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Refining the Business Case for Sustainable Energy Projects Using Palisade @RISK and Precision Tree: A Biofuel Plant Case Study
The sustainable energy industry sits at the nexus of growth and change: the popular groundswell for ‘green initiatives’, ongoing debates concerning global warming / climate change, fickle government incentives, the quest for renewable and alternative sources, expansion in developing economies, and the rapid emergence of new technologies. Sustainable energy industry sectors such as biofuel, solar, wind power each have unique selling points as well as practical challenges. Across the board, profit margins are uncertain and tight, demanding detailed analysis and complex business cases. Palisade\'s DecisionTools Suite is an ideal vehicle for conducting the deep analysis needed to separate the hype and ‘wishful vibes’ from the real risks and tangible profit cases needed to ‘green light’ sustainability projects.
Sustainable energy’s central competitor and sometimes partner, the petroleum majors, have distinct advantages, having established, streamlined supply chains and being embedded into the global economy. However, traditional petroleum exploration is going to increasingly extreme and risky lengths to locate and exploit new reserves (i.e. Athabasca Oil Sands, deep sea drilling, project development in politically unstable regions). The petroleum majors are dedicated users of the Palisade DecisionTools Suite to make their increasingly complex and risky business cases.
This presentation asserts that an energy development ‘risk / reward parity’ level is growing between new petroleum exploration and sustainable energy initiatives. The presentation uses a biofuel plant case study as an example of how a profitable business case can be made for a sustainable energy project using techniques commonly applied in petroleum exploration and engineering initiatives. The biofuel industry is expected to multiply its production by a factor of 50 by 2020. The uncertainties of government subsidy, tax credits, and loan guarantees are crucial to meeting biofuel profit margins. Stochastic analysis greatly improves the ability to pinpoint risk and to identify mitigation strategies. The case study uses @RISK to model biofuel project NPV, Evolver to suggest plant optimisation strategies, and PrecisionTree to guide strategic decision making. The approaches presented have promise as a due-diligence tool for prospective sustainability entrepreneurs, investors, project managers, and firms.