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Financial analysis

Financial analysis

 

Once the project costs have been identified including the energy and fuel consumption costs for each of the selected CHP options, a detailed energy and financial analysis must be carried out for each option. This process should identify the optimum scheme for the site. If site energy demands are predicted to change during the lifespan of the CHP plant, the financial analysis should take into account annual cost savings for each year of the project’s life.

The financial analysis should be carried out in accordance with company procedures for capital projects. At this stage, the main issue under review is not the nature of the project but the impact on the company’s finances of the capital expenditure and resulting cost savings.

It is highly advantageous to carry out the financial analysis using a computer spreadsheet, and to have the inputs to the analysis linked to the energy and cost calculations completed previously. This approach affords considerable flexibility, allowing the impact of any changes made to the input data to be shown immediately in the final outputs. It is particularly useful for analysing project sensitivity to changes in factors such as energy prices, site loads and capital costs. 

The results of the financial analyses should provide a ranking table of the CHP project options that have been considered, showing the relative merits of each plant configuration and of the different financing and implementation options.

Regulatory & local planning issues

Almost all CHP installations will require planning consent, unless contained within an existing site building, and this means that issues such as access, visual impact, noise, construction activity etc. will all need to be addressed. The installation of a new chimney will require authorisation from the Local Authority.

The issue of Business Rating in relation to CHP systems is discussed in the CHPQA Guidance Note No 43.

Planning consent will be required from the Department for Business, Enterprise and Regulatory Reform (BERR) for gas-fired CHP schemes over 10 MW capacity, and for all CHP schemes over 50 MW capacity. Sites considering a CHP scheme over 10 MW are advised to contact the BERR to discuss the latest consent application procedures. 

Larger CHP plants may require authorisation from the Environment Agency regarding emissions and wastes; in particular, larger plants installed within urban areas will need to demonstrate that they are not causing breaches of air quality standards and targets. Plants may also require approval from other regulatory bodies regarding their use of gas as a fuel. In some instances, local community organisations may consider that their views on the installation of a new plant should be considered.

Insurance

A proactive approach to risk management will ensure the support of the insurance market. Insurance must be considered for the construction phase and the operational phase.

Each CHP project will vary in its complexity, so it is recommended that an insurance adviser is consulted to provide assistance throughout the project. A proactive approach to risk management will ensure the support of the insurance market in both the breadth of cover and the cost.

Some basic guidelines on insurance considerations are presented here in three parts: the construction phase; the operational phase; and basic information. The construction and operational phases list the risks under the headings of assets, income, and liabilities, and indicate the most appropriate types of policy. The operational phase also includes appropriate types of policy for statutory inspection and other considerations. The basic information section lists the information likely to be required by insurers.

Construction Phase

During the construction phase there are two possible approaches:

  • A project policy specific to the scheme, covering all parties.
  • Reliance on the provision of cover purchased individually or carried by each party.

Choosing the right option will depend on the circumstances of the scheme, and it is recommended that advice be taken on this issue at the earliest possible stage, and on how the contract conditions affect the insurance considerations and/or present additional risks.

Table of risks and the appropriate insurance policy during the project construction phase
Risks & Exposures Type of policy 
Assests 
Temporary and permanent works (including building, machiner, plant) in the course of construction, erection or installation and while comissioning/testing Contractors' All Risks 
Loss or damage to buildings (including weatheproofing of roofs and/or external ) walls due to an inherent defect in the aforesaid Refer to table for operational phase (Latent and Inherent Defects).
Hired plant, equipment,  temporary  buildings, which are  the  responsibility / risk of the contractor(s)
 Contractors' All Risks
Income
 
Loss of future anticipated revenue, increased cost of construction and other financial losses caused by loss or damage to the works in the course of construction, erection or installation, but prior to completion. Advanced Profits 
Loss of future anticipated revenue caused by loss or damage to buildings (including weatherproofing of roofs and/or external walls) due to inherent defect in the aforesaid Refer to table for operational phase (Latent and Inherent Defects).
 Liabilities 
Legal liability to pay compensation for death, injury, illness or disease, other than to employees, or property damage Public Liability
 Legal Liability to pay compensation to employees for death, injury, illness or disease. Employer's liability  
 Legal liability arising out of error or omission in the professional advice or designs undertaken by advisors to the project Professional Indemmity 
 

