Table 6.
Project finance scenarios
| Finance variable | Scenario | |||
| Reference-case | First-plant | First-plant capital subsidy | Nth plant – no subsidy | |
| Beta | 2.37a | 2.37a | 1.32b | |
| Risk-free ratec | 4.39% | 4.39% | 4.39% | |
| Market-risk premiumd | 5% | 5% | 5% | |
| Debt ratio = d/(e+d) | 20%e | 20%e | 55%f | |
| Cost of debtg | 6% | 6% | 6% | |
| Discount rate/cost of capitalh | 6% | 14% | 14% | 7% |
| Investment life (years) | 15 | 15 | 15 | 15 |
| Salvage value at end of project (% initial investment) | 5% | 5% | 5% | |
| Investment grant (%) | 25% | |||
| Salvageable fraction of working capital at end of project (%) | 5% | 5% | 5% | |
| Build profile year: -2 | 20% | 20% | 20% | |
| Build profile year: -1 | 50% | 50% | 50% | |
| Build profile year: -0 | 100% | 30% | 30% | 30% |
| Tax rate on net income | 30% | 30% | 30% | |
| Insurance – % fixed capital | 1% | 1% | 1% | 1% |
| Maintenance – % fixed capital | 2% | 2% | 2% | 2% |
| Working capital – % fixed capital | 4% | 4% | 4% | 4% |
aUnlevered Beta, total for industry. Sector: petroleum producing. Source: http://www.damodaran.com
bUnlevered Beta. Sector: energy – alternate sources. Source: http://pages.stern.nyu.edu/~adamodar/pc/datasets/betaEurope.xls
cDetermined via the interest rate of government bonds of a length equivalent to the investment useful life. Here we use the annual average yield from British Government Securities, 10 year nominal par yield of 4.4% (value at 31.12.2005, available on the Bank of England website section on 'statistics').
dUK average. Source: http://pages.stern.nyu.edu/~adamodar/pc/datasets/ctryprem.xls
eEstimated % debt obtainable for first-plant (personal communication fromUK Carbon Trust Venture Capital team).
fEstimated % debt obtainable for a grain-to-ethanol plant [31].
gAverage cost of debt for petroleum producing sector 2005. Source Damodaran.com
hCalculated using the Capital Asset Pricing Model.