Outline:
You have recently started working for an independent Queensland senator who will be sitting on federal parliament's electricity generation review committee. As an independent, she has no direct allegiances with any political party.
The senator is highly aware of the considerable debate around whether coal fired power stations are economically viable and has requested that you analyse and report on the economicviability of a new ultra super critical (USC) coal fired power station to be built in Queensland. Specific details of the task are provided below.
Task:
You are to provide a detailed financial analysis of an USC coal fired power station under two scenarios used in the Finkel Review (2017). The scenarios are:
1. Business as Usual (BaU) The electricity market remains in a prolonged period of uncertainty due to limited government action on carbon pricing and abatement. The price of electricity is higher under this scenario.
2. Emission Intensity Scheme (EIS) Government to introduce an EIS where electricity generators thatemitmore than 600 kilograms of carbon per megawatt hour (MWh) of electricitymust purchase carbon permits while those thatemitless receive permits that they can sell. Permits will need to be purchased for the USC coal fired power station.The electricity price is lower under this scenario.
Detailed information on the life, capital outlay, revenues, expenses and related information is provided in the ‘USC Information.xlsx' file. The financial analysis is to be completed in Excel with the file being easily adjustable for different scenarios and all inputs being on the one sheet titled ‘Assumptions'.
The report is to be short (600 words + 20% tolerance) and written for a person with a basic understanding of financial analytical tools as the senator's background is not in finance. In addition, it has been specifically requested that report have the following sections:
Summary: Brief outline of task, methodology and findings.
Methodology: Explains and justifies the selected evaluation metric.
Results: Summarises the economic viability of each scenario. In addition, holding all other variables constant (ceteris paribus), you are to provide a breakeven analysis for each option based on the
1. price of electricity
2. capital cost per MWh (i.e. the capital outlay).
Limitations: Highlights the key limitations with the analysis and recommends additional analysis to alleviate these limitations where appropriate.
Finally, the electronic versions of the report and analysis will be tabled to the committee. As such, the senator expects them to be prepared in a professional manner, although she has specifically requested that the report does not have a Table of Contents.