assets =Liabilities

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Plots from Pro Forma Statements

  • Discounted cash flow

  • Cash balance

  • Operating cost

  • Net profit after taxes

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Financial Ratiosin “Scorecard” Year

Financial Ratios

Levelized Costs of Sales

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Life Cycle Cost Results

Life Cycle Cost Analysis Results

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“Stop Light” Indicators

  • Green – Yellow - Red

  • OK - Marginal - Poor

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“Stop Light” Indicators

  • Good, marginal and poor values defined on “Financial Indicators” tab

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Now let’s modify Sensitivity Factors

  • Factors multiply inputs on other sheets to see what effect changes have on viability

  • Cost escalation forecast defined at top

    • likely, aggressive, conservative, none