www.enex.is Application of decision theory to the procurement of a geothermal power plant April 2nd 2008 Viktor Þórisson
Dec 27, 2015
www.enex.is
Application of decision theory to the procurement of a geothermal power plantApril 2nd 2008Viktor Þórisson
www.enex.is
Presentation Overview
1. Company overview & background
2. What is geothermal energy?
3. Definition of the project
4. Application of @risk and precision tree in this project
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Company Overview
Export of Icelandic Geothermal Know-how
Development of geothermal potential for
electrical generation and
direct use.
Reliance on
comprehensive know-how and
operational experience.
Founded in 1969 by the main geothermal consultancies
in Iceland to export the Icelandic geothermal consulting.
What we do
Feasibility Studies & Business Plans
Project Management
Engineering
Construction & Commissioning
Operation
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What is geothermal energy?
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What is geothermal?
The thermal energy stored within the earth's crust is collectively called geothermal energy.
Faults and fractures develop where the earth crust is unstable or is moving, most commonly in areas of active volcanism.
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What is geothermal?
In areas of active volcanism, the upper crust is frequently intruded by hot magmatic intrusions.
These intrusions move heat from the inner parts of the earth towards the outer crust. They are the prime force that usually drives geothermal systems.
In some parts of the world hot rock formations within the crust contain water, which is the ideal medium for carrying this energy up to the earth's surface in a useful form.
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Simplified geothermal power plant cycle
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Waste water bathing
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Main factors affecting the profitability
• Temperature of reservoir (or enthalpy)• Flow from well (or production index)• Depth of well • Chemical conditions of the brine
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Definition of the project
Decision tree to answer the question:
In a geothermal project.
When to procure the critical components with the longest lead time for a power plant, after last drilling, before first drilling or somewhere in between?
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The project chart if components are ordered after drilling
ID Task Name
1 ENEX POWER PLANT MILESTONES
9 CONCEPT AND BASIC DESIGN
11 ENGINEERING & DESIGN
115 PROCUREMENT
142 MANUFACTURING & SHIPPING
143 PP001 Gen Set
144 PP002 Cooling tower
145 PP003 Pumps(without fire fighting)
146 PP004 Heat Exchanger ORC
147 PP005 Heat Exchanger District Heating
148 PP006 Pipes & Fittings (brine, isobutane & cooling system)
149 PP007 Valves (brine, isobutane & cooling system)
150 PP008 Pipes & fittings District Heating
151 PP009 Valves District Heating
152 PP010 Isobutane & Storage Vessel
153 PP011 Air Compressor System
154 PP012 Nitrogen Generation System
155 PP013 Nitrogen Extraction System
156 PP014 Lifting System (crane, monorail & hoist)
157 PP015 Fire Protection System
158 PP016 Transformer (high voltage)
159 PP021 Sensors & Transmitter
160 CONSTRUCTION
185 INSTALATION MECHANICAL/EQUIPMENT
205 INSTALATION ELECTRICAL
219 COMISSIONING
75 weeks
23 weeks
10 months
20 weeks ????
20 weeks???
5 weeks???
5 weeks???
10 weeks?
10 weeks?
6 weeks?
6 weeks?
6 weeks?
19 weeks (El Salvador)
5 weeks???
32 weeks (El salvador)
5 weeks?
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N2008 2009 2010
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Main trade offs in the model are
Benefit: Trade-off:
•Shorter time until plant is operational.
•More information available when components are ordered and thus optimizing the efficiency of the plant
•The risk of higher investment cost than necessary due to over dimensioning of the turbine.
•Potential higher costs if project results in no go after drilling and thus order cancellation fees of components are incurred.
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Overview of the treeOverview of the tree
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Probabilities, methodology (1-cummulative distribution)
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Fitted distributions
Normal(160,289; 18,687)
0,0
0,2
0,4
0,6
0,8
1,0
120
130
140
150
160
170
180
190
200
< >5,0% 5,0%90,0%129,55 191,03
Normal(1,21184; 0,66555)
0,0
0,2
0,4
0,6
0,8
1,0
0,0
0,5
1,0
1,5
2,0
2,5
< >100,0%-Infinity +Infinity
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Definition of failure
Insurance line
132
134
136
138
140
142
144
146
148
0 0,2 0,4 0,6 0,8 1 1,2
Production Index [l/sek/m]
Tem
per
atu
re [
°C]
Insurance line
1,21,2
-0,2 0,15 0,5 0,85 1,2
89,26% 10,74% ,5 1,2
Mean=0,1074
Test value = 1 if result will give less than10% IRR eq
0
2
4
6
8
10
12
14
16
18
20
Mean=0,1074
-0,2 0,15 0,5 0,85 1,2
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Probability of failure first drilling
• Probability of failure due to reasons other than geological is defined as 5%.
