Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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POLICY AND LEGISLATIVE FRAMEWORKEnergy and RES framework- Directive to limit carbon dioxide emissions by improving energy efficiency (SAVE) (Council Directive 1993/76/EC)- Directive establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive1996/61/EC (European Parliament and Council Directive 2003/87/EC)- White Paper on Energy Policy – COM(95)682 Final (January 1996)- White Paper on Renewable Energies – COM(97)599 Final (November 1997)- Communication from the Commission on the implementation of the Community Strategy and Action Plan - COM(2001)69(01)- Directive restructuring the Community framework for the taxation of energy products and electricity (Council Directive 2003/96/EC)Electricity from RES- Directive on the promotion of the electricity produced from renewable energy sources in the internal electricity market (EuropeanParliament and Council Directive 2001/77/EC), as amended by the European Parliament and Council Directive 2006/108/EC (accession ofBulgaria and Romania) and by the Treaty of accession of ten new Member States (Annex II, Chapter 12(A) 8)Other renewable energy sources- Directive on the energy performance of buildings (European Parliament and Council Directive 2002/91/EC)- Directive on the promotion of the use of biofuels and other renewable fuels for transport (European Parliament and Council Directive2003/30/EC)- Directive on the promotion of cogeneration based on a useful heat demand in the internal energy market (European Parliament and CouncilDirective 2004/8/EC)- The Green Paper ‘A European Strategy for Sustainable, Competitive and Secure Energy’ – COM(2006) 105 final- Directive on energy end-use efficiency and energy services (European Parliament and Council Directive 2006/32/EC)Under certain constraints the ERDF supports energy projects under both the Convergence objective 46and the regional Competitiveness and employment objective 47. Similar principles are adopted for theCohesion Fund.In all cases, several alternative financing forms have to be considered, not only the grant based scheme,and the most appropriate have to be identified for the specific project in question. The project could bealternatively financed by loan funds, interest rate subsidies, or guarantee schemes, or by creating revolvingfunds with public money, or by other schemes. For example, in the case of projects dealing with energyefficientbuildings with a longer pay back period, by providing investment capital from the fund at lowerthan market interest rates, a capital mix can be reached for those projects that reduce pay back periods toacceptable levels in order to stipulate good energy service contracts with Energy Service Companies(ESCO) existing in the market 48.3.3.3.2 Project identificationWhen defining the functions of the project, it is advisable to:- specify the site and location of the potential area served (e.g. research and drilling of a new well fieldmay have as its objective the supply of energy for more than one country, a new power station mayserve an entire region, and so on);- describe the projected positioning of the product on the market;- describe the institutional context and the legal framework into which the project fits, at UE and Statelevel; specifically describe the sale tariff regimes for energy production and any incentives, orcontributions, or minimum prices, or tax exemptions, etc., for the production of energy, (for example,from renewable sources);- state the phases of the investment; e.g. for a well field the prospecting and research within the targetarea, initial test drilling, mining and commercial exploitation, closure, site clearance and46Regulation(EC) No 1080/2006, Art. 4-9 ‘energy investments, including in improvements to trans-European networks which contribute toimproving security of supply, the integration of environmental considerations, the improvement of energy efficiency and the development ofrenewable energies; 10. education investments, including in vocational training, which contribute to increasing attractiveness and quality of life’.47Regulation(EC) No 1080/2006, Art. 5-2(c) ‘stimulating energy efficiency and renewable energy production and the development of efficientenergy management systems’.48In some of the Member states Energy Service Companies (ESCO) successfully offer energy service contracts. The basic idea is that thecompany undertakes the necessary energy upgrading investments and runs the heating and cooling systems. The service package offered by thecompany is paid out of the energy saved.112
decontamination if any;- the technical characteristics and the state of the high voltage grid that interconnects the project energygenerating plant; particularly, for installations that generate discontinuous and variable electricity power(wind, photovoltaic, tidal, waves), the technical capacity of the electricity grid to compensate for thesechanges should be demonstrated;- describe the engineering features of the infrastructure, as follows:♦ basic functional data, such as: type of plant for producing electricity 49 , installed capacity (MWe) andenergy produced (TWh/year); annual potential capacity of well fields (millions of barrels/year ormillions of m 3 /year), tons of CO 2 saved;♦ key parameters for the RES plants, such as: level of resource risks (wind/hydro), estimated loadfactors, supply during peak demand, levelled generating costs;♦ physical and site characteristics 50 ,♦ building, technological and processing techniques for the production plants;♦ building techniques and technical features of the plants