Repair, Replace, or Defer? Making Better Assessments and Capital Decisions on Aging Small Hydro Assets

Download Andrew Treble and Romain Lastere's presentation
Summary: An aging hydro asset will inevitably face a requirement for a major capital expenditure decision on generating equipment and the plant itself. Most often this is a rehabilitation, replace, or defer decision. At the same time, civil repairs may also be required.

This objective of this workshop is to explain to participants how to establish the process, identify the options, and conduct the appropriate and rigorous technical and financial analysis to reach conclusions of a sufficient quality to make an appropriate capital decision.

The faculty will discuss and answer the following with examples from previous assessments and projects in the U.S. and Canada:
1. Getting Started: Laying Out the Process - What steps do you take and in what order so that the conclusions will withstand scrutiny, control risk, cost, and meet the objectives?
• Objective-setting - goals, requirements and alignment with management objectives
• What skill sets are required to achieve the objectives? In-house or procured?
• What other factors in addition to financial return should be examined and why?
• How to phase the process to control cost and risk
• Why conventional feasibility study approaches often fail to meet management expectations and how to avoid this
• Timing

2. Conducting The Analysis
• What is “cold analysis” and how do you avoid confirmation bias?
• What historic data is typically examined and why?
• How do you address civil costs?
• What pro forma data is used?
• How do I determine what options are available for a site? Renewal, replacement, removal? How do I assess/screen these options from a revenue, cost, and risk perspective, a regulatory perspective, and a capital allocation perspective?
• What should be in a financial model? How are sensitivities used? How can a comparative model be used? How do you deal with incentives? Why is the projection period so important? How can this help with biases?
• How do you deal with cost volatility? Civil versus equipment?
• What are the principles of risk allocation?
• What is an appropriate risk allocation between the Owner and Subcontractors?
• Why is the execution approach embedded into the analysis?

3. Conclusions and Decision
• Cost contingencies, include the execution model in this step
• Option ranking
• Option - Best-Ranked Selection, Secondary Selection

4. Execution
• Execution model to fit the project and align with the Owner’s resources, objectives and preferences
• Types of approach
• Comparatives on approaches

Andrew Treble

Faculty

CFO at Canadian Hydro

Romain Lastere

Faculty

President at EnerAxion