Table of risks and the appropriate insurance policy during the project operations phase

 

Risks & Exposures
Type of Policy 
 Assets 
Buildings owned or for which you are responsible, including landlord’s fixtures and fittings
and tenants’ improvements, external walls, fences, gates, landscaping, car parks, outbuildings,
yards, machinery bases and underground services.
Property
Contents of the buildings, and machinery, plant and equipment, trade and office furniture, fixtures and fittings. Property
Loss or damage to buildings (including weatherproofing of roofs and/or external walls) due to an inherent defect in the aforesaid. Latent and Inherent Defects
Stock and materials in trade,work completed and in progress, customers’ and other goods in trust.Property
Terrorism/subsidence.Optional Property Cover
Leakage of sprinklers.Property or Sprinkler Leakage
Steam boiler and pressure plant explosion.Engineering
Accidental damage to or breakdown of computers including peripherals used in the production process or office. Also reinstatement of data, increased cost of working following breakdown or accidental damage. Computer
Machinery, plant and equipment hired in. Property or Engineering Breakdown of machinery and plant. Engineering Breakdown
Property while in transit within the UK. Property in Transit, or Property Vehicles and plant and machinery, including those hired in,where Road Traffic Act cover is necessary.Motor
Money at your own premises and in transit.
Loss of Money
Income 
Loss of gross revenue and additional cost of working following loss or damage to your property.Business Interruption
 Loss of gross revenue and additional cost of working resulting from breakdown/failure of machinery/plant. 
Engineering Business Interruption
Loss of future anticipated revenue caused by loss or damage to buildings (including weatherproofing of roofs and/or external walls) due to an inherent defect in the aforesaid. Latent and Inherent Defects
Loss of gross revenue and additional cost of working etc. following loss or damage at suppliers’ or Business Interruption and customers’ premises and failure of public utilities. Engineering Business Interruption Extensions
Reinstatement of data, increased cost of working etc. following computer breakdown or accidental damage. Computer Business
Interruption
Unrecoverable outstanding business following loss or damage to business records. Book Debts and Computer
Book Debts
Loss due to insolvency or failure to pay accounts due to default of customers to whom goods or services have been delivered or work done on credit terms. Credit
Liabilities 
Legal liability to pay compensation for death, injury, illness or disease, other than to employees, or property damage arising from the business activities, the products/services provided or the premises occupied. Public/Products Liability
Legal liability to pay compensation for death, injury, illness or disease to employees arising from the business activities.
Employer’s Liability
Legal liability to pay compensation arising from pollution (other than sudden and accidental) – first and third party.
Environmental Impairment
Liability of directors and officers.Directors’ and Officers’ Liability
Legal liability to pay compensation arising out of libel or slander. Public Liability or Professional
Indemnity
Legal expenses of the company in defending or mounting an action.
Commercial Legal Expenses
Statutory inspection 
Inspection of machinery, plant and equipment where periodic inspection is required by legislation or is
advisable as good risk-management practice.
Engineering Inspection
 Other considerations 
Death, injury and disablement benefits for key and/or all directors/employers following accident.
Group Personal Accident Cover
Theft by employees (staff honesty).
 Fidelity Guarantee
 
Personal accident, medical and emergency expenses and travel assistance for employees travelling abroad.
Business Travel

 
Other Topics

 

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Next: Study report, conclusions and recommendations 

 

 

What's New

UK CHP Development Map

UK CHP Development Map

UK CHP Development Map

UK CHP Development Map Screenshot

The UK CHP Development Tool is the latest version of the map, originally developed as a tool aimed at assisting power station developers consider the opportunities for supplying heat and development of combined heat and power (CHP) as required under planning policy. However, it can also be used by both small and large organisations to help identify the locations where the supply of CHP heat would have the greatest potential, and therefore the largest positive environmental impact.

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