Financial Analysis Objectives

Transcription

1 Financial Analysis Objectives Provide objective, actionable analysis to support informed recommendations and decision-making by both the WTOP and Town management. Assess the cash flow implications of a range of operating scenarios. Provide tools to support the discussion of restoring the project s financial integrity so that funds are available when the need for repair arises. Compare the 2008 and 2012 analyses so that changes are transparent and available for discussion. Provide detailed assumptions to facilitate WTOP committee and Town due diligence Support the FY2014 Budget Planning Process Note: Results will focus on the Town s fiscal year (July 1 st to June 30 th ). 1

2 Curtailment Scenarios Curtailment Scenario Hourly Criteria 24/7 Continuous Operation of Wind & Wind 2 Hypothetical DEP Wind 1: 11:30 PM to 4 AM Hypothetical DEP, Both Turbines Wind 1 & 2: 11:30 PM to 4 AM Nighttime Wind 1 & 2: 10:30 PM to 6 AM 12-Hour Wind 1 & 2: 7 PM to 7 AM Wind Speed Criteria High Winds - Wind 1 & 2 > 10 m/s, starts/stops < 1/hr Breakeven Wind 1 & 2: 11 PM to 5 AM Flicker Mitigation - No - No - No - Wind 1 & 2 - Wind 1 & 2 Wind 1 & 2 - Wind 1 & 2 2

3 Cash Flow Impact of Curtailment Scenarios: Benefit of avoided retail purchases at WWTP excluded The following summarizes estimated net cash flow for seven potential operating scenarios defined by the WTOP Committee: Hypothetical DEP, Both Turbines Dip in Net Cash Flow in all cases shows impact of replenishing reserves Breakeven Case (production level ignores need to replenishment reserve) *Benefit of avoiding the need to increase municipal revenues to pay for WWTP electricity is not included.* 3

4 Cash Flow Impact of Curtailment Scenarios: Benefit of avoided retail purchases at WWTP included The following summarizes estimated net cash flow for seven potential operating scenarios defined by the WTOP Committee: Hypothetical DEP, Both Turbines Dip in Net Cash Flow in all cases shows impact of replenishing reserves Breakeven Case (production level ignores need to replenishment reserve) 4

5 Analysis of Average Cash Flows: Breakeven Scenario* The following summary estimates the average revenue, expenses and net cash flow over each 5-year** period during the analysis term and using the Breakeven Curtailment Scenario provided by DNV KMEA. FY FY FY FY Revenue (incl. WWTP Value), 5- year average (a) Expenses (incl. WWTP Value), 5- year average (b) Opera0ng Income / (Loss), 5- year average (c) = (a) + (b) Target Reserve ContribuBon (d) Net CF A@er Reserve Contribu0ons, 5- year average (c) + (d) $671,639 $663,559 $780,143 $882,352 ($635,989) ($658,286) ($694,649) ($519,317) $35,650 $5,273 *** $85,495 $363,035 ($130,548) ($9,091) ($9,091) ($9,091) ($94,898) ($3,818) $76,404 $353,944 Net Present Value, $ (@ 4% disc. rate), trea0ng reserves as expense Avoided Need for Municipal Revenue, $ Total Avg Annual Benefit to Town w/ wind turbines operabng, $ Net Present Value, $ (@ 4% disc. rate) $462,700 ~$120,000 ~$120,000 ~$120,000 ~$120,000 ~$25,000 ~$115,000 ~$195,000 ~$470,000 $1,339,363 * The Breakeven Curtailment Scenario modeled by DNV KEMA sets revenue approximately equal to expenses in FY The CF analysis in this slide nonetheless includes the obligawon to replenish reserves during the FY period. ** The fourth and final period (FY ) averages the final three years of the analysis period. *** Based on mulw- year averaging and curtailments starwng and ending on the hour, this is intended to represent a case in which revenue and expenses are approximately equal. 5

