ENERGY ECONOMICS=============================        Mohammed Mostafa El-Khayat  New and Renewable Energy Authority, NREA ...
CONTENTSWhy Energy Economics?Projects Financing SchemesEstimating Production CostEconomic and Financial PointersSensitivit...
WHY ENERGYECONOMICS?
DEFINITION: Energy EconomicsEnergy Economics is the field that studieshuman utilization of energy resources andenergy comm...
DEFINITION:ENERGY) Energy is neither created nor destroyed but  can be converted among forms;) Energy comes from the physi...
Energy DefinitionIt is the capacity for doing work,    Examples,         - Lifting         - Accelerating         - Heating
Some Applications of Energy     • Fuels our nation’s economic growth.     • Makes industrial production possible.     • Pr...
DRIVERS OF ENERGY DEMANDEnergy demand is derived from preferences for energy servicesand depends on properties of conversi...
Demand Substitution Among Energy Commodities•Some energy services can be provided by several different energycommodities. ...
Is Energy an Essential Good?In economics, an essential good is one forwhich the demand remains positive nomatter how high ...
ENERGY SOURCES• Fossil Fuel     • Renewable Energy  – Oil             – Hydro  – Natural Gas     – Wind  – Coal           ...
PROJECTSFINANCING SCHEMES
FINANCING SCHEMES . Grant Scheme   Grant scheme applied for the pioneer and   demonstration wind projects erected in Hurgh...
FINANCING SCHEMES FOR WIND PROJECTS …. Cont.  . Self-Finance Scheme    Self-Finance Scheme; has been applied for NREA-    ...
Financing Schemes     • Grants       – Used to Finance the whole project, or       – Used as a part of the financing      ...
Foreign Loans •    St   Type: Soft Loans     With the following conditions;     – Interest rate <   .     – Grace period r...
Foreign Loans ………….Continued •    nd   Type: Commercial Loans     With the following conditions;     – Interest rate range...
Local Loans • Commercial Loans  With the following conditions;   – Interest rate      ≈     to     %.   – Grace period    ...
ESTIMATINGPRODUCTION COST
ASSUMPTIONS • Fixed Cost Parameters    For example;    – Equipment                                                       -...
ASSUMPTIONS
Estimating       Production Cost for Wind Farms• Technical:      For example (gross power, guaranteed Power, capacity     ...
Income • Energy  Based on the following parameters;   – Installed capacity;   – Capacity factor (Incl. Working hours per y...
Production Cost for Wind Farms isaccording to project conditions (technicaland financial)
ECONOMIC & FINANCIAL     POINTERS
FINANCIAL STUDYECONOMICAL STUDYMARKET DESTORTIONS         TAXES          Custom Duties
Calculations Outputs Production Cost, LE/kWh Internal Rate of Return, IRR It is a capital budgeting metric used by firms t...
Sensitivity Analysis                   Change     Item                   NPV      IRR                     %  Wind Speed   ...
ENERGY ECONOMICS=============================        Mohammed Mostafa El-Khayat  New and Renewable Energy Authority, NREA ...
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Energy economics 2 seminar

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Capacity Building in the Field of Wind Energy 6 - 15 December, 2009

