Origin Energy Limited expects to be able to charge an average tariff price of $90 per Megawatt hour (MWh) for electricity generated by the wind farm.
Project profits will be subject to corporate taxation at Origin Energy Limited’s statutory corporate tax rate of 30%.
The wind farm is assumed to operate 24 hours a day, 365 days a year (ignoring leap years).
The project is expected to be funded using equity financing. Origin Energy Limited has a beta coefficient of 1.55, compared to its industry beta coefficient of 1.32.
The 10-year Government bond rate is expected to average 1.50% per annum in real terms and the S&P/ASX 200 index is expected to provide a future average real return of 5.50%
The inflation rate is estimated to average 1.75% per annum in the future.
All monetary figures are expressed in January 1st 2020 (same as December 31st 2019) real dollars.
All information is as at January 1st 2020 (December 31st 2019) and assume that the project
evaluation is being undertaken as at this date, which is when Origin Energy Limited developed the initial project proposal.
For terminology purposes, 1,000 watts equal 1 Kilowatt (kWh) and 1,000 Kilowatts equal 1 Megawatt (MW). A 3MW wind turbine operating at full generation capacity will produce 3 Megawatt hours (MWh) of electricity per hour.
Origin Energy Limited has hired your consulting firm to conduct the financial modelling and capital budgeting assessment of the potential wind farm project, as well as to act as its adviser in dealing with the Victorian State Government in negotiating the project approval process.
This case study requires the completion of the following tasks as part of an integrated report to be submitted to the Board of Origin Energy Limited:
The development of a spreadsheet model representing the cash flows associated with the wind farm project, and the assessment of the project using a range of capital budgeting evaluating techniques.
The completion and provision of qualitative and quantitative risk assessments of the project, with the quantitative risk assessment based on conducting appropriate sensitivity and scenario analyses of the project valuation focusing on key parameters impacting on the project’s operation, feasibility and cash flows.
Based on the project modelling and associated risk assessment processes conducted, provision of a justified recommendation as to the feasibility of the project.
The preparation of a business case proposal directed to the Victorian State Government providing justification for why approval for the wind farm project should be provided, including addressing any ethical issues or other considerations raised by the development of the project.
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