Problems with NPV Values for Parameterized PPA Escalation Rate for both PPA and IRR Solution Modes Regarding Power Tower Tech.

Hi there.

I am simulating 7 cases of power towers for my final dissertation for my MSc. I am finding hard to understand the following results:

When i simulate a 50MW power tower (molten salt) TES 18Hrs. SM3.5 (IPP) for both PPA solution mode (4% escalation rate) and IRR mode (constraint: require a positive cash flow, target IRR=0%) using a parametric simulation (analysis period 1-30, step 1 and PPA escalation 0 - 4% step 0.5%) i get strange results when i make a graph for NPV (X axis Escalation Rate 0-4% Series step 0.5 and Y axis NPV in Currency, values are in columns representing the 30year analysis for each series). With this graph i want to see how the NPV develops throughout the 30year analysis period for different PPA escalation rates scenarios in both solution modes.

For the PPA solution i believe that i get the correct results which are a gradual increase of the NPV i.e. in my graph Year 1 column value seems to be very correct. The result is the Year0 AfterTax NPV + Year1 AfterTax NPV. I did it manually and i got the same result. Dnominal is 8.74%. However i do not understand why i have some negative NPV (for some escalated PPAs) in the reported graph from SAM for the initial years (1 - 9 approx.) when my AfterTax in the reported cashflow is positive for 28 years (i.e. average over 100mil. $) I have a debt fraction of 30%, IBI Federal 30% and total cost approx. 435mil $.IS it because my Year0 AfterTax is so negative that the plant needs some years of operation to overcome this negative value?

For the IRR solution i get much different result. The calculated value for NPV for Year1 is -85,082,500$ but the Aftertax of Year0 is -216,960,208$ and Year1 is -66.4$. Why in IRR solution mode the Year0 NPV is not included in the calculation? As i understand the simulation is carried as if the Year0 Aftertax is not as negative as it should be but why?

As a consequence in the graph for IRR solution i get a rapid increase of the NPV, then a drop as the 5yr MACRS is active and after that period the NPV goes up.

For both simulations i have used the same values as the only thing changed in the solution mode. Comparing the reported IRRs in the metric table i get almost same results (in IRR solution mode i get a bit higher IRR, LCOE (R&N)and PPA) but that is normal since i used the constraint.

Can you please explain why i have this results?

Does the constraint affect the simulation in any other way than finding an IRR for positive cashflow?
As far as i understood setting the constraint will force SAM to search an IRR for always positive cashflow and as close to my target IRR. I have set it to 0% in order to get the minimum IRR for positive cashflow. Once i got the IRR for that purpose i test it again by setting the target a bit lower than my result and nothing has changed as SAM reported in the metric table the previous IRR of target IRR 0%. So i presume that my assumption is correct for actual minimum IRR for positive cashflow by setting the target IRR to 0%.

Please check the attached excel file. I really need an answer as i want to be as precise as possible. By the way i am using SAM 2013.1.15.

Thank you in advance.

Hello,

If I understand your description correctly, you are trying to use a parametric analysis on analysis period to calculate the NPV for each year in the analysis period (p). I don't think that is the correct approach because for each parametric simulation, SAM assumes a project life equal to the analysis period so that for p=1 the NPV is for a one-year project, p=2 is for a two-year project, etc. I think what you want is the NPV in years 1, 2, 3 ... 30 for a 30-year project. Because SAM's Independent Power Producer financial model does not calculate an annual NPV, I would recommend exporting the "After tax net equity cash flow" column to Excel and calculating the annual NPV values in the worksheet.

Another option would be to use the Single Owner financial model instead of the Independent Power Producer model. The single owner model calculates annual NPV and IRR values.

Best regards,
Paul.

Dear Paul,

That you for your reply and support.Yes you have understood perfectly, it is the wrong approach. I'll calculate each year in excel.

However even using my initial approach, P=1 in both graphs should have the same reported value since Year0 aftertax net equity cash flow value is the same for both solution modes.

Between PPA and IRR solution modes the only differences were PPA=0.38419 and PPA 0.38710 correspondingly. Therefore in my graphs, NPV for period=1 should have presented a slight difference but it didn't.
For example for 4% escalation rate and Period=1,Year1 revenue differences between the two solution modes are 1.1 mil.$ resulting in -669,000 $ for PPA solution mode and -66$ for IRR solution mode in afterTax equity column.
However the reported NPV is -217,576,000$ for the PPA solution mode and -85,082,500$ for the IRR solution mode.

Please note that 217,576,000 - 669,000= Year0 AfterTax Equity Cashflow.
However the same calc. formula for IRR solution mode does not result in Year0 AfterTax Equity Cashflow. I believe that there must be a calculation error here.

Both simulations used the same parametric analysis for analysis period=30, step=1 starting from 1 and PPA Escalation Rate= 0% to 4%,step 0.5%

What's the problem here? How come i am getting much different results?

Thank you in advance.

There are a number of factors that could be contributing to the difference. Would you mind either attaching your file to your original post above (Click Edit, and then scroll to the bottom to see the attachment options), or emailing the file to me at sam dot support at nrel dot gov?

Best regards,
Paul.