Part 10: economic Appraisal - UNIDO

Technical Guidelines for the Development of Small Hydropower PlantsDesign

Part 10: economic Appraisal

sHP/Tg 002-10: 2019

D I S C L A I M E R

This document has been produced without formal United Nations editing. The designations and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. Designations such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgement about the stage reached by a particular country or area in the development process. Mention of company names or commercial products does not constitute an endorsement by UNIDO. Although great care has been taken to maintain the accuracy of information herein, neither UNIDO nor its Member States assume any responsibility for consequences which may arise from the use of the material. This document may be freely quoted or reprinted but acknowledgement is requested.

© 2019 UNIDO / INSHP- All rights reserved

Technical Guidelines for the Development of Small Hydropower PlantsDesign

Part 10: economic Appraisal

sHP/Tg 002-10:2019

ACKNOWLEDGEMENTS

The technical guidelines (TGs) are the result of a collaborative effort between the United Nations Industrial Development

Organization (UNIDO) and the International Network on Small Hydro Power (INSHP). About 80 international experts and 40

international agencies were involved in the document’s preparation and peer review, and they provided concrete comments

and suggestions to make the TGs professional and applicable.

UNIDO and the INSHP highly appreciate the contributions provided during the development of these guidelines and in

particular those delivered by the following international organizations:

- The Common Market for Eastern and Southern Africa(COMESA)

- The Global Network of Regional Sustainable Energy Centres (GN-SEC), particularly the ECOWAS Centre for Renewable

Energy and Energy Efficiency (ECREEE), the East African Centre for Renewable Energy and Energy Efficiency (EACREEE),

the Pacific Centre for Renewable Energy and Energy Efficiency (PCREEE) and the Caribbean Centre for Renewable Energy

and Energy Efficiency (CCREEE).

The Chinese government has facilitated the finalization of these guidelines and was of great importance to its completion.

The development of these guidelines benefited greatly from the valuable inputs, review and constructive comments as well as

contributions received from Mr. Adnan Ahmed Shawky Atwa, Mr. Adoyi John Ochigbo, Mr. Arun Kumar, Mr. Atul Sarthak, Mr.

Bassey Edet Nkposong, Mr. Bernardo Calzadilla-Sarmiento, Ms. Chang Fangyuan, Mr. Chen Changjun, Ms. Chen Hongying , Mr.

Chen Xiaodong, Ms. Chen Yan, Ms. Chen Yueqing, Ms. Cheng Xialei, Ms. Chileshe Kapaya Matantilo, Ms. Chileshe Mpundu

Kapwepwe, Mr. Deogratias Kamweya, Mr. Dolwin Khan, Mr. Dong Guofeng, Mr. Ejaz Hussain Butt, Ms. Eva Kremere, Ms. Fang

Lin, Mr. Fu Liangliang, Mr. Garaio Donald Gafiye, Mr. Guei Guillaume Fulbert Kouhie, Mr. Guo Chenguang, Mr. Guo Hongyou,

Mr. Harold John Annegam, Ms. Hou ling, Mr. Hu Jianwei, Ms. Hu Xiaobo, Mr. Hu Yunchu, Mr. Huang Haiyang, Mr. Huang

Zhengmin, Ms. Januka Gyawali, Mr. Jiang Songkun, Mr. K. M. Dharesan Unnithan, Mr. Kipyego Cheluget, Mr. Kolade Esan, Mr.

Lamyser Castellanos Rigoberto, Mr. Li Zhiwu, Ms. Li Hui, Mr. Li Xiaoyong, Ms. Li Jingjing, Ms. Li Sa, Mr. Li Zhenggui, Ms. Liang

Hong, Mr. Liang Yong, Mr. Lin Xuxin, Mr. Liu Deyou, Mr. Liu Heng, Mr. Louis Philippe Jacques Tavernier, Ms. Lu Xiaoyan, Mr. Lv

Jianping, Mr. Manuel Mattiat, Mr. Martin Lugmayr, Mr. Mohamedain SeifElnasr, Mr. Mundia Simainga, Mr. Mukayi Musarurwa,

Mr. Olumide TaiwoAlade, Mr. Ou Chuanqi, Ms. Pan Meiting, Mr. Pan Weiping, Mr. Ralf Steffen Kaeser, Mr. Rudolf Hüpfl, Mr. Rui

Jun, Mr. Rao Dayi, Mr. Sandeep Kher, Mr. Sergio Armando Trelles Jasso, Mr. Sindiso Ngwenga, Mr. Sidney Kilmete, Ms. Sitraka

Zarasoa Rakotomahefa, Mr. Shang Zhihong, Mr. Shen Cunke, Mr. Shi Rongqing, Ms. Sanja Komadina, Mr. Tareqemtairah, Mr.

Tokihiko Fujimoto, Mr. Tovoniaina Ramanantsoa Andriampaniry, Mr. Tan Xiangqing, Mr. Tong Leyi, Mr. Wang Xinliang, Mr.

Wang Fuyun, Mr. Wang Baoluo, Mr. Wei Jianghui, Mr. Wu Cong, Ms. Xie Lihua, Mr. Xiong Jie, Ms. Xu Jie, Ms. Xu Xiaoyan, Mr. Xu

Wei, Mr. Yohane Mukabe, Mr. Yan Wenjiao, Mr. Yang Weijun, Ms. Yan Li, Mr. Yao Shenghong, Mr. Zeng Jingnian, Mr. Zhao

Guojun, Mr. Zhang Min, Mr. Zhang Liansheng, Mr. Zhang Zhenzhong, Mr. Zhang Xiaowen, Ms. Zhang Yingnan, Mr. Zheng Liang,

Mr. Mr. Zheng Yu, Mr. Zhou Shuhua, Ms. Zhu Mingjuan.

Further recommendations and suggestions for application for the update would be highly welcome.