• Probability of success first drilling is therefore:
89,26% * 95% = 84,9%
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Probability of success second drilling
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Given success first drilling
BetaGeneral(3,6130; 1,2859; 109,492; 177,157)
Temperature
0,0
0,2
0,4
0,6
0,8
1,011
0
120
130
140
150
160
170
180
< 5,0% 90,0%135,81 175,12
Uniform(0,13379; 2,4238)
PI
0,0
0,2
0,4
0,6
0,8
1,0
0,0
0,5
1,0
1,5
2,0
2,5
90,0%0,248 2,309
BetaGeneral(3,6130; 1,2859;109,492; 177,157)
Valu
es
x 10^-
2
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
100
110
120
130
140
150
160
170
180
5,0% 90,0%135,81 175,12
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Results from simulation, probability of failure of the project, given success/given failure first drilling.
-Inf inity-Inf inity-Inf inity-Inf inity
-0,2 0,15 0,5 0,85 1,2
82,72% 17,28% ,48
Mean=0,1728 Mean=0,1728
Distribution for test value given failure/J6
0
2
4
6
8
10
12
14
16
18
Mean=0,1728
-0,2 0,15 0,5 0,85 1,2
-Inf inity-Inf inity-Inf inity-Inf inity
-0,2 0,15 0,5 0,85 1,2
94,22% 5,78% ,5
Mean=0,0578 Mean=0,0578
Distribution for test value condicional givensuccess
02468
101214161820
Mean=0,0578
-0,2 0,15 0,5 0,85 1,2
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Potential plant size
-10 0 10 20 30
5% 90% 5% 5,683 18,5546
Mean=12,37707
Probabillity of possible peak plant size
MW
0,000
0,020
0,040
0,060
0,080
0,100
0,120
Mean=12,37707
-10 0 10 20 30
Distribution for peak plant cut of belove insurance functionX <=7,3610.74%
X <=-2,5.032%
0
0,02
0,04
0,06
0,08
0,1
0,12
-5 0 5 10 15 20 25 30
Mean plant size 13,8 MW given success first drilling. Example of
Possible values:
T PI
165 1,5
160 2,1
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The newsboy problem
CO * PO = CU * PU
+Infinity+Infinity
-10 -0,625 8,75 18,125 27,5
70,54% 29,46% 14,5
Mean=12,37707
Probabillity of possible peak plant from two wells
MW
0,000
0,020
0,040
0,060
0,080
0,100
0,120
Mean=12,37707
-10 -0,625 8,75 18,125 27,5
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Sensitivity of production to flow
Sensitivity
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
-40% -30% -20% -10% 0% 10% 20% 30% 40%
flow to turbine
po
wer
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Other costs
• Cost of over sizing (CO)
500.000 EUR/MW unnecessary investment cost.
• Cost of under sizing (CU)
Expected cancellation fee of turbine.Cost of lost production
0
500
1000
1500
2000
2500
3000
3500
4000
4500
8 8,5 9 9,5 10 10,5 11 11,5 12 12,5
MW
Co
st p
er M
W l
ost
pro
du
ctio
n
tho
use
nd
s o
f E
uro
s
Cost of lostproduction
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The optimal path
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Sensitivity of costs
Spider graph of NPV
9000
9500
10000
10500
11000
11500
12000
12500
13000
13500
0% 200% 400% 600% 800% 1000%% change from base value
NP
V
1. Expected lostrevenues due toefficiency reduction
2. Expected value oflost productionexplained above
3. Expected value ofextra investment cost ifpre ordered
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Sensitivity of costs
Decisions, drilling vs. ordering turbine before first drilling
6000
7000
8000
9000
10000
11000
12000
13000
14000
0% 200% 400% 600% 800% 1000%
% Change from base value of expected extra investment cost if pre ordered
NP
V
1. Drill firstwell withoutorderingcomponents
2. Ordergensetbefore firstdrilling
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2 way decision analyze of costs
2 way decision analys
0%
100%200%
300%400%
500%
600%700%
800%900%
1000%
0% 200% 400% 600% 800% 1000%
% change from base value of lost efficiency
% c
han
ge
fro
m b
ase
valu
e o
f ex
pec
ted
ext
ra i
nve
stm
ent
cost
1. Drill first wellwithout orderingcomponents"
2. Order gensetbefore first drilling"
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Sensitivity of probabilities
Sensitivity of probabillities
-10000
-5000
0
5000
10000
15000
20000
-60% -50% -40% -30% -20% -10% 0% 10% 20%
% change of probabillities from base value
NP
V
P(success|success)
P(success|failure)
P(success)
P(nongeologicalsuccess)
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2 way decision analyze of probabilities
2 way decision analys
0%
10%
20%
30%
40%
50%
60%
70%
0% 10% 20% 30% 40% 50% 60% 70%
% Decrease from base value P(success)
% C
han
ge
fro
m b
ase
valu
e o
f P
(no
ng
eolo
gic
al s
ucc
ess)
1. Drill first wellwithout orderingcomponents
2. Order gensetbefore first drilling
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Thank you