Case Studies
Economic Analysis
Economic Modeling of Small Scale Wind
MJB developed a multi-state financial model to assess the economics of customer sited wind generation for Wind Products LLC. The model focused on evaluating the value to the customer of a customer-sited wind turbine in New York, New Jersey, Connecticut. The model captured all areas of values including renewable incentives, the avoided cost of purchasing power from the local utility and revenues from net metering. The model also provides the user with the capability to adjust a variety of inputs including annual consumption (amount and distribution), wholesale power prices, delivery charges, inflation, and cost of capital and financing terms as well as inputs related to the cost and output characteristics of a turbine. Wind Products LLC supplied cost and output data.
Gas-Fired Power Plant Valuation
MJB, in partnership with Webb, Scott & Quinn, Inc. (WS&Q), was retained by Northern Star Generation (NSG) to value its Front Range generating plant, a 480 MW gas-fired combined cycle power plant located in Colorado, as part of a mediation required by the plant’s co-owner.
The project required the development of a detailed financial model of Front Range’s current and expected performance over the life of the asset. As part of the valuation and due diligence process, MJB analyzed the plant’s outstanding power purchase, service, credit, operations and maintenance, power marketing, and gas supply agreements for (a) sources of operational and cash flow risk and (b) refinancing options that would impact the valuation. The MJB/WS&Q team also researched historical deal information for comparable transactions involving partial ownership acquisitions in similar facilities in the geographic region. The final product, an assessment of the plant’s sale value, was used by NSG in formal proceedings with the co-owner who had exercised an option to consider purchasing the portion of the plant owned by NSG.
Multi-State Solar Financial Model
For a solar power developer, MJB built a multi-state financial model showing the investment returns on a portfolio of solar power development projects.
The model was custom build to client specifications under an extremely short time period (one week) and included a supplemental presentation on the investment environment 11 states agreed with the client as having highest investment potential. That presentation included a qualitative description of renewable incentives and other market characteristics in each state, including financial and practical challenges of investing in solar projects. The model itself allowed the client to build a theoretical portfolio of projects on a staggered timeframe showing both individual and overall portfolio returns and cash flows. A single input and output page displayed returns in each state reflecting state specific incentives, construction costs and prevailing retail power prices.
Valuation of Generating Assets in Constrained Area
The City of Vineland, NJ Municipal Electric Utility (VMEU) required an evaluation of power generation economics associated with its generating assets to determine the best course of action to meet future energy and environmental requirements at the least cost.
VMEU’s annual energy requirements and peak load were expected to continue to increase given forecasted economic growth. (e.g., peak demand growth at 4-5 percent per year). This growth, along with the operating challenges of VMEU’s generating units, prompted the City to seek MJB’s assistance in evaluating the economic viability of its generating fleet. MJB evaluated which option, among a series of potential alternatives, provides VMEU with the most cost effective long term energy supply plan to meet system load growth in a manner commensurate with its risk profile.
The scope of the project included: 1) an overview of the physical condition of each asset; 2) market modeling of PJM including 10 year energy and capacity price forecasts at the Vineland hub, and 10 year cost forecasts for each asset; 3) net present value analyses (10 year) for each asset based on base, high and low forecasts of fuel prices, energy prices and future demand growth; and 4) development of recommendations for each asset based on the analyses.
Economic Modeling of Gas Turbine Cycling
MJB assisted a Mid Atlantic utility to evaluate the financial impact on depreciation and O&M costs of cycling its portfolio of gas fired power plants during off peak periods.
The study provided the utility with insight into the cost implications of operating decisions above and beyond a conventional Spark Spread calculation. Unlike operating costs the relationship between plant operation and maintenance costs is less clear. In cooperation with the client, the MJB team developed coefficients for six drivers of maintenance costs by collecting historical and projected operating data along with corresponding maintenance expenditures and budgets. These coefficients were then included in an economic model developed by MJB which allowed the company’s energy traders and plant managers to choose the optimal run/shut-down decision based on a clearer picture of the plant’s costs of operations.
Strategic Options Review
MJB, in partnership with The Brattle Group, prepared a strategic assessment of the Long Island Power Authority’s (LIPA’s) options regarding its long-term organizational structure.
LIPA outsources much of its transmission and distribution operations and management to National Grid under a comprehensive Management Services Agreement (MSA). With the MSA due to expire in 2013, LIPA requested a review of its available organizational options; Privatization, full Municipalization, or a continuation, under a more self-contained organizational contract, of its existing structure. The MJB/Brattle team conducted a quantitative and qualitative analysis of these options, including the development of detailed financial model, and specific operational impacts attendant to each alternative. This project included the analysis of historic performance reports, financial statements, benchmarking, and the review of MSA contract documents to understand the impact on cost and performance of moving away from the status quo. Regular presentations and reports were delivered to the Operating Committee of LIPA Board of Trustees, as well as to the full Board.
Financial Analysis – Plant Demolition
The client required a financial analysis of the legal, environmental, tax and financial impacts underlying the potential demolition of certain retired or soon-to-be retired generation units.
The client, a large northeastern power producer, has a number of sites with both active and retired units on various facility footprints. Along with safety and environmental issues associated with retired units, the client’s strategic considerations regarding portfolio expansion – and the use of existing footprints – drove it to retain MJB to assist in evaluating the financial effects of single or multi-plant demolition. MJB and the client team considered a number of issues, including accounting and tax concerns, insurance and taxes effects, necessary remedial actions (e.g., transformer relocation), along with salvage value and deconstruction costs.
Financial Analysis – Commercial Service Agreement (CSA)
A large integrated utility required a financial analysis of alternatives to the a Commercial Services Agreement (CSA) in place for the maintenance and repair of a fleet of gas-fired combined cycle generating plants.
The client’s CSA with the OEM is a long-term agreement providing for combustion inspections, hot gas path inspections, and major inspections for a multi-unit fleet of large frame machines. The possibility existed for the client to self-manage the maintenance of the machines and retained MJB to work with client staff to evaluate the economics of that approach compared to the CSA. The MJB-client team identified the cost impacts and risks of self management under scenarios associated with using alternative parts suppliers, heavy and light parts repair assumptions, and revised outage schedules. The analysis required addressing several interdependent parameters for each covered machine, including unit operating profile and maintenance schedule, and pricing for parts and services.
International Solar DG Modeling
MJB worked with the Iraq Engineering Enhancement Program (IEEP) to develop an initial analysis of the cost and potential for distributed solar generation in Iraq.
At the time, the Iraqi power grid supplied roughly half of the daily demanded electricity. On a local level, households were forced to run generators to bridge the gap between power demand and supply. Given the absence of reliable grid power, the potential for solar, was compared to the diesel/gasoline generator alternative. MJB built a financial model which considered both the upfront capital cost and the lifetime (levelized) cost per kWh. Country specific issues such as challenges involved in importation of necessary materials and access to a skilled workforce were also considered as part of the analysis. Findings were provided in a narrative report and panel presentation.
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The pace of change in the energy industry is accelerating. New technologies are being developed and deployed, environmental considerations are paramount, market conditions are more uncertain and volatile, and capital market pressures can be daunting. A challenging environment? Certainly. But one also laden with opportunity for those entities aware of and positioned to take advantage of the changes. We offer a range of services to meet clients’ needs in this dynamic environment.