TableofContents

Foreword Ⅱ……………………………………………………………………………………………………

Introduction Ⅲ………………………………………………………………………………………………

1 Scope 1……………………………………………………………………………………………………

2 Normativereferences 1…………………………………………………………………………………

3 Termsanddefinitions 1…………………………………………………………………………………

4 Generalprovisions 1………………………………………………………………………………………

5 Costcalculation 3…………………………………………………………………………………………

6 Benefitscalculation 5……………………………………………………………………………………

7 Economiccostbenefitevaluation 7……………………………………………………………………

8 Financialevaluation 8……………………………………………………………………………………

9 Uncertaintyanalysis 13……………………………………………………………………………………

10 Methodsofschemecomparison 14……………………………………………………………………

AppendixA(Normative) Economiccost-benefitevaluationform 15…………………………………

AppendixB(Normative) Financialevaluationform 16…………………………………………………

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SHP/TG002-10:2019

Foreword

TheUnitedNationsIndustrialDevelopmentOrganization(UNIDO)isaspecializedagencyundertheUnitedNationssystemtopromotegloballyinclusiveandsustainableindustrialdevelopment(ISID).TherelevanceofISIDasanintegratedapproachtoallthreepillarsofsustainabledevelopmentisrec-ognizedbythe2030AgendaforSustainableDevelopmentandtherelatedSustainableDevelopmentGoals (SDGs), which willframe United Nations and country efforts towards sustainabledevelopmentinthenextfifteenyears.UNIDO’smandateforISIDcoverstheneedtosupportthecre-ationofsustainableenergysystemsasenergyisessentialtoeconomicandsocialdevelopmentandtoimprovingqualityoflife.Internationalconcernanddebateoverenergyhavegrownincreasinglyoverthepasttwodecades,withtheissuesofpovertyalleviation,environmentalrisksandclimatechangenowtakingcentrestage.

INSHP(InternationalNetworkonSmallHydroPower)isaninternationalcoordinatingandpromotingorganizationfortheglobaldevelopmentofsmallhydropower(SHP),whichisestablishedontheba-sisofvoluntaryparticipationofregional,subregionalandnationalfocalpoints,relevantinstitutions,

utilitiesandcompanies,andhassocialbenefitasitsmajorobjective.INSHPaimsatthepromotionofglobalSHPdevelopmentthroughtriangletechnicalandeconomiccooperationamongdevelopingcountries,developedcountriesandinternationalorganizations,inordertosupplyruralareasinde-velopingcountrieswithenvironmentallysound,affordableandadequateenergy,whichwillleadtotheincreaseofemploymentopportunities,improvementofecologicalenvironments,povertyallevi-ation,improvementoflocallivingandculturalstandardsandeconomicdevelopment.

UNIDOandINSHPhavebeencooperatingontheWorldSmallHydropowerDevelopmentReportsinceyear2010.Fromthereports,SHPdemandanddevelopmentworldwidewerenotmatched.Oneofthedevelopmentbarriersinmostcountriesislackoftechnologies.UNIDO,incooperationwithINSHP,

throughglobalexpertcooperation,andbasedonsuccessfuldevelopmentexperiences,decidedtodeveloptheSHPTGstomeetdemandfromMemberStates.

TheseTGsweredraftedinaccordancewiththeeditorialrulesoftheISO/IECDirectives,Part2(seewww.iso.org/directives).

AttentionisdrawntothepossibilitythatsomeoftheelementsoftheseTGsmaybesubjecttopa-tentrights.UNIDOandINSHPshallnotbeheldresponsibleforidentifyinganysuchpatentrights.

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SHP/TG002-10:2019

Introduction

SmallHydropower(SHP)isincreasinglyrecognizedasanimportantrenewableenergysolutiontothechallengeofelectrifyingremoteruralareas.However,whilemostcountriesinEurope,NorthandSouthAmerica,andChinahavehighdegreesofinstalledcapacity,thepotentialofSHPinmanyde-velopingcountriesremainsuntappedandishinderedbyanumberoffactorsincludingthelackofgloballyagreedgoodpracticesorstandardsforSHPdevelopment.

TheseTechnicalGuidelinesfortheDevelopmentofSmallHydropowerPlants(TGs)willaddressthecurrentlimitationsoftheregulationsappliedtotechnicalguidelinesforSHPPlantsbyapplyingtheexpertiseandbestpracticesthatexistacrosstheglobe.Itisintendedforcountriestoutilizethesea-greeduponGuidelinestosupporttheircurrentpolicy,technologyandecosystems.Countriesthathavelimitedinstitutionalandtechnicalcapacities,willbeabletoenhancetheirknowledgebaseinde-velopingSHPplants,therebyattractingmoreinvestmentinSHPprojects,encouragingfavourablepoliciesandsubsequentlyassistingineconomicdevelopmentatanationallevel.TheseTGswillbevaluableforallcountries,butespeciallyallowforthesharingofexperienceandbestpracticesbe-tweencountriesthathavelimitedtechnicalknow-how.

TheTGscanbeusedastheprinciplesandbasisfortheplanning,design,constructionandmanage-mentofSHPplantsupto30MW.

● TheTermsandDefinitionsintheTGsspecifytheprofessionaltechnicaltermsanddefinitionscommonlyusedforSHPPlants.

● TheDesignGuidelinesprovideguidelinesforbasicrequirements,methodologyandprocedureintermsofsiteselection,hydrology,geology,projectlayout,configurations,energycalculations,

hydraulics,electromechanicalequipmentselection,construction,projectcostestimates,eco-nomicappraisal,financing,socialandenvironmentalassessments—withtheultimategoalofa-chievingthebestdesignsolutions.

● TheUnitsGuidelinesspecifythetechnicalrequirementsonSHPturbines,generators,hydrotur-binegoverningsystems,excitationsystems,mainvalvesaswellasmonitoring,control,pro-tectionandDCpowersupplysystems.

● TheConstructionGuidelinescanbeusedastheguidingtechnicaldocumentsfortheconstructionofSHPprojects.

● TheManagementGuidelinesprovidetechnicalguidanceforthemanagement,operationandmain-tenance,technicalrenovationandprojectacceptanceofSHPprojects.

