Whether coal fired power stations are economically viable and has requested that you analyse and report...

Whether coal fired power stations are economically viable and has requested that you analyse and report on the economic viability of a new ultra super critical (USC) coal fired power station to be built . Specific details of the task are provided below.

Task:

You are to provide a detailed financial analysis of an USC coal fired power station under two scenarios used in the Finkel Review (2017). The scenarios are:

1.	Business as Usual (BaU)	The electricity market remains in a prolonged period of uncertainty due to limited government action on carbon pricing and abatement. The price of electricity is higher under this scenario.
2.	Emission Intensity Scheme (EIS)	Government to introduce an EIS where electricity generators that emit more than 600 kilograms of carbon per megawatt hour (MWh) of electricity must purchase carbon permits while those that emit less receive permits that they can sell. Permits will need to be purchased for the USC coal fired power station. The electricity price is lower under this scenario.

Detailed information on the life, capital outlay, revenues, expenses and related information is provided in the ‘USC Information.xlsx’ file. The financial analysis is to be completed in Excel with the file being easily adjustable for different scenarios

General Information	Detail	Units	Notes
Construction time	4	years	Spread evenly over years of construction with outlay for each year occurring at the start of given year. Initial outlay at 2019.
Years of construction	2019-2022
Life after construction	35	years	After plant is complete.
Output	743	MW	Mega Watt (MW) is an instantaneous output. So at full output for 1 hour, the plant is said to produce 743MW hours (MWh). Total output for year = MWh x 24 x 365 x Available Capacity Factor
Emissions	0.7	t of C02-e/MWh
Capital cost	3076000	$/MW	Note: Total Outlay = Output x Capital Cost per MW
Cost of fuel (black coal)	2.25	$/GJ	Average from Graph
Heat rate	8.85	GJ/MWh
Variable fuel operating costs	19.91	$/MWh	VC = $/GJ x Heat Rate.
Variable non-fuel operating cost	1.60	$/MWh
Fixed operating cost	87000.00	$/MW/year	Note: Total Fixed Operating Costs = Output x Fixed Operating Cost per MW
Schedule maintenance	2.00	Weeks p.a.
Effective outage rate	5.00%	p.a.
Available capacity factor	91.15%	p.a.	(52-Maintenance Weeks)/52 - Outage Rate
Coal inventory days	60	days	Coal is stored on site
Coal inventory	213,04,782	$
Spare parts inventory	20,00,000	$
Working capital	233,04,782	$	Initial working capital investment occurs at the beginning of first full year of operations.
Depreciation	Straight-Line		Straight-line over operating life (life after construction)
Salvage	-	$	Assumed $0 due to costs of demolition
Site rectification	1000,00,000	$
Tax	30%		Paid the year of income
Business as Usual (BaU) information
Price of electricity under BaU	85	$/MWh	Average from Graph
Cost of capital under BaU	10.0%	p.a.
Emission Intensity Scheme (EIS) information
Price of electricity under EIS	72	$/MWh	Average from Graph
Cost of capital under EIS	10.0%
EIS baseline	0.6	t of C02-e/MWh	Permits earned for year = Total Annual Output MWh x (EIS baseline - Emission per MWh)
Price per EIS permit first year production (2023)	17.71	$/permit	Price of EIS permit is in first year of production as it takes 4 years to build power station (2019-2022)
EIS certificate annual compounded growth	5.7%	p.a.	Compounded growth
Additional Values
Hours	24.0	per day
Days	365.0	per year

Expert Solution

	Scenario 1			Amount in $
	Business as Usual (BaU)

	Initial Cash Flow :		Amount	Remarks

	Capital Cost		2,28,54,68,000	=743*3076000
	Cost of Site Rectification		10,00,00,000
	Working Capital Rquirement		2,33,04,782



	Subsequent Cash Inflows:		35 years
	Total Yearly Production in MWh		59,32,661.82	=74324365*0.9115


