case study: financial feasibility
methodology
The applied method for this specific financial feasibility analysis is detailed below, where for presentation purposes “Biomass” is shortened to “Bio” and “Solar Thermal” to “Solar”.
Total Annual Cost
= Bio Annual Cost + Solar Annual Cost
= [Bio Loan Repayment + Bio Operating Cost – Bio RHI Payment] + [Solar Loan Repayment + Solar Operating Cost]
= [Bio Loan Repayment + Bio Maintenance Cost + Pellet Cost – Bio RHI Payment] + [Solar Loan Repayment + Solar Maintenance Cost]
Where all loan repayments, maintenance costs, pellet costs and biomass RHI payments are expressed as averaged annual contributions, and:
1. Loan repayments (both biomass and solar thermal) are calculated at 6% interest over a 20 year repayment period. Loan repayments may be segregated into two contributions, the interest payment and the principal payment. Interest payments are calculated in this example as 6% of the unsettled balance at the time of a repayment. Total principal payments add up to the specified capital value of the loan, but are incremented in correlation with interest payments to ensure consistent repayment amounts (i.e. as interest payments decrease to zero at the end of the loan repayment period, principal payments increase to the interest paid on the initial loan value) [1].
2. Maintenance costs (both biomass and solar thermal) are taken as 2% of the initial system installation (neglecting infrastructure costs such as boiler house - if required), modeled to increase modestly by 2.5% annually to reflect degrading system performance and equivalently increased level of required maintenance. A sensitivity exercise is conducted on the annual increase in maintenance cost over a range of suitable percentages which may be feasibly replicated in real life.
3. Biomass pellets are purchased at a value of 6.9 p/kWh of usable heat. Due to the difficulty in forecasting future changes in fuel cost, it is assumed that the cost of biomass pellets does not change for the purpose of this financial feasibility analysis. Again a sensitivity exercise is conducted.
4. RHI payments were granted at a value of 7.8 p/kWh of usable heat.
Total Annual Cost
= Bio Annual Cost + Solar Annual Cost
= [Bio Loan Repayment + Bio Operating Cost – Bio RHI Payment] + [Solar Loan Repayment + Solar Operating Cost]
= [Bio Loan Repayment + Bio Maintenance Cost + Pellet Cost – Bio RHI Payment] + [Solar Loan Repayment + Solar Maintenance Cost]
Where all loan repayments, maintenance costs, pellet costs and biomass RHI payments are expressed as averaged annual contributions, and:
1. Loan repayments (both biomass and solar thermal) are calculated at 6% interest over a 20 year repayment period. Loan repayments may be segregated into two contributions, the interest payment and the principal payment. Interest payments are calculated in this example as 6% of the unsettled balance at the time of a repayment. Total principal payments add up to the specified capital value of the loan, but are incremented in correlation with interest payments to ensure consistent repayment amounts (i.e. as interest payments decrease to zero at the end of the loan repayment period, principal payments increase to the interest paid on the initial loan value) [1].
2. Maintenance costs (both biomass and solar thermal) are taken as 2% of the initial system installation (neglecting infrastructure costs such as boiler house - if required), modeled to increase modestly by 2.5% annually to reflect degrading system performance and equivalently increased level of required maintenance. A sensitivity exercise is conducted on the annual increase in maintenance cost over a range of suitable percentages which may be feasibly replicated in real life.
3. Biomass pellets are purchased at a value of 6.9 p/kWh of usable heat. Due to the difficulty in forecasting future changes in fuel cost, it is assumed that the cost of biomass pellets does not change for the purpose of this financial feasibility analysis. Again a sensitivity exercise is conducted.
4. RHI payments were granted at a value of 7.8 p/kWh of usable heat.