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SHP/TG002-10:2019

TechnicalGuidelinesfortheDevelopmentofSmallHydropowerPlants-DesignPart10:EconomicAppraisal

1 Scope

ThispartoftheDesignGuidelinessetsforththeprinciples,contents,methodsandparametersoftheeconomicappraisalofsmallhydropower(SHP)projects.

Thisdocumentisapplicabletotheeconomicappraisalatthepre-feasibilitystudyandfeasibilitystudystagesofSHPprojects.

2 Normativereferences

Thefollowingdocumentsarereferredtointhetextinsuchawaythatsomeoralloftheircontentconstitutesrequirementsofthisdocument.Fordatedreferences,onlytheeditioncitedapplies.Forundatedreferences,thelatesteditionofthereferenceddocument(includinganyamendments)ap-plies.

SHP/TG001,Technicalguidelinesforthedevelopmentofsmallhydropowerplants—Termsanddef-initions.

3 Termsanddefinitions

Forthepurposesofthisdocument,thetermsanddefinitionsgiveninSHP/TG001apply.

4 Generalprovisions

4.1 Theeconomicappraisalshallbeconsistentwiththenationallawsandregulationsaswellastheprovisionsofthenationalsocial,economicandfinancialpolicies.

4.2 Theeconomicappraisalshallincludebotheconomiccostbenefitandfinancialevaluation.

a) Economiccostbenefitevaluation:Onthepremiseofrationalallocationofresourcesandintheoverallinterestsofthenationaleconomy,assessandcalculatetheeconomiccontributionoftheproject,analysetheeconomicefficiency,effectivenessandsocialinfluenceoftheproject,as

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wellastheeconomicrationalityoftheproject.

b) Financialevaluation:Basedontheprevailingnationalfiscalandtaxationsystemsandpriceindi-cesrelevanttotheproject,calculatethefinancialbenefitsandexpenseswithinscopeoftheproject,analysetheproject’sprofitabilityandliquidity,andevaluatethefinancialfeasibilityoftheproject.

4.3 Theconclusionsoftheeconomicappraisalfortheprojectshallmeetthefollowingconditions:

a) Ifboththeconclusionsoftheeconomiccostbenefitandfinancialevaluationarefeasible,theeconomicappraisalfortheprojectisfeasible.

b) Ifboththeconclusionsoftheeconomiccostbenefitandfinancialevaluationarenotfeasibleoronlythefinancialevaluationisfeasible,theeconomicappraisalfortheprojectisnotfeasible.

c) Iftheconclusionoftheeconomiccostbenefitevaluationisfeasiblewhiletheconclusionofthefinancialevaluationisnot,aproposalcontainingdetailsoffinancialpreferentialpoliciesmaybepresented,suchasadjustingthetariff,providinglow-interestloansortaxincentives,soastomeettheconditionsoffinancialfeasibility.

4.4 Theeconomicappraisalshallaccordwiththeprinciplethatthecostandbenefitcalculationsem-ploythesameparameters.Thetimevalueofcapitalshallbemainlyevaluatedwithdynamicanalysis,

andsupplementedwithstaticanalysis.

4.5 Thecalculationperiodofeconomicappraisalfortheprojectshallincludetheconstructionperiodandtheoperationperiod.

a) Constructionperiod:Reasonablydetermined withreferencetothereasonableconstructionperiodoftheprojectortheconstructionscheduleoftheproject,fromthebeginningoftheconstructiontothenormaloperationofthemainproject.

b)

c) Thebenchmarkforthecalculationofthetimevalueofcapitalshallbefixedatthebeginningofthefirstyearoftheconstructionperiod,andtheinputsandoutputsshallbecalculatedattheendoftheyear,exceptfortheloaninterest.

4.6 Themainparametersfortheeconomicappraisal(socialdiscountrateandbenchmarkyield)shallbetheparametersbeingusedbyrelevantdepartmentsofthestatecurrently.

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50 years (lower values for micro scale and higher values for small scale).endoftheoperationperiod. For economic calculation, the operating period may be generally 20 to Operationperiod:Fromtheformationofthedesignproductioncapacityoftheprojecttothe

5 Costcalculation

5.1 Thecostfortheprojectshallincludetheconstructioninvestment,cost,taxes,etc.

5.2 Theinvestmentcalculationintheeconomicappraisalfortheconstructionprojectshallmeetthefollowingrequirements:

a) Theconstructioninvestmentusedintheeconomiccostbenefitevaluationshallbeadjustedbydeductingtheinternaltransfertaxes,loaninterestsandvarioussubsidiesonthebasisoftheprojectdesignevaluationinvestment.Insomecases,subsidiesareavailableunderdifferentcon-ditionsafterthestartoftheproject;inthatcasetheymaybetakenintoaccountfortariffcalcu-lation.

b) Theinvestmentusedinthefinancialevaluationshallbethesumofthestaticinvestmentandthereservefunds,includingthebasicreservefundsandthereservefundforpricedifference.

5.3 Thetotalcostofpowergenerationshallbethetotalcostofthehydropowerstationinthenor-maloperationyearafterreachingitsdesignedproductioncapacity,itincludes:

a) Annualoperatingexpensescanbecalculatedas1.5to2percentoftheoriginalvalueofthefixedassetsoftheconstructionproject,oritem-by-item,accordingtotheactualsituation.Thesub-itemsincludemaintenanceandrepaircosts,wagesandwelfareexpenses,materialcostsandin-surancepremium,waterrate(includingwaterresourcesfees),reservoirfundsandotherex-penses.Whentheconstructionprojectincludestheinvestmentofpowersupply,theannualop-eratingcostofthepowersupply(thecostofthepowersupplyminusthedepreciationfee)shallbeaddedtotheoveralloperatingcost.

b) Depreciationexpensesrefertothecompensationforthewearandlossvalueoffixedassetsoftheconstructionprojectduringtheoperatingprocess.

c) Amortizationexpensesrefertotheexpensesincurredasaresultoftheamortizationofintangi-bleassetsanddeferredassets.

d) Interestexpensesincludeinterestonfixedassetinvestmentsandinterestexpensesoncurrentcapital.

