Alpha Financials provided the financial analysis of a CHP (Combined heat and power) plant aimed at determining whether the long-term reduced electricity costs and additional green tariffs would offset the up-front capital costs of such equipment.
Our client, the proposed CHP plant owner, was already using a basic cash flow model, but recognised its limitations for supporting the project at hand.
The Alpha Financials’ model quickly identified weaknesses in tax calculations, the absence of consolidated financial statements and the lack of automated sensitivities. Our standardised approach further improved reliability and speed of analysis.
Issues to Deal With
This case was unique in that we needed to arrange separate finance for the plant and to split the savings between the electricity user and the CHP plant provider – who were two independent companies.
Alpha Financials re-analysed the investment using our specialist valuation model completing the following:
- All relevant data entered into our financial model
- Base results reconciled with the original client model
- Fully consolidated accounts produced for standalone project, client and third party investors
- Sensitivities modelled to show impacts on all stakeholders
Working with the client, we then refined the sensitivities in order to determine the maximum level of savings that could be passed on to the user. As a zero-sum game, the challenge was to figure out how to tempt the electricity user to switch to a CHP solution by passing sufficient savings to them whilst retaining acceptable returns for the client and potential plant investors.