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Using Monte Carlo Simulation to Evaluate GHP Project Opportunities

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Using Monte Carlo Simulation to Evaluate GHP Project Opportunities

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    1. Using Monte Carlo Simulation to Evaluate GHP Project Opportunities June 11, 2008

    2. Presentation objectives

    3. Lets consider two customers, with and without a GHP system, and evaluate how price risk affects them and their host utility

    4. We first develop a spreadsheet model to understand the economics of the GHP opportunity

    5. 20 Year cash flow projections are developed

    6. We can now see the cash flow and NPV implications for each of our same two customers under our assumed conditions

    7. A simple scenario matrix table gives some indication of sensitivity

    8. A Monte Carlo analysis would enable the all parties to better understand the risks as well as the sensitivities

    9. Lets examine the risk exposure to each party from two simplified variables

    10. Electricity cost to consumer can be looked at historically and described using statistical descriptors

    11. Utilitys cost to serve consumer can also be looked at historically and described using statistical descriptors

    12. Summary of what we are forecasting

    13. We will use the Monte Carlo analysis to tell us.

    14. Preview of what we are going to quantify

    15. Focusing on a specific quantified outcome such as the 20 year NPV, provides additional insight

    16. Focusing on a specific quantified outcome such as the 20 year NPV, provides additional insight

    17. Focusing on a specific quantified outcome such as the 20 year NPV, provides additional insight

    18. Focusing on a specific quantified outcome such as the 20 year NPV, provides additional insight

    19. Focusing on a specific quantified outcome such as the 20 year NPV, provides additional insight

    20. A distribution of power portfolio cost is more likely to be a log-normal than a normal shape due to the greater potential for costs to increase, while many costs cannot fall below a certain point

    21. Because of its flat variable costs (fuel), most renewables such as geothermal or solar, will dampen cost volatility and as a result reduce total portfolio risk

    22. Summary of what each party learns

    23. Questions

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