The Biomass Project Financial Model

Purpose of the model

The model shows whether the plant earns enough to repay its capital and reward its investors, and how robust that answer is. It must be transparent, so that lenders and their advisers can trace every number back to the study.

Key inputs

• Capital cost. Equipment, construction, grid connection, development and contingency, from the concept design.
• Fuel cost. Delivered cost per tonne and energy content, from the fuel assessment.
• Performance. Net output, efficiency, availability and degradation.
• Operating cost. Staff, maintenance, consumables, ash disposal, insurance.
• Revenue. Power price or tariff, heat sales, and any support payments or carbon revenue.
• Financing. Debt terms, equity returns, tax and depreciation.

Sensitivities that matter

Biomass economics are most sensitive to fuel cost, availability and power price. The model should show returns under a range of values for each, and under combined downside cases. A project that only works in the base case is not ready for investment.

Linking risk and contracts

Contracts move risk to the parties best able to manage it: fuel supply agreements for fuel risk, an EPC contract for construction risk, an O&M contract for performance risk and a power purchase agreement for revenue risk. The model should reflect the protections these contracts provide.

Independent review

For financing, an independent engineer will review the technical inputs and the model. Preparing clear documentation and a well-structured model shortens that review.