5.4 Thecalculationofannualoperatingexpensesshallcomplywiththefollowingconditions:

a) Calculationmethodforannualoperatingexpensesoftheprojectinthefinancialevaluation:

1) Theexpensesshallbedeterminedbycomparingandanalysingstatisticaldatafromsimilarcompletedprojects,butthenumberofemployeesandwagesshallbedeterminedaccording

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tothefixedpersonnelandfixedstaffingstandard,andtheimpactofotherindividualfixedexpensesonpricechangesshallbeincluded.

2) Theexpensesshallbecalculateditem-by-item,accordingtothecompositionoftheannualoperatingexpensesoftheproject.

b) Theannualoperatingcostforthepowersupplymaybecalculatedbytheannualunitoperatingcostofthepowersupplyintheyear,multipliedbythegeneratedunitsofelectricityfromtheproject.

c) Theannualoperatingexpensesintheeconomiccostbenefitevaluationarebasedonthoseinthefinancialevaluation,withadjustmentsbasedontheratioofinvestmentineconomicandenvi-ronmentalbenefitstotheinvestmentinthefinancialevaluation.

5.5 Taxesandadditionalinsurancepremiumshallbeincludedinthefinancialevaluationaccordingtoprevailingpoliciesandconditions;theyshallnotbeincludedintheeconomiccostbenefitevaluation.

5.6 Thedepreciationexpensesoftheprojectshallbecalculatedbasedonthedepreciationrateofthesub-itemsaccordingtotherelevantnationalregulations.

5.7 Foraprojectinvolvingmulti-purposecomprehensiveutilizationanddevelopment,thefollowingcostdistributionprinciplesshallbefollowed:

a) ForaprojectwithSHPdevelopmentasthemainpurpose,supplementedbycomprehensiveutili-zation,andwheretherearefewadditionalcostsandbenefitsincurredfromwaterconservationfacilities,acostdistributionmaynotbenecessary,andallcostsmaybeaccountedforwithintheSHPprojectitself.

b) Ifwater-resourcedevelopmentisthepriorityandSHPdevelopmentisthesecondary,theSHPprojectshallsharetheinvestmentincommonfacilitiesinproportiontothebenefits.

c) IfSHPdevelopmentandwater-resourcedevelopmentbothhaveconsiderableimportance,thecostshallbesharedinproportiontotherespectivebenefits.

5.8 Theinvestmentofaconstructionprojectinvolvingmulti-purpose,comprehensiveutilizationanddevelopmentmaybedividedasfollows:

a) Investmentinsharedfacilities(suchasdams,spillwayfacilities,andreservoirinundationrelo-cation)foreachbeneficiarysectorisasharedinvestment.

b) Investmentintendedtocompensatetheadverseimpactsoftheproject(suchasenvironmentalprotection,shiplocks,fishladders,andraftsluices).4

SHP/TG002-10:2019

c) Forinvestmentinaprojectthatreplacessomesharedfacilities(suchasthewater-retainingpowerhouseofariverbedpowerstation,whichmaybeareplacementforadam),althoughitbenefitsacertainsectoronly,thepartthatisusedtoreplacesharedfacilitiesshallbeconsideredasharedinvestment,andtheremainderisadedicatedinvestment.

d) Thespecialfacilityinvestmentrequiredbyeachbeneficiaryshallbeconsideredasadedicatedin-vestment.

5.9 Sharedinvestmentsmaybedistributedinthefollowingways:

a) Inproportiontophysicalquantityindicators(suchasstoragecapacity)usedbyeachbeneficiarysector.

b) Inproportiontothebenefitsobtainedbyeachbeneficiarysector.

c) Inproportiontotheinvestmentintheequivalentoptimalalternativeoptionofeachbeneficiarysector.

d) Anyotherreasonablemethod.

5.10 Theinvestmentsharebornebyeachbeneficiarysectorshallbethesumofthesharedinvest-mentandthededicatedinvestment.Thetotalcostmaybecheckedforrationalityfromtheaspectsbelow.However,iftheresultisfoundunacceptable,appropriateadjustmentsmaybemadeuntilitbecomesacceptable.

a) Theinvestmentsharebornebyanybeneficiaryshallnotbegreaterthantheinvestmentinane-quivalentoptimalalternativeproject.

b) Theinvestmentsharebornebyanybeneficiaryshallnotbelessthanitsdedicatedinvestment.

c) Theinvestmentsharebornebyanybeneficiaryshalldeliverreasonableeconomiceffects.

5.11 Thedistributionofoperatingexpensesanddepreciationexpensesmayfollowtheprinciplein5.7andthemethodsin5.9.Thesharebornebyeachbeneficiarysectormayalsobecalculatedwithauniformannualoperatingrateanddepreciationrate,onthebasisoftherespectivedistributedin-vestments.

6 Benefitscalculation

6.1 Thebenefitsoftheprojectshallincludeeconomic,socialandenvironmentalbenefits.

a) Economicbenefits,includingpowergenerationbenefit,comprehensiveutilizationbenefitand5

SHP/TG002-10:2019

Powerstationtype Effectivepowercoefficient

Annualormulti-yearregulatedgrid-connectedpowerstation 0.95~1.00

Quarterlyregulatedgrid-connectedpowerstation 0.90~0.95

Monthly,weeklyanddailyregulatedorunregulatedgrid-connectedpowerstation 0.85~0.90

Dailyregulatedandunregulatedpowerstationoperatingindependently 0.70~0.85

6.5 Thecomprehensiveoperatingrevenueoftheprojectshallbeanalysedandcalculatedontheprinciplethattheinputandoutputusethesameparameters.6