for mining wells, e.g. off-shore platforms,attaching building and functional sketches;♦ building techniques and technical features of the other service structures;♦ treatment systems for waste water and fumes, with the number and positioning of stacks and waterdischarges;♦ significant technical elements, such as the constructions in caverns, dams, special technicalsolutions for waste treating, computerised control systems, telecommunications systems, etc.3.3.3.3 Feasibility and option analysisKey information: the demand for energy, seasonal and long-term trends and also, for electricity powerstations, a typical graph of the daily demand for electricity.The comparison in the options analysis should consider possible alternatives within the sameinfrastructure (e.g. different technologies for production and drilling, different technologies for ash andwaste treatment, etc.). Possible realistic alternatives for producing the energy required should also beconsidered (e.g. launching actions and policies aimed at energy saving, instead of building a new powerstation).3.3.3.4 Financial analysisThe financial inflows and outflows are:Financial inflowsFinancial outflows• Sale of energy • Investment costs- Sale of gas - works- Sale of electricity - land- Sale of heat - test of the infrastructure• Additional State incentives • Operating costs• Reduced costs for the purchase of energy - goods and services for production- maintenance- technical and administrative personnel costs- fuel and electricityThe time horizon is usually around 15 – 20 years.49In the case of hydroelectric plants (production and/or pumping) linked to aqueducts, one must also bear in mind the technical data suitablefor the aqueduct sector (see the relative outline).50For example: the area covered by the well field (Km 2 ) and the position. In the case of off-shore drilling, it would also be useful to providelocal bathymetric profiles; average depth of deposits (m); area occupied (Km 2 ) by plants (thermo-electricity) and relative storage areas, location ofdams, pressure water-pipes and generators for hydro-electric production; area occupied by fields of photovoltaic or wind generators (Km 2 ) andtheir location, area covered by geothermal well fields (Km 2 ) and plant position.113
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ACRONYMS AND ABBREVIATIONSBAUB/CCBA
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TABLESTable 2.1 Financial analysis
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FIGURESFigure 1.1 Project cost spre
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Cohesion Fund, and through the leve
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or the plant will not reveal excess
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CHAPTER ONEPROJECT APPRAISAL IN THE
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Some specifications for financial t
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FOCUS: INFORMATION REQUIREDGeneral
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In particular, CBA results should p
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CHAPTER TWOAN AGENDA FOR THE PROJEC
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objectives, are, as far as possible
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considered the appropriate shadow p
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2.3.2 Feasibility analysisFeasibili
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This approach will be presented in
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Current assets include:- receivable
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The following items are usually not
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Mainly, the examiner uses the FRR(C
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The dynamics of the incoming flows
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eturn on their own capital (Kp). Th
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While the approach presented in thi
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2.5.1 Conversion of market to accou
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Table 2.9 Electricity price dispers
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2.5.1.2 Fiscal correctionsSome item
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previously estimated in projects wi
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FOCUS: ENPV VS. FNPVThe difference
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2.6 Risk assessmentProject appraisa
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Table 2.14 Impact analysis of criti
Page 62 and 63: Figure 2.6 Probability distribution
Page 64 and 65: eneficiary. The project proposer sh
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Page 68 and 69: PROJECT APPRAISAL CHECK-LISTCONTEXT
Page 70 and 71: - reduction of congestion by elimin
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Page 78 and 79: The following tables show some refe
Page 80 and 81: 3.1.1.6 Risk assessmentDue to their
Page 82 and 83: As shown in Figure 3.1, only under
Page 84 and 85: 3.1.3.7 Other project evaluation ap
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Page 89 and 90: The time horizon for a project anal
Page 93 and 94: every user support the total costs
Page 95 and 96: Territorial reference frameworkIf t
Page 97 and 98: Cycle and phases of the projectGrea
Page 99 and 100: One of the most important aims of t
Page 101 and 102: projects, as in other sectors in wh
Page 103 and 104: 3.2.3.2 Project identificationBasic
Page 107 and 108: In order to evaluate the overall im
