MHP-Financial Feasibility Analysis Tool
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Structure and Content
The first part of the tool (first two spreadsheets) requires the manual input of key data in approximately 70 cells. This input includes basic data on costs (initial investment and maintenance / replacement costs), tariff structures, number of connections and key financial aspects. The second part (remaining 8 spreadsheets) of the tool uses automatic Excel processes to present the calculation of costs, revenues, cash flows and financing over the life-span of the project. Moreover, a general overview and a sensitivity analysis provide a variety of indicators on the project’s feasibility. The tool may easily be adapted to other forms of energy production as well as particular fiscal features of other jurisdictions.
The tool has been developed to accommodate the needs of three target groups: ADER (Rural Electrification Agency of Madagascar), operators of mostly insular rural electrification schemes and local banks. ADER has already implemented the tool to
(a) compare several offers on one and the same project and
(b) compare offers on different projects.
The distinct sheet “financing” within the tool allows ADER to assess the impact of different amounts of subsidies and sources of financing for a given project so that the need for and efficiency of subsidies can be checked. Operators use the tool to assess the financial feasibility of their projects and to present their project proposals to ADER, other donors / investors and banks. The tool enables the operators to run different project scenarios, e.g. different cost estimates and financing conditions, and thereby to get a better understanding of the strengths and weaknesses of their projects. In addition, the proposals based on the tool incorporate financial indicators required by local banks to decide on credit approvals. Local banks benefit from more professional project proposals on the basis of the tool presented by the operators. They are willing to providing loans to the sector but due to the low quality of credit applications so far only a few applications have been approved.
It is important to note that the challenge in assembling this tool has been to create a simple but yet profound analytical tool which at the same token allows knowledge transfer and sustainability. Thus, the tool is designed to analyze a project’s economic feasibility in a simplified and semi-automatic manner, yet it does not substitute a detailed feasibility study on the basis of in-depth demand studies and detailed engineering.