Table1 Effectivepowercoefficientsfordifferenttypesofpowerstations

…………………………(2 )Effectivepowergeneration=Designgeneratingcapacity×Effectivepowercoefficient

usingtheFormula(2),andtheeffectivepowercoefficientmaybeselectedfrom Table1.6.4 Ifthesimplifiedcalculation methodisallowed,effectivepowergeneration maybeestimated

costbenefitevaluationshallbetheaverageon-gridtarifforthecomprehensivetariff.estimatedtariffthatsatisfiestheconditionsforloanrepayment.Thecalculatedtariffforeconomic 6.3 Thecalculatedtariffforfinancialevaluationshallbebasedontheprevailingmarketpriceorthe

inggridlossduringtheconstructionperiod.inthemostrecentyear,withdueconsiderationtofactorssuchasimprovingmanagementandreduc-

Power grid lossrate:Determinedaccordingtotheactualcomprehensivegridlossrateofthegrid

minedwithreferencetothestatisticalanalysisofsimilarprojects;Powerconsumptionrate:Determinedaccordingtothespecificconditionsoftheprojectordeter-

ages;systemloadforecasting,systempowerbalance,andfactoringinequipmentoverhaulandforcedout- Effectivepowergeneration:Calculatedgeneratingcapacitythatcanbeusedbythesystemthrough

where

(1-Powe grid lossrate)×Calculatedtariff ……………………(1 )Powergenerationrevenue=Effectivepowergeneration× (1-Powerconsumptionrate)×

6.2 ThepowergenerationbenefitoftheprojectshallbecalculatedaccordingtotheFormula(1):

quantifiedshallbedescribedqualitatively.b) Socialand environmental benefits shall be quantified, while the benefits that cannot be

multipleoperationalbenefits,shallbequantifiedandreferredtoasrevenue.

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7 Economiccostbenefitevaluation

7.1 Theeconomiccostbenefitevaluationfortheprojectshallbebasedonindicatorssuchaseco-nomicinternalrateofreturn(EIRR),economicnetpresentvalue(ENPV)andeconomicbenefit-to-costratio(RBC).

7.2 Thebasicstatementfortheeconomiccostbenefitevaluationisthecost-benefitflowstatementoftheprojectinvestment(TableA.1),inwhicheconomicinvestmentbenefitflowandcostflowareusedtocalculateEIRR,ENPVandRBC.

7.3 Thecalculationofvariousbenefitsandexpendituresintheeconomiccostbenefitevaluationshallbebasedonthecomputedfinancialevaluationandadjustedaccordingtothedifferencefromthecurrentprice.Fortheinvestmentpart,thetotalinvestmentshallbeadjustedfirst,andthenthein-vestmentfordifferentyearsshallbeadjustedwiththesamefactorasthetotalinvestment.Duringthedesignstage,separateadjustmentsmaybemadeaccordingtotheactualsituation.Theannualoperatingcostsmayalsobeadjustedaccordingly.

7.4 Thecalculationofpowergenerationrevenueintheeconomiccostbenefitevaluationshallfollowtheprincipleof“pricingbyquality”,anddifferenttariffshallbecalculatedfordifferentperi-odsandtimeperiods.

7.5 EIRRisthediscountrateatwhichthepresentvalueoftheeconomicnetbenefitflowiscumula-tivelyequaltozeroduringthecalculationperiod.ItiscalculatedusingtheFormula(3).

∑n

t=1B-C( ) t 1+EIRR( ) -t =0 …………………………(3)

where

B istheinflowofeconomicbenefits,inthecurrencyunit;

C istheoutflowofeconomiccost,inthecurrencyunit;

n isthecalculationperiod;

t istheserialnumberofeachyearinthecalculationperiod,andtheserialnumberofthebase-yeartakenas1;

(B-C)t istheeconomicbenefitflowofthet-year,inthecurrencyunit.

Intheeconomiccostbenefitevaluation,whentheEIRRisgreaterthanorequaltothesocialdiscountrate(iS),itisconsideredthattheeconomiccostbenefitevaluationisfeasible.

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Thesocialdiscountrate(iS)ofanSHPprojectisdeterminedaccordingtotheactuallevelofdevel-opmentofthecountry,andisgenerallytakenas6%.

7.6 ENPVisthesumofthenetbenefitflowsofallyearsinthecalculationperiodconvertedtothepresentvalueatthebeginningoftheconstructionperiodatthesocialdiscountrate,andcalculatedusingtheFormula(4).Thecalculatednetpresentvalueshallbegreaterthanorequaltozero.

ENPV=∑n

t=1B-C( ) t 1+iS( ) -t ……………………(4)

where

iS isthesocialdiscountrate.

7.7 RBCistheratioofthepresentvalueoftheprojectbenefittothepresentvalueofthecostandiscalculatedusingtheFormula(5).

RBC=∑n

t=1Bt 1+iS( ) -t

∑n

t=1Ct 1+iS( ) -t

……………………(5)

where

RBC isthebenefit-to-costratio;

Bt isthebenefitofthet-year;

Ct isthecostofthet-year.

Theeconomicrationalityoftheprojectshallbedeterminedaccordingtothebenefit-to-costratio.Theprojectiseconomicallyjustifiedwhenthebenefit-to-costratioisgreaterthanorequalto1.0.

8 Financialevaluation

8.1 Thefinancialevaluationoftheprojectshallbecarriedoutonthebasisofprojectfinancialbene-fitandcostestimate,andshallcomplywiththefollowingconditions:

a) Financialevaluationshallpreparefinancialstatements,calculatefinancialindicators,analysetheprofitability,solvencyandfinancialfeasibilityoftheproject,anddeterminethefinancialviabilityoftheprojecttoprovideabasisforprojectinvestmentdecision-making.8

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b) Financialevaluationmaybedividedintopre-financingevaluationandpost-financingevaluation.Thepre-financingevaluationshallbecarriedoutfirst.Ifthepre-financingevaluationconclusionmeetstherequirements,afinancingplanshallbedevelopedinitially,andthepost-financialeval-uationshallfollow.

c) Thepre-financingevaluationshallinvolvethecalculationofdynamicindicatorssuchastheIRRandtheNPVoftheinvestment,aswellasindicatorsforthestatic-investmentpaybackperiodinordertoreflectthetimerequiredtorecovertheprojectinvestment.

d) TheprofitabilityanalysisafterfinancingshallincludethefinancialIRRandfinancialNPVoftheprojectinvestment,thefinancialIRRoftheprojectcapital,theinvestmentrecoveryperiod,thetotalinvestmentrateofreturnandthenetprofitrateoftheprojectcapital.

e) Thesolvencyanalysisshallbedonebycalculatingindicatorssuchasinterestcoverageratio,

debtservicecoverageratioandasset-liabilityratio.

f) Inadditiontocalculatingandevaluatingtheindicatorsabove,technicalandeconomicindicatorssuchasunitkilowattinvestment,unitenergyinvestmentandunitenergycostshallbecalculat-ed.

