Training Module CLEAN ENERGY PROJECT ANALYSIS WITH RETSCREEN SOFTWARE
SPEAKERS NOTES CLEAN ENERGY PROJECT ANALYSIS COURSE
This document provides a transcription of the oral presentation (Voice & Slides) for this training
module and it can be used as speaker's notes. The training material is available free-of-charge at the
RETScreen International Clean Energy Decision Support Centre Website: www.retscreen.net.
SLIDE 1: Clean Energy Project Analysis with
RETScreen Software
This presentation outlines the RETScreen 5-step
process for investigating the feasibility of a potential
clean energy project.
Slide 1
SLIDE 2: Objectives
This presentation has three objectives: first, to illustrate
the role of preliminary feasibility studies in clean energy
projects; second, to demonstrate how the RETScreen
software works; and third, to show how RETScreen
makes it easier to help identify & assess potential Slide 2
projects.
SLIDE 3: Energy Project
Implementation Process
Energy projects typically proceed through a series of
stages. The process starts with a prefeasibility study,
which determines, quickly and approximately, whether a
project may be technically feasible and financially Slide 3
attractive: in short, whether it merits further attention. If it
does, then a feasibility analysis, involving a more careful
study and more effort spent on estimates of costs and
benefits, is done. If the project still makes sense, the
design and engineering is executed, and, for larger
projects, financing is sought and permits procured.
Finally, the project is constructed and put into operation.
RETScreen International
SLIDE 3: Energy Project
Implementation Process (cont.)
In the mid-1990s, it was observed that while there were tools available to assist in the
engineering stages of clean energy projects, little attention was being paid to involving
clean energy technologies early in the process. Unfortunately, if the possibility of applying
a clean energy technology is not considered at the earliest stages of the project, it is
unlikely that it will be possible to add it in later on.
RETScreen International is focused on overcoming this barrier and building a foundation
for sustainable development.
SLIDE 4: Questions
During the early stages of a project, there are two conflicting objectives: first, to estimate
the project costs and benefits sufficiently accurately such that a decision can be made as
to whether it should be pursued, and, second, to minimize the expenditure of time and
money so as to avoid losses if the project turns out to be unviable.
Slide 4
SLIDE 5: The Accuracy vs. Investment Cost Dilemma
This dilemma was illustrated by a retrospective study of built hydropower projects
conducted for the World Bank. Initially, estimates of final costs were fairly inaccurate, but
also fairly inexpensive. As the project progressed, accuracy improved, but only with the
investment of further resources. Prefeasibility studies for these major projects predicted
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final costs to within 40 or 50%; only when engineering was approaching completion and
tenders being solicited did estimates attain accuracy within 10%.
SLIDE 6: When should clean energy technologies be assessed?
What situations bode well for a clean energy project? In short, any time there is a need
for a system that generates heat, power, or cooling, efficiency measures and renewable
energy systems should be considered. If the system will be in a building, it will be easiest
to incorporate the clean energy technology at the time that the building is being built or
Slide 6
during a major renovation. The project will be most attractive when conventional energy
costs are high. Since clean energy technologies may encounter resistance due to
peoples unfamiliarity with them, the project stakeholders should demonstrate keen
interest and strong commitment; furthermore, it should be verified early on the process of
procuring permits and approvals will not be too onerous. Clean energy technologies tend
to have high initial costs, so funding and financing must be available. And, for renewable
energy systems, the availability of a good energy resource should trigger a prefeasibility
assessment.
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Clean Energy Project Analysis with RETScreen Software Training Module
SLIDE 7: Project Viability (Wind Example) Depends on Several Factors
The viability of a project is influenced by numerous factors that must enter the
prefeasibility and feasibility studies. Obviously, a renewable energy project will be
influenced by the abundance of the available energy resource, for example, the wind
speed in the case of a wind power project. But energy efficiency measures as well as RE Slide 7
technologies will be affected by the equipment performance (such as the wind turbine
power curve); the initial project costs; any base case credits stemming from
conventional system costs avoided through the use of the clean energy technology, on-
going and periodic project costs, and further factors, considered on the following slide.
SLIDE 8: Project Viability (Wind Example) Depends on Several Factors cont.