	Revenues		50,42,76,255	=743243650.911585
	Less: Variable fuel operating costs		11,81,19,297	=743243650.911519.91
	Less: Variable non-fuel operating cost		94,92,259	=743243650.91151.6
	Less: Fixed Operating Cost		6,46,41,000	=743*87000
	Less: EIS Certificate Cost		-	Nil
	Less : Depriciation		6,81,56,229	=(2285468000+100000000)/35
	Profit before tax		24,38,67,470
	Less : Taxes		7,31,60,241
	Profit after tax		17,07,07,229
	Add : Depriciation		6,81,56,229
	Annual Cash Inflow		23,88,63,458


	Terminal Cash Inflows:

	Release of working Capital		2,33,04,782


Calculation of NPV at the discount rate of return @ 10%

year	PVF (10%,n)- (A)	Cash outflow (B)	Cash Inflow ©	Net Cash flow (D=B+C)	PV of Cash Inflow (D*A)
0	1	-694671782		-69,46,71,782	-69,46,71,782
1	0.909091	-571367000		-57,13,67,000	-51,94,24,545
2	0.826446	-571367000		-57,13,67,000	-47,22,04,132
3	0.751315	-571367000		-57,13,67,000	-42,92,76,484
4	0.683013		23,88,63,458	23,88,63,458	16,31,46,956
5	0.620921		23,88,63,458	23,88,63,458	14,83,15,414
6	0.564474		23,88,63,458	23,88,63,458	13,48,32,195
7	0.513158		23,88,63,458	23,88,63,458	12,25,74,723
8	0.466507		23,88,63,458	23,88,63,458	11,14,31,566
9	0.424098		23,88,63,458	23,88,63,458	10,13,01,424
10	0.385543		23,88,63,458	23,88,63,458	9,20,92,203
11	0.350494		23,88,63,458	23,88,63,458	8,37,20,185
12	0.318631		23,88,63,458	23,88,63,458	7,61,09,259
13	0.289664		23,88,63,458	23,88,63,458	6,91,90,235
14	0.263331		23,88,63,458	23,88,63,458	6,29,00,214
15	0.239392		23,88,63,458	23,88,63,458	5,71,82,013
16	0.217629		23,88,63,458	23,88,63,458	5,19,83,648
17	0.197845		23,88,63,458	23,88,63,458	4,72,57,862
18	0.179859		23,88,63,458	23,88,63,458	4,29,61,692
19	0.163508		23,88,63,458	23,88,63,458	3,90,56,084
20	0.148644		23,88,63,458	23,88,63,458	3,55,05,531
21	0.135131		23,88,63,458	23,88,63,458	3,22,77,755
22	0.122846		23,88,63,458	23,88,63,458	2,93,43,414
23	0.111678		23,88,63,458	23,88,63,458	2,66,75,831
24	0.101526		23,88,63,458	23,88,63,458	2,42,50,755
25	0.092296		23,88,63,458	23,88,63,458	2,20,46,141
26	0.083905		23,88,63,458	23,88,63,458	2,00,41,947
27	0.076278		23,88,63,458	23,88,63,458	1,82,19,951
28	0.069343		23,88,63,458	23,88,63,458	1,65,63,592
29	0.063039		23,88,63,458	23,88,63,458	1,50,57,811
30	0.057309		23,88,63,458	23,88,63,458	1,36,88,919
31	0.052099		23,88,63,458	23,88,63,458	1,24,44,472
32	0.047362		23,88,63,458	23,88,63,458	1,13,13,156
33	0.043057		23,88,63,458	23,88,63,458	1,02,84,688
34	0.039143		23,88,63,458	23,88,63,458	93,49,716
35	0.035584		23,88,63,458	23,88,63,458	84,99,742
36	0.032349		23,88,63,458	23,88,63,458	77,27,038
37	0.029408		23,88,63,458	23,88,63,458	70,24,580
38	0.026735		23,88,63,458	23,88,63,458	63,85,982
38	0.026734863		2,33,04,782	2,33,04,782	6,23,050
				Sum or NPV of Project	-38,41,97,199

Decision : Since the NPV of project is negative hence project is not viable

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