6 Analysis of Average Cash Flows: Hypothetical DEP Both Turbines* The following summary estimates the average revenue, expenses and net cash flow over each 5-year** period during the analysis term and assumes that both turbines are curtailed between the hours of 11pm and 5am. FY FY FY FY Revenue (incl. WWTP Value), 5- year average (a) Expenses (incl. WWTP Value), 5- year average (b) Opera0ng Income / (Loss), 5- year average (c) = (a) + (b) Target Reserve ContribuBon (d) Net CF A@er Reserve Contribu0ons, 5- year average (c) + (d) $733,287 $724,343 $851,675 $963,344 ($642,301) ($669,135) ($708,545) ($534,659) $90,986 $55,208 $143,130 $428,685 ($130,584) ($9,091) ($9,091) ($9,091) ($39,597) $46,117 $134,039 $419,594 Net Present Value, $ (@ 4%), trea0ng reserves as expense Avoided Need for Municipal Revenue, $ Total Avg Annual Benefit to Town w/ wind turbines operabng, $ Net Present Value, $ (@ 4% disc. rate) $1,041,128 ~$120,000 ~$120,000 ~$120,000 ~$120,000 ~$80,000 ~$165,000 ~$250,000 ~$540,000 $2,027,002 * The HypotheWcal DEP Both Turbines Scenario includes the replenishment of reserve accounts. ** The fourth and final period (FY ) averages the final three years of the analysis period. 6

7 Analysis of Average Cash Flows: Notes Both revenues and expenses include the value of electricity produced by the wind turbines and consumed at the WWTP. As such, the analysis assumes that the financial benefit of powering the WWTP with the wind turbines has already been captured through budget reductions, and now the turbines must generate revenue from other sources in order to support their continued operation. Taking this fact into account, the benefit of avoiding the need to increase municipal operating revenues is shown below as a separate benefit on the preceding two slides. 7

8 Comparison of 2008 & 2012 Analyses Average 1 Annual Assump0ons 2008 Analysis 2012 Analysis (A) 2012 Analysis (B) 2012 Analysis (Breakeven) 2012 Analysis (Hypothe0cal DEP, Both Turbines) Market Value* $655,509 $975,433 $975,433 $734,653 $802,031 Op. Expenses** ($132,833) ($352,656) ($352,656) ($325,620) 2 ($336,804) 2 Debt Service 3 ($374,048) ($313,411) ($313,411) ($313,411) ($313,411) Reserve Contrib. 4 ($25,281) ($9,091) ($42,844) ($42,829) 2 ($42,839) 2 Net Cash Flow* $123,346 $300,275 $266,522 $52,793 $108,977 Avoided Need for Municipal Revenue, $ Incl. in market value and not expenses ~$120,000 ~$120,000 ~$120,000 ~$120,000 Total Avg. Annual Benefit $123,346 $420,275 $386,522 $172,793 $228,977 # of Turbines Analysis Start $1,010,000 5 $241,000 (A) Excluding the need to replenish reserve accounts (this provides an apples-to-apples comparison, as there was no need to replenish reserve accounts when the 2008 analysis was conducted). (B) This case includes the replenishment of reserve accounts. * Includes the benefit of avoided retail charges at electricity at the WWTP. ** For 2012 analysis, includes the potential future expense of electricity purchases at the WWTP. *** Net Cash Flow represents the financial contribution to the Town after all operating expenses, debt service, and reserve requirements. 1) All values are average for the entire analysis period. Actual values for all categories will vary by year. Averaging is useful for comparison but masks individual years in which negative cash flow may be present. 2) Slight variation between cases due to change in production available for on-site use. 3) Averaging over the entire analysis period includes 2 years with no debt service obligation. 4) In practice, reserve contributions will be front-end loaded, reducing net cash flow in the early years. 8 5) Pre-payment by Mass.CEC for Wind I RECs from years 6 20.

