Construction of New Power Plant in the UK

1
Construction of New Power Plant in the UK

• Modeled and analyzed by
• Yaliang Chen
• Brett Olson

2
Project Details

• 2000 MW Power Plant in UK
• 22 year model created
• Deterministic model used current mean values
• Monte Carlo model considers price fluctuations
  and other risk factors

3
Project Details Continued

• Cost of Capital set at 12.5
• MARR set at 20
• Tax rate of 34
• Assumed enough capital for 50 construction cost
• Assumed enough demand in UK towns to support
  added supply

4
Highly Recommended Project

• All economic indicators from both deterministic
  and probabilistic analyses are very high.

5
Proablistic Considerations
6
Time of Construction

• Most important factor regression sensitivity of
  (-.572)

7
Bent Oil Price

• Regression Sensitivity of .187

8
Projected Power Demand

• Regression sensitivity of 0.41
• Calculated from historical data (1990-1999)

9
Exchange rate

• Regression sensitivity of -0.148
• Calculated from historical data (2000-2006)

10
Power Price

• Regression sensitivity of 0.435
• Escalated by CPI

11
Power Price Continued

• CPI calculated from historical data
• Years 1989 - 2005

12
Natural Gas Excise Tax

• Coal miners are lobbying for 1 per Mcf
• Assumed likely to fail
• Would increase OPEX if passed
• Has relatively small effect on outcome

13
Construction Cost

• Most likely to cost 1,000,000,000
• 2000 MW plant at 500,000 per MW
• More likely to go over than under-budget
• Correlated to construction time

14
Sensitivities

• Time of construction (-0.572)
• Power Price (0.435)
• Projected Power Demand (0.41)
• Bent Oil Price (0.187)
• Exchange rate (-0.148)

15
Correlations

• Bent oil price and Fixed OPEX, 0.4
• in general, an increase in bent oil price will
  cause corresponding increases in prices of other
  goods needed for maintenance
• Time of construction and Cost per MW for
  construction, 0.7
• cost of labor, mistakes which cause longer
  construction time will increase the total
  construction cost.
• Power price and current projected demand, -0.3
• as the power price increases, people will tend to
  conserve more power

16
Summary of Probabilistic Outcome
17
NPV
18
IRR
19
Payout
20
Deterministic Cash Flow
21
Conclusions

• Almost guaranteed profitability
• 95 chance of exceeding 2.8475 billion
• High initial investment
• Approx 1 billion
• Yields very high returns
• 95 chance of exceeding 34.4

22
Recommendations

• Lobby against the Natural gas excise tax
• Without investing large amounts of money in
  lobbying not that important
• Research future gas prices more thoroughly
• Investments into shortening construction time
  worth while
• Most important risk factor

23
Questions and Comment

• Send to Brett Olson
• bretto_at_rice.edu
• Yaliang Chen
• yc4_at_rice.edu