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Simple Investment Stream

Simple Investment Stream


The following disregards rate of time preference. Normally, with any investment there will be a minimum return in the future that will make an investor forgo using the money elsewhere now. The rate of time preference is important when calculating net present value, roughly defined as the value of an investment today relative to its alternate use elsewhere. The rate of time preference includes the value of this alternate use directly in the calculations of net present value (see Net present value) - i.e. a positive present value means the investment provides greater returns than the closest alternate use (e.g. interest from a savings account) and a negative present value means that the investment would be better off spent elsewhere.

The rate of time preference is included in a later section NPV. The below calculations assume that 100 DKK received in 10 years is equal to 100 DKK now.

The graph of the total investment stream below is based on an initial investment of 24 459 750 DKK in 2002, annual expenses ranging between 690 300 DKK to 600 000 DKK, and a price per kWh of 0.43 DKK/kWh for the initial 10 year period and 0.36 DKK/kWh for the remaining 10 year period. Annual production is 7 765 MWh.

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In 2002, there was no income as the mill was being constructed. The initial outlay represents the total construction costs. Each corresponding year shows the income from sale of electricity and the costs of operation and maintenance. Income drops slightly from the year 2013, reflecting the lower feed-in tariff available for electricity sales. Operation and maintenance costs are assumed constant over the period. Given a lifetime of 20 years, there are no costs or income after 2022.

However, in 2009 a gear box in another wind turbine had to be replaced. Since the cost was shared between eight wind turbines the cost was 1/8 of 1 million DKK. Additionally, energy production was found to average 8 100 MWh annually, significantly more than the 7 765 MWh initially assumed. The revised investment stream is given below:

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The differences between the two investment streams are not obvious from the graphs above. Taking the sum of the investment stream, i.e. the total investment flow for the given year, allows for a comparison of the projected and revised investment flows:

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This difference becomes clearer when taking the cumulative value of the investment streams, i.e. the reduction each year in the money owed for the initial investment:

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As can be seen in the graph above, the offshore wind turbine is expected to provide positive returns in the 9th year of operation for the revised scenario (2011) and in the 10th year of operation for the initial scenario (2012).

The total period in the revised scenario provides total gross profits equal to app. 27.2 million DKK, or 3 499 DKK per share (after repayment of the initial investment of 3 150 DKK per share). The original projected scenario would have provided gross profits of app. 24.6 million DKK, or 3 174 DKK per share.


Created by tanja.groth. Last Modification: Friday 02 July 2010 09:42:46 CEST by tanja.groth.