8.2 Thebasicstatementsusedinthefinancialevaluationshallincludethefinancialcashflowstate-ment,theprofitandlossstatement,thestatementofsourcesandapplicationoffunds,thestate-mentofloanrepaymentandthebalancesheet;theseshallcomplywiththefollowingconditions:

a) Financialcashflowstatementreflectstheannualcashreceiptsandpaymentsfortheprojectdur-ingtheconstructionandoperationperiodandisusedtocalculatedynamicandstaticappraisalin-dicatorsforprojectprofitanalysis.Specifically,itmaybedividedintothetotalinvestmentfi-nancialcashflowstatement(TableB.1)andthecapitalfinancialcashflowstatement(TableB.2).

b) Profitandlossstatement(TableB.3)isusedtocalculatetheannualcostandprofit,theincometaxandtheafter-taxprofitdistributionoftheconstructionprojectduringthecalculationperiod,

aswellastheinvestmentprofitrate,theinvestmentprofit-taxrateandthecapital-profitrate.

c) Sourceandapplicationoffunds(TableB.4)isusedtocalculatetheannualsurplusorshortageoffundsduringtheconstructionandoperationperiodaccordingtothefinancialconditionsoftheprojectinordertoselectafinancingplananddevelopaloanrepaymentplan.

d) Statementofloanrepayment(TableB.5)isaspecificloanrepaymentscheduledependingontherepaymentfundingsources.

e) Balancesheet(TableB.6)reflectstheincreaseordecreaseofassets,liabilitiesandowners’eq-uityoftheconstructionprojectattheendofeachyearduringthecalculationperiod,toexaminethestructureofassets,liabilitiesandownersequityoftheproject;itisusedtocalculateindica-

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torssuchasasset-liabilityratioandconductsolvencyanalysis.

8.3 Theprojectprofitabilityanalysisshallincludethefollowingkeyindicators:

a) FinancialInternalRateofReturn(FIRR)referstothediscountrateatwhichthepresentvalueofnetcashflowiscumulativelyequaltozeroduringthecalculationperiod,expressedusingtheFormula(6).Inthefinancialevaluation,whentheFIRRisgreaterthanorequaltotheSHPbenchmarkfinancialrateofreturn(if),itisconsideredthatthefinancialevaluationforthecon-structionprojectisfeasible.TheFIRRforinvestmentintheSHPprojectandtheFIRRforprojectcapitalarebothbasedontheFormula(6),butthecashinflowandthecashoutflowarediffer-ent.Thebenchmarkfinancialrateofreturn(if)oftheSHPprojectisdeterminedaccordingtotheactualdevelopmentlevelofthecountry;itisgenerallytakenas8%andshouldnotlessthantheinterestrateforbankloans.

∑n

t=1CI-CO( ) t 1+FIRR( ) -t =0 ……………………(6)

where

CI isthecashinflow,inthecurrencyunit;

CO isthecashoutflow,inthecurrencyunit;

n isthecalculationperiod;

t istheserialnumberofeachyearofthecalculationperiod;theserialnumberofthebase-yearis1;

(CI-CO)tisthenetcashflowforthet-year,inthecurrencyunit.

b) FinancialNetPresentValue(FNPV)isthesumofnetcashflowsduringthecalculationperiodoftheprojectatthediscountrateset(whichmaybethebenchmarkfinancialrateofreturnif).ItiscalculatedusingtheFormula(7).Undernormalcircumstances,thefinancialprofitabilityeval-uationonlyincludesacalculationoftheFNPVoftheprojectinvestment,andthecalculationofNPVbeforeorafterincometaxasrequired.TheprojectisconsideredfinanciallyfeasibleiftheFNPV,calculatedatthediscountrateset,isgreaterthanorequaltozero.

FNPV=∑n

t=1CI-CO( ) t 1+if( ) -t ……………………(7)

where

if isthediscountrateset(whichmaybethebenchmarkfinancialrateofreturn).01

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c) Projectinvestmentpaybackperiod(Pt)isaperiodoftimerequiredtorecovertheprojectin-vestmentfromnetincome,measuredinyears.TheprojectinvestmentpaybackperiodstartsfromthebeginningyearoftheprojectconstructionandiscalculatedusingtheFormula(8).Itmayalsobecalculatedbymeansoftheprojectinvestmentcashflowstatementinwhichthetimepointwhentheaccumulatednetcashflowchangesfromnegativevaluetozeroisthein-vestmentpaybackperiod.Inthiscase,itiscalculatedusingtheFormula(9).Ashortpaybackperiodindicatesfastinvestmentrecoveryandstronganti-riskpotentialfortheproject.

∑Pt

t=1CI-CO( ) t=0 …………………………(8)

where

Pt istheinvestmentpaybackperiod,inyears.

Pt=T-1+∑T-1

i=1CI-CO( ) i

CI-CO( ) T………………(9)

where

T isthenumberofyearswhentheaccumulatednetcashflowofallyearsispositiveorzeroforthefirsttime,inyears.

d) ReturnonInvestment(ROI)indicatesthereturnortheprofitabilityofthetotalinvestment,

whichistheratiooftheannualearningsbeforeinterestandtax(EBIT)inanormalyearaftertheprojectreachesthedesigncapacityortheannualaverageEBITduringtheoperationperiodtothetotalinvestment(TI).ItiscalculatedaccordingtotheFormula(10).