Page 109 and 110: for regassification plants, number
Page 111: Examples of objectives are:- change
Page 115 and 116: 3.3.3.6 Risk AnalysisCritical facto
Page 117 and 118: 3.3.4.6 Risk assessmentCritical fac
Page 119 and 120: 3.4.1.5 Economic analysisThe follow
Page 121 and 122: Financial inflows• Admission fees
Page 123 and 124: expectancy suitably adjusted by the
Page 125 and 126: The time horizon for project analys
Page 127 and 128: A Cost-Benefit Analysis should cons
Page 129 and 130: CHAPTER FOURCASE STUDIESOverviewThi
Page 131 and 132: - finally, there is the traffic tha
Page 134 and 135: c) Road users producer’s surplus:
Page 136 and 137: 4.1.5 Scenario analysisTwo scenario
Page 138 and 139: The financial performance indicator
Page 140 and 141: Table 4.10 Economic analysis (Milli
Page 142 and 143: Table 4.12 Financial return on capi
Page 144 and 145: 4.2 Case Study: investment in a rai
Page 146 and 147: 4.2.4 Economic analysisThe benefits
Page 148 and 149: Financial investment costs have bee
Page 150 and 151: Figure 4.6 Results of the risk anal
Page 152 and 153: Table 4.22 Economic analysis (Milli
Page 154 and 155: Table 4.24 Financial return on capi
Page 156 and 157: 4.3 Case Study: investment in an in
Page 158 and 159: ate of 0.6% per year is assumed for
Page 160 and 161: The shadow price of the CO 2 avoide
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As a result, the probability distri
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Table 4.36 Financial return on capi
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16 17 18 19 20 21 22 23 24 25 26 27
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4.4 Case Study: investment in a was
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4.4.2 Financial analysisAlthough in
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THE CALCULATION OF REVENUESReferrin
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0.15 m 3 /m 2 a depreciation of 20%
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As result, the probability distribu
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Figure 4.13 Probability distributio
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Table 4.48 Financial return on nati
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Table 4.50 Financial return on priv
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16 17 18 19 20 21 22 23 24 25 26 27
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4.5 Case Study: industrial investme
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4.5.4.1 Investment costsThe total i
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Finally, a residual value was estim
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This analysis shows the need to pay
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Table 4.62 Financial return on inve
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Table 4.64 Return on private equity
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Table 4.66 Economic analysis (thous
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ANNEX ADEMAND ANALYSISDemand foreca
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The method applied for the forecast
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Furthermore, travel demand depends
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This Guide supports a unique refere
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A higher discount rate for countrie
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Figure C.1 Project ranking by NPV v
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The main problems with this indicat
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EXAMPLE OF SHADOW WAGE IN DUAL MARK
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Another exhaustive way to include d
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Figure E.2 Percentage of low income
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ANNEX FEVALUATION OF HEALTH &ENVIRO
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Figure F.1 Main evaluation methodsS
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- expenditure on capital equipment
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due to air pollution or water conta
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BENEFIT TRANSFER - SELECTED REFEREN
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ANNEX GEVALUATION OF PPP PROJECTSIt
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adjustments for Competitive Neutral
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ANNEX HRISK ASSESSMENTIn ex-ante pr
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Reference ForecastingThe question o
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Figure H.5 Levels of risks in diffe
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ANNEX IDETERMINATION OF THE EU GRAN
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A.4. Technological Alternatives and
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GLOSSARYAccounting period: the inte
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Market price: the price at which a
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BIBLIOGRAPHY1. ReferencesBelli, P.,
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Ray, A. 1984, Cost-benefit analysis
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EnvironmentGeneralAtkinson, G., 200
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European Commission, DG Tren, 2003,
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Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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