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Energy economics 2 seminar

  1. 1. ENERGY ECONOMICS============================= Mohammed Mostafa El-Khayat New and Renewable Energy Authority, NREA mohamed.elkhayat@yahoo.com
  2. 2. CONTENTSWhy Energy Economics?Projects Financing SchemesEstimating Production CostEconomic and Financial PointersSensitivity Analysis
  3. 3. WHY ENERGYECONOMICS?
  4. 4. DEFINITION: Energy EconomicsEnergy Economics is the field that studieshuman utilization of energy resources andenergy commodities and includes: • Forces motivating firms and consumers to supply, convert, transport, use energy resources, and to dispose of residuals; Market structures and regulatory structures; distributional and environmental consequences; economically efficient use.
  5. 5. DEFINITION:ENERGY) Energy is neither created nor destroyed but can be converted among forms;) Energy comes from the physical environment and ultimately returns there. Humans harness energy conversion processes to provide energy services.
  6. 6. Energy DefinitionIt is the capacity for doing work, Examples, - Lifting - Accelerating - Heating
  7. 7. Some Applications of Energy • Fuels our nation’s economic growth. • Makes industrial production possible. • Providing the lifeblood of the information infrastructure. • Heats and lights our homes. • Makes the world more accessible.It is, quite simply, the foundation of the modern economy
  8. 8. DRIVERS OF ENERGY DEMANDEnergy demand is derived from preferences for energy servicesand depends on properties of conversion technologies and costs.For example, consumers use gasoline to fuel an automobile or other motorizedvehicle, converting gasoline to mechanical energy for motive power. The amountof gasoline used is proportional to the miles the auto is driven and inverselyproportionate to the efficiency by which gasoline is converted to useful mechanicalenergy, measured as miles per gallon of gasoline of the automobile. Demand forgasoline is thus derived from choices about distances vehicles are driven andtheir energy conversion efficiencies. City A CITY B
  9. 9. Demand Substitution Among Energy Commodities•Some energy services can be provided by several different energycommodities. Heat = Thermal Energy ENERGY ALTERNATIVES
  10. 10. Is Energy an Essential Good?In economics, an essential good is one forwhich the demand remains positive nomatter how high its price becomes. In thetheoretical limit, for prices unboundedlyhigh, consumers would allocate all of theirincome to purchases of the essential good.Energy is often described as an essential good becausehuman activity would be impossible absent use ofenergy: living requires food embodying chemical energy.
  11. 11. ENERGY SOURCES• Fossil Fuel • Renewable Energy – Oil – Hydro – Natural Gas – Wind – Coal – Solar – Biomass – …. etc
  12. 12. PROJECTSFINANCING SCHEMES
  13. 13. FINANCING SCHEMES . Grant Scheme Grant scheme applied for the pioneer and demonstration wind projects erected in Hurghada, in co-operation with USA, Denmark, and Germany. In addition to the first commercial large scale wind farm at Zafarana, MW in co-operation with DANIDA. In this scheme local works such as civil works, and local transportation had been financed by NREA. . Self-Finance/Grant Scheme In this scheme the maximum share of grants didnt exceed of the total project investment. This regime has been applied for three large-scale wind farms in co-operation with DANIDA and KfW, with MW total capacity.
  14. 14. FINANCING SCHEMES FOR WIND PROJECTS …. Cont. . Self-Finance Scheme Self-Finance Scheme; has been applied for NREA- Spanish, NREA-Japanese, NREA-KfW, and NREA- DANIDA projects , , , and MW. Foreign loans applied for the second or the third financing schemes vary between soft, mixed credit, and commercial loans. Meanwhile, local loans offered from the Egyptian National Investment Bank, NIB, are commercial loans.
  15. 15. Financing Schemes • Grants – Used to Finance the whole project, or – Used as a part of the financing scheme. • Loans – Foreign Loans, and – Local Loans.
  16. 16. Foreign Loans • St Type: Soft Loans With the following conditions; – Interest rate < . – Grace period ranges between - Years. – Repayment period ranges between - Years.
  17. 17. Foreign Loans ………….Continued • nd Type: Commercial Loans With the following conditions; – Interest rate ranges between - . – Grace period ranges between - Years. – Repayment period < Years.
  18. 18. Local Loans • Commercial Loans With the following conditions; – Interest rate ≈ to %. – Grace period Years. – Repayment period Years.
  19. 19. ESTIMATINGPRODUCTION COST
  20. 20. ASSUMPTIONS • Fixed Cost Parameters For example; – Equipment - – Electrical Works (i.e. Cables, Transformers, … etc) - – Civil Works (roads, Foundations, .. etc) - – Taxes of total equipment price – Custom of total equipment price – Spare parts – Training – Packing and Transportation - – Consultancy services to – Land (in Egypt) Free
  21. 21. ASSUMPTIONS
  22. 22. Estimating Production Cost for Wind Farms• Technical: For example (gross power, guaranteed Power, capacity factor, … etc).• Financial: For example (Loan conditions, price per kW, taxes, customs, .. etc) Microsoft Excel Worksheet
  23. 23. Income • Energy Based on the following parameters; – Installed capacity; – Capacity factor (Incl. Working hours per year; Mean wind speed) Energy should be calculated for the project lifetime • CERs According to Baseline Annual CERs can be calculated
  24. 24. Production Cost for Wind Farms isaccording to project conditions (technicaland financial)
  25. 25. ECONOMIC & FINANCIAL POINTERS
  26. 26. FINANCIAL STUDYECONOMICAL STUDYMARKET DESTORTIONS TAXES Custom Duties
  27. 27. Calculations Outputs Production Cost, LE/kWh Internal Rate of Return, IRR It is a capital budgeting metric used by firms to decide whether they should make investments. It is an indicator of the efficiency of an investment, as opposed to net present value (NPV), which indicates value or magnitude.Net Present Value, NPV NPV) is a standard method for the financial appraisal of long- term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met.
  28. 28. Sensitivity Analysis Change Item NPV IRR % Wind Speed to Selling Price to Interest Rate toRepayment Period to Equity to
  29. 29. ENERGY ECONOMICS============================= Mohammed Mostafa El-Khayat New and Renewable Energy Authority, NREA mohamed.elkhayat@yahoo.com

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