Project viability depends on factors beyond those on the previous slide. One of the most
important is the avoided cost of energy, that is, the per unit value of energy produced by
the project or energy consumption avoided by the project. For example, for a wind project
developer, the avoided cost of energy would be the price at which the turbine output can
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be sold. For a biomass heating system, it would be the price of conventional heating fuel,
such as natural gas. The characteristics of the available financing, such as the ratio of
debt to equity, the time period over which debt will be repaid, and the interest rate are
also critical to financial viability. Taxes on equipment and income or savings need to be
considered. The environmental attributes of the conventional energy being displaced can
also have an influence: a project will generate more green benefits if it displaces, for
example, dirty coal generation than if it reduces natural gas consumption. If some of
these green benefits can earn revenue for the project proponent, through higher
greenpower rates for power sales, greenhouse gas credits, or subsidies, these must be
included in the analysis. All these considerations must be distilled into an assessment
that permits the project proponent to determine whether the project is financially
attractive. And since different decision-makers have different definitions of cost-
effectiveness there is no universal right answer; for some a certain payback period must
be respected, for others the internal rate of return must exceed a particular hurdle. A third
party may wish to express project viability as an energy production cost. Clearly,
assessing project viability involves many considerations.
SLIDE 9: Why use RETScreen?
RETScreen directly addresses the accuracy versus investment cost dilemma. It assists
the user, at the very earliest stages of the project to quickly and simply assess whether
the potential for a clean energy project is sufficiently promising to merit further
investigation or even engineering and development work. It takes into consideration all
Slide 9
the factors discussed on the previous two slides and performs a life-cycle cost analysis,
thus ensuring a just comparison between clean energy technologies and their
conventional competitors. By streamlining the process, it encourages the widespread
consideration of clean energy technologies, leading to a larger number of successful
projects.
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SLIDE 10: RETScreen Validation - Examples
Another strength of RETScreen compared with ad hoc or custom analyses is the
assurance that the underlying model is accurate and properly implemented. This has
been achieved through extensive validation. For example, all models have been validated
by comparison with data from the equipment manufacturer, built projects, advanced
Slide 10
simulation tools, or all three.
SLIDE 11: RETScreen Software Demonstration
(Wind Energy Project Model Example)
A tour of the RETScreen software will give a good idea of some of its capabilities and
how it is used. This slide provides an overview of the five-step RETScreen approach.
First an energy model is used to determine the energy benefits of the project under
consideration, compared to a conventional alternative. Second, the additional costs of the
Slide 11
clean energy project are evaluated. Third, an optional greenhouse gas (GHG) analysis
calculates the emissions reductions associated with the project. Fourth, a financial
summary page indicates whether the project is financially attractive. And fifth, sensitivity
and risk analysis sheets reveal how changes in inputs affect the viability of the project.
SLIDE 12: Demonstration (continued): Integrated Resources
Here is the energy model page, with drop down menus selected to show the range of
RETScreen resources available. An Online User Manual, Product and Weather
Database, and Web-based materials, all available from within the software, are there to
assist the user.
Slide 12
SLIDE 13: Demonstration (continued): Cell Color Coding
RETScreen cells are conveniently color coded so that the user can immediately identify
where data must be entered and where results are presented.
Slide 13
SLIDE 14: Demonstration (continued): Online User Manual
The software includes an extensive Online Manual. Clicking on the help icon opens a
window that provides information on the currently selected cell.
Slide 14
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Clean Energy Project Analysis with RETScreen Software Training Module
SLIDE 15: Demonstration (continued): Product Database
RETScreen includes a vast Product Database that helps the user specify the operational
characteristics of the clean energy technology. Here a large-scale wind turbine is being
selected.
Slide 15
SLIDE 16: Demonstration (continued): Cost Analysis Worksheet
The user enters all relevant costs associated with the project in the cost sheet. When
costs are known only roughly, a prefeasibility version of the cost sheet, lumping costs
into major groupings, can be used. When the costs need to be treated on an item-by-item
basis, a feasibility version of the cost sheet provides a comprehensive list of costs that
Slide 16
may need to be considered. Costs are expressed in the currency specified by the user,
and RETScreen even permits the user to enter costs in two different currencies. This is
useful for international projects and projects where a significant proportion of the
equipment is imported. The user supplies a currency conversion factor that converts
costs in the second currency back to the primary currency. The cost sheet includes a
suggested range of values for most project costs.
SLIDE 17: Demonstration (continued): Weather Database
RETScreen includes an Online Weather Database with environmental conditions from
literally thousands of ground-based meteorological stations around the world. This is
used for determining both the available renewable energy resource and the climate in
which building projects will function. When the user has selected the most suitable
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meteorological station, the Paste Data button will automatically place the data in the
appropriate cells in the RETScreen Model.