ROI=EBITTI ×100% ……………………(10)

where

EBIT istheannualearningsbeforeinterestandtaxesinanormalyearorannualaverageearn-ingsbeforeinterestandtaxesduringtheoperationperiodoftheproject,inthecurrencyunit;

TI isthetotalinvestmentoftheproject,inthecurrencyunit.

e) ReturnonEquity(ROE)indicatestheprofitleveloftheprojectcapital,whichistheratiooftheannualnetprofitinanormalyearaftertheprojectreachesthedesigncapacityortheannualav-eragenetprofit(NP)duringtheoperationperiodtotheeconomiccapital(EC).Theratioiscal-

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culatedaccordingtotheFormula(11).WhentheROEoftheeconomiccapitalishigherthanthereferenceROEinthesameindustry,itindicatesthattheprofitabilityexpressedbytheROEoftheeconomiccapitalmeetstherequirements.

ROE=NPEC ×100% ……………………(11)

where

NP istheannualnetprofitinanormalyearorannualaveragenetprofitduringtheoperationperiodoftheproject,inthecurrencyunit;

EC istheeconomiccapitaloftheproject,inthecurrencyunit.

8.4 Theprojectsolvencyanalysisshallincludethefollowingkeyindicators:

a) InterestCoverageRatio(ICR)istheratioofEBITforeachyearintheloanrepaymentperiodtothepayableinterest(PI)forthatyear.ItiscalculatedusingtheFormula(12).AhighICRindi-catesahighguaranteelevelofinterestpayment.TheICRshallbegreaterthan1anddeterminedinconjunctionwiththecreditor’srequest.

ICR=EBITPI

……………………(12)

where

EBIT istheearningsbeforeinterestandtaxes,inthecurrencyunit;

PI isthepayableinterestchargedtocost,inthecurrencyunit.

b) DebtServiceCoverageRatio(DSCR)istheratioofthefundsusedtorepaytheprincipalandin-terestofallyearsintheloanrepaymentperiod(EBITDA-TAX)totheamountoftheprincipalandinterestpayable(PC)forthatyear.ItiscalculatedusingtheFormula(13).Iftheprojectin-volvesarenovationcostduringtheoperationperiod,itshallbedeductedfromthefundavaila-bleforrepaymentofprincipalandinterest.TheDSCRshallbegreaterthan1anddeterminedinconjunctionwiththecreditor’srequest.

DSCR=EBITDA-TAX

PC…………………………(13)

where

EBITDA istheearningsbeforeinterestandtaxesplusdepreciationandamortization;21

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TAX istheIncometax,inthecurrencyunit;

PC istheamountoftheprincipalandinterestpayable,includingtheprincipalamountandallinterestincludedinthetotalcost.Theshort-termloanprincipalandinterestduringtheoperationperiodshallalsobeincludedinthecalculation.

c) LiabilityonAssetRatio(LOAR)istheratiooftotalliabilitiestototalassetsattheendofeachperiod.ItiscalculatedusingtheFormula(14).

LOAR=TLTA ×100% …………………………(14)

where

TL isthetotalliabilitiesattheendofperiod,inthecurrencyunit;

TA isthetotalassetsattheendofperiod,inthecurrencyunit.

9 Uncertaintyanalysis

9.1 Theeconomicappraisaloftheprojectshallmakeanuncertaintyanalysis,includingsensitivityanalysisandbreak-evenanalysis.

9.2 SensitivityanalysisofSHPprojectsonlyanalysestheimpactofsinglefactor(investment,re-turn,constructionperiod,etc.)changesonIRR.Sensitivefactorsvarybetween±(10%~20%).

9.3 Break-evenanalysisshallanalysethebalancebetweenprojectcostandincomebycalculatingthebreak-evenpointinaproductionyear,andjudgetheadaptabilityandrisk-resistanceabilityofprojecttoincomechanges.Thebreak-evenanalysisisusedforfinancialanalysisonly.Thebreak-evenpoint(BEP)shallbecalculatedbyusingtheFormulas(15)to(17)orthebreak-evenchart.

BEPProductioncapacityrate =Annualfixedcost

(Annualoperatingincome-Annualvariablecost-Annualsalestaxandsurcharge)×100%

……(15)

BEPProduction =Annualtotalfixedcost

(Unitproductprice-Unitproductvariablecost-Unitproductsalestaxandsurcharge)×100%

……(16)

BEPProductsellingprice=Annualtotalfixedcost

Designproductioncapacity+Unitproductvariablecost+Unitproductsalestaxandsurcharge

æ

èç ×100%

……(17)

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SHP/TG002-10:2019

10 Methodsofschemecomparison

10.1 Variousschemesshallbescreenedout,andtheselectedonesshallbeeconomicallyevaluatedfordecision-making.Thecomparisonofschemesmaybedonethrougheconomiccostbenefitevalua-tion.

10.2 Theschemecomparisonshallguaranteethecomparabilityofalltheschemes.Inthecompari-son,thetotalinputsandoutputsofeachschememaybecomprehensivelycompared;orrelativedifferencesmaybecalculated,basedonthedifferentfactorsthatinfluencethechoiceoftheschemeforlocalcomparison.

10.3 TheschemecomparisonshouldemploytheNPVcomparisonmethodortheIRRondifferentialinvestmentcomparisonmethod,andshallmeetthefollowingrequirements:

a) NPVcomparisonmethodistocomparetheNPVofthealternativeoptions,andselectthecandi-dateprojectwiththelargestNPV.ThesamediscountrateshallbeusedinNPVcomparison.

b) DifferentialinvestmentIRRcomparisonmethodistocalculatethedifferentialinvestmentIRRofthealternativeoptions,thatis,thediscountrateatwhichthesumofthepresentvalueofthenetcashflowdifferencesbetweenanytwoproposalsisequaltozero.ItiscalculatedusingtheFormula(18).IfthedifferentialinvestmentIRR(ΔIRR)isgreaterthanorequaltothesocialdis-countrate(iS),theproposalwithalargerinvestmentshallbeselected;otherwise,theonewithasmallerinvestmentshallbeselected.