9 PV Cash Flow Scenario Analysis and comparison to Rev. & Expenses of Selling Turbines

10 Comparison of PV CF Scenarios to Sell Turbines Case Debt repaid over 10-years in all scenarios. Slight CF variations in years due to how model estimates insurance. As practical matter, these values should be interpreted as being the same. *Even if the Town paid the Stipulated Refund, MA CEC would need to waive other contract terms violated by the sell turbines case. 10

11 Sustainable Energy Advantage, LLC 10 Speen Street Framingham, MA Jason Gifford tel

12 Supplemental Slides

13 Revenue Value to the Town is the sum of three sources: 1. Market value of on-site use i. Electricity produced by the turbines and consumed behind the retail meter (e.g. which never gets to the grid) relieves the Town of the need to purchase electricity at retail. ii. The Town benefits from these savings regardless of whether the funds are used to pay wind turbine operating expenses or removed from the Town budget. Value = All retail kwh charges X WWTP consumption. 2. Value of Net Metering Credits i. Net Metering Credits are used to offset monthly charges billed by NStar. Value = (Nstar Dist.+Tx+Trans.+Basic Service)X(net excess generation) Falmouth is unique in that NStar cuts checks equal to the value of net metering credit. Other NStar customers must carry net metering credit forward and offset NStar billed charges. It would be prudent to ensure that NStar will also cut checks for net metering credits assocaited with the proposed solar installation. 3. Revenue from sale of Renewable Energy Certificates (RECs) (1 per mwh of production) i. Wind I: Years 1 5, $45/mWh (Cape Light Compact) ii. Wind I: Years 6 20 $1.01M (already received through MA CEC advanced payment) iii. Wind II: available for sale, but not currently contracted. Spot market price estimated. 13

14 Deriving the Market Value Of Production For Net Metering Credits ($/ kwh) For On-Site Consumption ($/ kwh) Peak Low A Low B Peak Low A Low B Distribution Transmission Transition Nstar Basic Service * * * Competitive Supplier ** DSM Charge Renewable Energy Charge Total (yr 1) * Nstar Basic Service rate used for calculation of on-site value once current retail contract expires in 2014 ** Competitive supply rate used for value of on-site consumption through 2014 (current contract) 14

15 Forecasting Market Value of Production Rate Category Distribution Transmission Transition NStar Basic Service Competitive Supplier DSM Charge Renewable Energy Charge Escalation Factor Fixed through 2015*, then escalated using Consumer Price Index Consumer Price Index Phased out over 5 years EIA Henry Hub Natural Gas Forecast, converted to an index Flat through 2014, then switch to Nstar Basic Service Rate Flat Flat * A 4-year distribution rate freeze was a condition of the NStar NU merger. 15

16 Escalator Indices 16

17 Time of Use Rates EDT EST Hr Sun Mon Tues Weds Thurs Fri Sat Sun Mon Tues Weds Thurs Fri Sat End Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 2 Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 3 Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 4 Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 5 Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 6 Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 7 Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 8 Low B Low A Low A Low A Low A Low A Low B Low B Low A Low A Low A Low A Low A Low B 9 Low B Low A Low A Low A Low A Low A Low B Low B Low A Low A Low A Low A Low A Low B 10 Low B Peak Peak Peak Peak Peak Low B Low B Low A Low A Low A Low A Low A Low B 11 Low B Peak Peak Peak Peak Peak Low B Low B Low A Low A Low A Low A Low A Low B 12 Low B Peak Peak Peak Peak Peak Low B Low B Low A Low A Low A Low A Low A Low B 13 Low B Peak Peak Peak Peak Peak Low B Low B Low A Low A Low A Low A Low A Low B 14 Low B Peak Peak Peak Peak Peak Low B Low B Low A Low A Low A Low A Low A Low B 15 Low B Peak Peak Peak Peak Peak Low B Low B Low A Low A Low A Low A Low A Low B 16 Low B Peak Peak Peak Peak Peak Low B Low B Low A Low A Low A Low A Low A Low B 17 Low B Peak Peak Peak Peak Peak Low B Low B Peak Peak Peak Peak Peak Low B 18 Low B Peak Peak Peak Peak Peak Low B Low B Peak Peak Peak Peak Peak Low B 19 Low B Low A Low A Low A Low A Low A Low B Low B Peak Peak Peak Peak Peak Low B 20 Low B Low A Low A Low A Low A Low A Low B Low B Peak Peak Peak Peak Peak Low B 21 Low B Low A Low A Low A Low A Low A Low B Low B Peak Peak Peak Peak Peak Low B 22 Low B Low A Low A Low A Low A Low A Low B Low B Low A Low A Low A Low A Low A Low B 23 Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 0 Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B Low B 17