New-Build Power Station Financial Modeling
Financial Model design for 1,400MW Coal Fired Power Plant in Malaysia
Situation
- Malaysia’s power utility was planning a power plant in the northern Kedah state capable of producing 1,400 MW at a cost of 4bn ringgit ($1.1bn)
- State-controlled Tenaga, projecting slower electricity demand growth, has cut capital expenditure 26 per cent to 5.7bn
- In addition, the client has cut its forecast of electricity demand growth to five per cent from an earlier 9.4 per cent
Challenge
- Frequent unscheduled downtime of power plants had at all times affected the operating reserve
- Although actual operating reserve figures were at times below target, the spinning reserves were allocated and maintained at 1,200MW level
- Before the commissioning of the 1,000MW ultra-supercritical coal plant, Peninsular Malaysia’s total installed capacity for 2016 was 22,435MW
- A total of more than 2,500MW of capacity was added into the system including short term extension of existing plants in order to replace the capacity retirements
- In terms of planning, the reserve margin is deemed to increase from 28% in 2016 to 29% in 2017 (peak day of the year)
- The system reliability criteria set at Loss of Load Expectation (LOLE) of not more than 1 day per year was observed to be met in 2016
Action
- Developed a financial model that supported evaluation of the ROI which also included EPC (Engineering, Procurement, and Construction) margin and equity return to assist the decision-making process
- Developed EPC (Engineering, Procurement, and Construction), CapEx (Capital Expenditures) and funding schedule using timing flags
- Built a flexible timing structure using timing flags
- Revenue, operational and maintenance expenditures
- Forecast cash flow available for debt servicing (CFADS)
- Forecast debt repayment and interest schedule (For different types of debt structures)
- Assessed interest during construction & controlling circular referencing
- Evaluated repayment waterfall, reserve accounts, cash sweeps, etc.
- Built project’s flexible debt repayment schedule for various sources of financing
- Modeled key financial drivers used to evaluate a project finance transaction
- Performed scenario and sensitivity analysis in the financial model
Result
- Prepared the financial model and summary results and recommendation that led to decision-making
- Developed a feasibility study to identify key risks, establish quality control parameters and targets and schedule
- Continued monitoring and researched the Malaysian power market (level of the Capex, fuel price, tariff and IRR) to assess the business opportunity over the time