∑n

t=1B-C( ) 2- B-C( ) 1[ ] t 1+ΔIRR( ) -t =0 ………………(18)

where

(B-C)1 istheannualnetbenefitflowoftheproposalwithasmallerinvestment,inthecur-rencyunit;

(B-C)2 istheannualnetbenefitflowoftheproposalwithalargerinvestment,inthecurren-cyunit;

ΔIRR isthedifferentialinvestmentinternalrateofreturn.

10.4 Thecomparisonofproposalsshallnotonlyinvolvecalculationofeconomicappraisalindica-tors,butalsoinvolvequantitativeandqualitativeanalysisofsocialandenvironmentalbenefits.

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AppendixA(Normative)

Economiccost-benefitevaluationform

TableA.1 Economiccost-benefitflowstatementforprojectinvestment Unit:*

No. ItemConstructionperiod Operationperiod

1 2 n-1 nTotal

1 Benefitflow

1.1 Directbenefit

1.2Residualvalueofrecycledfixedassets

1.3 Recycledcurrentcapital

1.4 Indirectbenefitofproject

2 Costflow

2.1 Fixedassetinvestment

2.2 Currentcapital

2.3 Annualoperatingcost

2.4 Renovationcost

2.5 Indirectexpensesofproject

3 Netbenefitflow

4 Cumulativenetbenefitflow

NOTE1 Evaluationindicators:EconomicinternalrateofreturnEIRR(%)

EconomicnetpresentvalueENPV(is= %)

Economicbenefit-to-costratioRBC(is= %)

NOTE2 “*”indicatesthecurrencyunit

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AppendixB(Normative)

Financialevaluationform

TableB.1 Totalinvestmentfinancialcashflowstatement Unit:*


1 2 n-1 nTotal

1 Cashinflow

1.1 Operatingincome


1.3 Recycledworkingcapital

1.4 Subsidyincome

2 Cashoutflow

2.1 Fixedassetinvestment

2.2 Currentcapital


2.4 Salestaxandsurcharge

2.5 Renovationinvestment

3 Netcashflowbeforeincometax

4Netcashflowbeforeaccruedincometax

5 Adjustedincometax

6 Netcashflowafterincometax

7Netcashflowafteraccruedincometax

NOTE1 Calculatedindicators:Beforeincometax,AfterincometaxTotalfinancialinternalrateofreturnFIRR(%)

TotalfinancialnetpresentvalueFNPV(if=%)

Totalinvestmentpaybackperiod(years)


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TableB.2 Capitalfinancialcashflowstatement Unit:*


1 2 n-1 nTotal

1 Cashinflow

1.1 Operatingincome

1.2 Residualvalueofrecycledfixedassets

1.3 Recycledcurrentcapital

1.4 Subsidyincome

2 Cashoutflow

2.1 Projectcapital

2.2 Loanprincipalrepayment

2.3 Loaninterestpayment


2.5 Salestaxandsurcharge

2.6 Incometax

2.7 Renovationinvestment

3 Netcashflow

NOTE1 Calculatedindicator:capitalfinancialinternalrateofreturn(%)


TableB.3 Profitandlossstatement(cost-profitstatement) Unit:*

No. ItemOperationperiod

n-1 nTotal

1 Salesrevenue

1.1 Including:powergenerationrevenue

2 Salestaxandsurcharge

3 Totalcost

3.1 Including:operatingcost

4 Totalprofit

5 Incometax

6 Netprofit

7 Surplusaccumulationfund

8 Profitavailablefordistribution

9 Profitdistribution

10 Undistributedprofit

NOTE “*”indicatesthecurrencyunit

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TableB.4 Sourceandapplicationoffunds Unit:*


1 2 n-1 nTotal

1 Fundsource

1.1 Salesprofit

1.2 Depreciationexpense

1.3 Amortizationexpense

1.4 Fundforfixed-assetinvestment

1.4.1 Self-funding

1.4.2 Superiorgrant

1.4.3 Bankloan


2 Fundapplication

2.1 Investmentinfixedassets

2.2Loan interest during construction

period

2.3 Incometax

2.4 Payableprofit

2.5Withdrawal of public accumulationfund

2.6 Loanprincipalrepayment

3 Surplusfund

4 Accumulatedsurplusfund


TableB.5 Statementofloanrepayment Unit:*


1 2 n-1 nTotal

1 Loanrepayment

1.1Outstanding balance ofborrowing atthebeginningoftheyear

1.1.1 Principal

1.1.2 Interest

1.2 Borrowingintheyear

1.3 Accruedinterestintheyear

1.4Principal and interest repayment intheyear

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TableB.5.7(continued) Unit:*


1 2 n-1 nTotal

1.4.1 Including:principalrepayment

1.4.2 Interestpayment

2 Sourceofrepaymentfund

2.1 Undistributedprofit

2.2 Depreciationexpense

2.3 Amortizationexpense

2.4 Interestexpensechargedtocost

2.5 Otherfunds


TableB.6 Balancesheet Unit:*


1 2 n-1 nTotal

1 Assets

1.1 Totalcurrentassets

1.1.1 Currentassets

1.1.2 Accumulatedsurplusfund

1.2 Constructioninprogress

1.3 Netvalueoffixedassets

2 Liabilitiesandowners’equity

2.1 Totalcurrentliabilities

2.2 Constructioninvestmentloan

2.3 Currentfundloan

2.4 Subtotalofliabilities

2.5 Owners,equity

2.5.1 Capitalfund

2.5.2 Capitalreserve

2.5.3Accumulated surplus accumulationfund

2.5.4 Accumulatedundistributedprofit

Liabilityonassetratio(%)


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Part 10: economic Appraisal - UNIDO

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