is a necessary, but often under appreciated and omitted first step in any successful power generation or energy infrastructure project. Too often business owners or decision makers rush from identifying a problem directly to a solution without contemplating alternatives or appreciating both the obvious and hidden costs of realizing the project’s benefits. This often leads to projects that don’t meet schedules, budgets or both and in some cases projects that should have never been undertaken.
At a high level the steps for an energy related project are shown in the figure to the right. IEA believes that a properly developed project is the first and most important step. It sounds simple, but it starts with defining the objectives for the project. Deciding whether the project is primarily aimed at improving reliability and power quality or whether it is primarily economic seems simple, but often different factions of an organization may exert conflicting influences and it may be nearly impossible to achieve consensus. Now layer on top of this environmental or sustainability issues to lower emissions, reduce carbon foot prints, etc. and the problem becomes more complex.
A proper project development is like a three legged stool resting on one leg each of technical, environmental and financial viability. Remove any of the legs and the stool collapses.
A good way to think about an energy related project is in the same way independent power producers (IPP’s), subject to market forces, think about any new project that must meet the rigors of external financing. There are three givens every project must satisfy before you consider its financial merits:
- Can you get an environmental emissions permit?
- How confident are you about the capital expenditures to build it (i.e., how good are your estimates and what are they based upon)?
- What is your fuel source and what have you done to mitigate volume, price and delivery risks?
If you cannot affirmatively answer these questions, your project is dead before it begins! Survive these hurdles and you can address whether your project has the necessary cash flows to service the debt and provide expected returns on shareholder equity. If the project satisfies the necessary financial criteria, you are in good shape. However, as may often be the case the project may not satisfy lofty internal return expectations associated with two or three year simple paybacks. Should that happen, contact IEA and our experts can determine whether IEA would be willing to own your project.
Navigating the project development process can often leave you feeling like you are in a maze. If you need help contact IEA and our experts can help develop your energy related project, starting with project screening.