SLIDE 18: Demonstration (continued): NASA Database
For those sites where there is no ground-based meteorological station, RETScreen has a
custom NASA database of satellite-derived information on surface meteorological
conditions, available through the Internet.
Slide 18
SLIDE 19: Demonstration (continued): NASA Database
In the NASA database, the user selects a location by clicking on a map of the planet or by
entering a longitude and latitude.
Slide 19
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SLIDE 20: Demonstration (continued): NASA Database
Clicking on a point on the globe causes the globe to be drawn with the selected point at
the center of the view. Here a site in southern Argentina has been selected.
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SLIDE 21: Demonstration (continued): NASA Database
The user can zoom in on the selected area to pinpoint the location of interest.
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SLIDE 22: Demonstration (continued): NASA Database
Once the site has been selected, the user specifies the type of meteorological information
that is desired.
Slide 22
SLIDE 23: Demonstration (continued): NASA Database
For a wind energy project, for example, the database provides monthly average wind
speeds, temperatures, and average atmospheric pressures. The user can enter this data
into RETScreen as-is, without unit conversions or other adjustments.
Slide 23
SLIDE 24: RETScreen Software
Financial Analysis Method
Fundamental to RETScreens approach is a comparison of a conventional technology
and a proposed clean energy technology. The absolute costs and benefits of the clean
energy technology are not necessarily considered; rather, the incremental costs and
benefits, compared to the conventional technology, are evaluated. For example, a solar
Slide 24
air heating system providing preheated ventilation air to a natural gas fired heater could
be compared to a base case of, for instance, the same building with conventional siding
and natural gas heating only.
SLIDE 25: Software Demo
20 MW Wind Energy Project
Over the course of the next 5 slides, we will see how RETScreen can be used to
investigate the role of various variables for one particular project. This is a proposed
20 MW wind farm located just outside Calgary, Alberta, Canada. The project is initially
very unattractive; we examine how these variables would need to change in order for this
Slide 25
project to be financially viable. You can download the complementary PDF file Software
Demo: Wind Energy Project (Scenarios 1 & 2) and input the data into the RETScreen
Wind Energy Project Model to follow along.
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Clean Energy Project Analysis with RETScreen Software Training Module
SLIDE 26: Software Demo
Scenario 1
Intially the project has an internal rate of return of 7.1% and a simple payback period of
42.7 years. The cashflow graph, integral to RETScreen, is negative throughout the life of
the project.
Slide 26
SLIDE 27: Software Demo
Wind Speed & GHG Emission Reduction
If the proposed project is moved to a site with a better wind regime - note that the wind
speed is now 7.0 m/s compared to 4.4 m/s before - the project improves markedly, and
the greenhouse gas emission reduction increases. One can thus see the influence of the
wind speed on the greenhouse gas emission reduction. The project is still not profitable,
Slide 27
however.
SLIDE 28: Software Demo
Wind Turbine Cost
On the other hand, if the turbines are available at $1,000/kW, the project is marginally
attractive. The user could enter this cost directly into the cost sheet, or utilize the
sensitivity analysis sheet to investigate the influence of the initial costs on the projects
profitability, as measured by the internal rate of return, net present value, or payback on
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equity. In this way, the user could determine the relative importance of the initial costs,
compared with other project variables.
SLIDE 29: Software Demo
RE Production Credit
If the wind project qualified for an Renewable Energy production credit of 2.5 cents per
kWh, the IRR would be nearly 20% a good return.
Slide 29
SLIDE 30: Software Demo
GHG Emissions Credit
If the GHG emissions credit increases to $5/ton, the project becomes slightly more
attractive. This shows how RETScreen can help the user to determine the impact of, for
example, selling credits to a utility or trading them on an exchange.
Slide 30
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SLIDE 31: Software Demo
Debt Term
If the debt term is increased to 15 years, the project becomes yet more attractive.
This example has shown how RETScreen can be used to investigate the influence of five
variables - the wind resource, the equipment costs, the renewable energy production
credit, the greenhouse gas emission reduction credit, and the debt term - on the financial Slide 31
viability and greenhouse gas emissions of a potential project. It could be similarly used to
examine the role of a host of other variables the user controls within RETScreen. It would
reveal which were the most important, and which combinations of values for these
variables would be required for an attractive project.
SLIDE 32: Questions?
This concludes the presentation of Clean Energy Project Analysis with RETScreen
software. This Introductory course continues in further modules, however; please proceed
to the presentation Greenhouse Gas Emission Analysis with RETScreen Software.
Slide 32
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