ENGY7004 - Energy Investment and Finance - Engineering Assignment Help

Assignment Task

LORD HOWE ISLAND 
Lord Howe Island is a pristine, world heritage-listed island about 500km off Port Macquarie in NSW in the  Tasman Sea. The island is about 15km long and up to 2km wide and encapsulates a sub-tropical lagoon with  marine life and corals that are unique in the world. Similarly, the hills and mountains of the island comprise  unique habitats including rainforest and white-sand beaches. The island’s sea-bird life is prolific and there  are virtually now no wild mammals following a recent successful rodent eradication program. The island is a remnant of a volcano that was active some 7 million years ago. It is a superb place to visit. 
Lord Howe Island has a permanent population of about 350, plus a seasonal visitor population up to 400 and  the main industry is tourism. The island has traditionally used 100% diesel generation to provide electricity,  but a new hybrid generation system will be completed in 2020. Details of this ARENA-funded hybrid electrical  supply system, which uses diesel generation together with solar PV plus storage, can be found by searching  online. 
While the new hybrid system will supply two thirds of the island’s electricity needs, for this assignment the Lord  Howe Island Board is seeking to investigate a more radical, 100% renewable energy future. To this end, the  Board is considering a further proposal for the ongoing provision of its energy without normally relying on any diesel fuel. This will again comprise a further solar photovoltaic (PV) array in combination with a larger lithium ion energy storage system. The Board has asked that not only a flat plate system be considered but has  requested a comparison of more efficient systems comprising both single- and twin-axis panel tracking of the  sun. 
The Lord Howe Island Board has ruled that these options need to be appropriately sized and positioned to  minimise environmental impact. The investment decision is being made in October 2020 to allow for  construction on the chosen option to commence in January 2021. 
The life of the project is expected to be 40 years (i.e. the project concludes 40 years after the project becomes operational). Your recommendation should be related to calculated net present value (NPV) and  internal rate of return (IRR) based on a real, after-tax Weighted Average Cost of Capital (WACC) of 5%. The  project will be 40% debt-financed through a loan from the NSW Government, with the remaining capital in  the form of equity being sought from various government agencies as grants. Savings on the diesel fuel  should be considered as an operating cost reduction for the project. 
The Board has suggested a purchase electricity price at a rate of 24 cents per kWh(real) in a long-term  power purchase agreement. You should investigate whether this is feasible financially and advise the Board  if your analysis shows this is not so.
Solar PV, wind turbines and battery prices are falling as the total amount of global energy generated by  these units rises. This ‘technology learning’ should be taken into account, along with refurbishment of the  plant at regular intervals through further capital investment, if necessary. 
The Board requires the NPV to be expressed in after-tax, real terms and it may be assumed that the Australian  Tax Office (ATO) will allow for the (straight line) depreciation of capital assets over a 10- year timeframe for  batteries and 20 years for PV solar systems. 
In your Financial Assessment, you should consider and/or assume the following: 
• Sizing and positioning the system appropriately; 
• The system capital cost including all voltage conversion systems and equipment transfers to the island; • The project will use the existing electricity transmission lines on the island; 
• Ongoing replacement costs associated with the system over its life; 
• Operational costs (including labour and maintenance); and 
• Provisions for rehabilitation and closure of the system (which lies on potential agricultural ground or  environmentally-sensitive world heritage areas and the area of which is defined by the size of the  system). 
A report on your financial assessment should include the following: 
• A cover letter addressed to the Lord Howe Island Board; 
• An executive summary (1 page); 
• A table of contents (1 page); 
• A brief introduction (1 page); 
• An outline of your methodology and approach to the financial assessment process (1 page); 
• A summary description of your capital and operating cost estimates, including a sensitivity analysis (3  pages). The parameters (and associated ranges of sensitivity) should strongly be supported by literature; 
• A brief discussion on the key risks of your chosen technology option, including environmental risks;  • A conclusion making a clear recommendation (1 page); and 
• A Microsoft Excel financial spreadsheet(s) to support your recommendations. 
The Financial Assessment should have a maximum length of 7 pages, not including the cover letter or the  table of contents. 
As per the rubric provided on Blackboard, this task will assess your ability to write a professional report, to  think critically about the financial analysis of major projects and to broaden your knowledge base to consider  business decisions. 
Your financial assessment should be robust, making assumptions for all major elements and justifying  decisions for your methodology and output. 
Clear presentation is important in the financial assessment. While the analysis may be perfect, if it is not  communicated well, it cannot be used to the full effect in decision making. Do not confuse the brevity of the  assessment with the amount of thought required. Spelling, punctuation, grammar and formatting errors will be  heavily penalised. It is recommended that you proofread your work thoroughly and ensure it is readable, logical,  free from errors and consistently formatted (e.g. dot point formatting is consistent). 
Details of the current System on Lord Howe Island 
There are 275 customers on LHI (comprising both households and tourism facilities). 
The existing (pre-2020) diesel generating system in the hills behind the village comprises 3 x 300kW Series  60 Detroit generators and a 1 x 425 Series 70 Detroit backup unit. These units would remain on the island as  a backup unit in the event of poor weather over an extended period. 
The diesel must be transported to Lord Howe Island by sea-barge every fortnight from Port Macquarie. 
The 2020 (now almost existing) solar system comprises a 1.2 MW solar PV array (flat plate) plus a 3.2 MWh  Li Ion battery storage. 
The $11.1 project cost was funded by ARENA with a grant of $4.5M and the NSW Government provided a loan of $5.9M to be paid back by diesel fuel savings.  
A wind turbine option was rejected by the Lord Howe Island Board on environmental grounds.

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