Client Success Stories
Africa Energy Pre-Feasibility Study
Challenge
The client’s African business and energy demand were growing to over 150 MW, while concerns over future energy supply and reliability were a constant threat to future revenue and profitability growth. An exhaustive pre-feasibility study of energy alternatives including renewables was needed to uncover viable options that could be implemented to assure reliable power, reduce power cost volatility, and lower processing costs.
Solution
An in-depth assessment was conducted to evaluate 17 different alternatives ranging from renewables such as solar, wind, biomass, and trash, to fossil-fueled options such as natural gas, liquefied natural gas, heavy fuel oil, and diesel. Due to the critical nature of fuel contributing 65-85% of power life-cycle costs, the study evaluated fuel supply and availability, pricing, import infrastructure, terminal and storage, and logistics. For each fuel alternative, a cash flow analysis was developed incorporating capital and operating costs and required fuel import infrastructure required for power generation. The analysis provided project rate of return, payback period, and net present value of 100% equity and leveraged scenarios for each alternative.
Results
The pre-feasibility study allowed the client to eliminate alternatives that would not meet its energy requirements or provide an economical and reliable alternative to current energy supply. By short listing the most viable economical options, the client was able to focus efforts on selecting only the best energy solutions for its operations. Due to the high capital requirement which could be in excess of $250 million, seven independent power producers familiar with the short list of alternative technologies and fuel, and capable of financing the project were evaluated during preliminary discussions.
Africa Energy Reliability Analysis
Challenge
Industry in Africa is dependent upon large amounts of energy to manufacture their product and it faces unique issues regarding the reliability of energy. Unplanned energy outages can occur at any time and inhibit their efficient raw material processing business with significant and previously-unmeasured opportunity cost. The processing facility creates value and revenue stream for the client, and needs to run continually except for planned maintenance.
Solution
An in-depth analysis was conducted to evaluate the frequency, length, and root cause of unplanned power outages, along with interviews with manufacturing operations personnel. Based on a review of operating data, the amount of lost production and lost commodity sales revenue were determined. Using this data and financial modeling, the analysis generated the economic impact of lost commodity production due to unplanned power outages to be hundreds of thousands of US$ each day.
Results
Determination of the opportunity cost of unplanned power outages for the first time was the key factor in developing a $37 million transmission reliability improvement capital project, as the reduction in unplanned power outages served as the project’s revenue stream. Use of technology to reduce low voltage and voltage spike events which triggered unplanned outages at the mill will improve economics by $66 million over the life of the processing facility’s useful economic life.
Africa Energy Supply and Demand Analysis
Challenge
The African energy industry faces unique energy issues, including adequate supply and reliability of energy, fuel logistics, and capacity planning. The supply of power is a key ingredient for GDP growth in African countries and to the client’s business success. Opportunity costs of several hundred thousand US$ per day were being incurred due to inadequate and unreliable power.
Solution
An in-depth assessment was conducted to evaluate the importance of fuel supply and importation infrastructure to the future generation of power in the country as it constitutes about 65-85% of life cycle costs. Next, a comprehensive energy supply and demand model was constructed, which identified potential shortfalls in future energy supply that could prove costly to the client. Key data researched and built into the model were:
- Hydro and thermal (fossil-fueled) plant power generation and utilization history
- Proposed power plants with capacity, construction probability, timing, and funding as a harbinger of project viability
- Energy demand projections with World Bank GDP estimates
- Infrastructure for fuel logistics, gas processing, and power transmission
- Hydro power production with its seasonal and cyclical nature
- Fuel capacity planning for required power generation, identifying choke points
Results
The energy supply and demand model successfully predicted in early 2013 the country’s power crisis of 2015, the energy shortage, and need for curtailment or load shedding. Based on the advance knowledge and the development of a mitigation strategy to minimize power loss, the client’s business operations were not interrupted, thus forestalling opportunity costs of several hundred thousand US$ per day. In 2015, with additional client projects and power generation units planned, the model was updated with a more comprehensive long term mitigation plan.
Energy Logistics Acquisition Analysis Drives Success
Challenge
The client operated a refined products pipeline from Chicago, Illinois, to Detroit, Michigan, and Toledo, Ohio, with consistent tariff revenue of around $50 million per year. An existing refinery in Alma, Michigan was closing and the operator needed to sell the refinery, pipeline, terminal, and gasoline station assets. Purchasing the pipeline assets would greatly expand the market penetration for refined product shipment and position the client as the premier carrier.
Solution
An in-depth logistics assessment was conducted to evaluate the integration of the new pipeline assets into the client’s existing asset base using both refined products and crude oil pipelines for incremental revenue generation. The pipeline would not be sold independently of the terminals and gasoline stations, therefore a detailed analysis of potential asset acquisition partners was required. The potential partners were contacted and one of the major oil companies was identified to purchase all of the assets with the pipeline assets designated to the client. A price for pipeline assets was negotiated with the partner and with a combined price of $250 million, the assets were purchased. A 20-year refined product shipment contract was negotiated with the partner, allowing 100% project financing.
Results
The client’s asset base in Michigan was expanded by 50% with the $84 million pipeline acquisition, and the client became the dominant refined products pipeline company in the state, while increasing its annual cash flow by $6.7 million per year.