EME 801 Fall 2022 Final Project Description
For the final project in EME 801, you are asked to work in groups of two or three to perform a financial evaluation for a real or hypothetical energy project chosen from the list of topics below. You will be expected to make some choices about the scope of your project, provide a pro forma financial analysis that reflects knowledge of project valuation techniques as well as the relevant energy commodity market for your project (e.g. the oil or petroleum product market if your project was a refinery), and to identify and analyze market, policy or regulatory factors that may affect project viability in the future. You will also be asked to peer-review one other student’s work.
In the past, some folks have asked if they can use a project topic from another course for this project assignment. My response to this is a rather firm "no" because it creates problems with the same work being used for multiple courses (which is a violation of Penn State's academic integrity policy). Your project topic should be something that interests you, and which you aren't working on already in another course context. If you are inspired to work on a specific topic because of your work or community experience, that is fine – but all analysis for this project must be original work created just for this class. You may not repurpose analysis from your place of work or other context. Additionally, no company proprietary data may be used for the project. All data and information that you use must come from public-domain sources that can be freely accessed by anyone. Some relevant resources will be placed in the Final Project folder on Canvas, but groups are also encouraged to find other relevant data sources.
Each group should choose one of the following three topic areas:
1) A 100 MW solar photovoltaic power plant located in the Arizona desert. The electricity from the solar plant would be sold to a utility in Arizona under a power purchase agreement. You have the option to add battery energy storage to the solar facility.
2) A natural gas power plant located in Pennsylvania. The power plant would sell its electricity into the deregulated PJM electricity market, and would be eligible to get energy market payments as well as capacity market payments. The plant would also be subject to carbon pricing under the Regional Greenhouse Gas Initiative. The plant would have the option to install carbon capture technology. If the plant installs carbon capture, it would avoid the carbon prices but would suffer a 30% "energy penalty" (meaning that electricity output with carbon capture would be 30% lower than without carbon capture).
3) A hydrogen fuel production facility. The facility could produce hydrogen via one of two processes: steam-methane reforming, which uses natural gas as a feedstock, or electrolysis, which would use solar energy to split water molecules. The facility would sell its hydrogen into a regional market that might include a mix of industrial facilities, refineries and power plants.
Project Timeline and Milestones
Unless otherwise specified, all project deliverables should be submitted to the Drop Boxes in the COURSE PROJECT module in Canvas. The project schedule is defined by the following milestones (which can also be found on the Canvas Calendar for EME 801):
- 11:59 pm (eastern time), November 9, 2022:
Submit a first draft spreadsheet pro forma P&L and cash flow statement. Also, submit a word processed document describing two sensitivity analyzes that you propose in order to assess the robustness of your project’s financial viability.
- 11:59 pm (eastern time), November 30, 2022:
Submit a first draft word-processed document containing the following elements:
- A written description of how you performed your pro forma analysis – including descriptions of data sources, assumptions made, and the determination of relevant financial variables such as the WACC;
- Quantitative analysis of your energy project, including net present value, internal rate of return, breakeven time, and unit technical cost analysis. You should include these analysis metrics both for the base case that you identified as well as your chosen sensitivity analyzes.
- Qualitative discussion of some relevant market, regulatory or policy factors that might affect the financial viability of your project, but that you did not or could not analyze quantitatively.
- 11:59 pm (eastern time), December 10, 2022:
Submit a spreadsheet document with your final pro forma statements, and a word processed document with your final project description and analysis.
- 11:59 pm (eastern time), December 14, 2022:
Each student will need to write a two-page review of another student’s work. Assignments for peer review will be handed out after the papers are submitted.
The project is worth 450 points (45%) of your semester grade and will be graded on the following point scheme:
- Pro forma statement: (100 points)
Pro forma statements will be evaluated on their numerical accuracy; inclusion of relevant revenue and expense streams (including depreciation and taxes); and the reasonableness of any assumptions made. Organization and clarity of the spreadsheet presentation will also be a factor in the pro forma statement score.
- Written presentation: (200 points)
The written report should be use 12 point Times New Roman font and be no more than 15 pages double-spaced with one-inch margins on all sides. Please pay attention to these formatting instructions, as the instructor will deduct points for failing to follow formatting instructions. Pages should be numbered. The report should contain the following sections:
- An executive summary of no more than one page. The executive summary should provide a succinct discussion of the project you chose; the most important results from your quantitative analysis; and a brief summary of qualitative factors that might affect the viability of your project in the future.
- A written description of how you conducted your pro forma analysis. Your goal here should be that someone with basic knowledge of the energy industries and financial practices could reproduce your pro forma statements based on your description.
- Quantitative analysis of the financial viability of your project under a base-case set of market assumptions, plus the results of two sensitivity and/or threshold analyzes where you investigate the impacts of alternative market assumptions on the project financial viability.
- Qualitative analysis of institutional, regulatory, or policy drivers that you have not quantified but which could materially affect project financial viability in the future.
- A one paragraph declaration of what each person contributed to the project. This does not need to be long, but should give me some idea of how the project effort was divided between pairs of students.
- Timely submission of draft and final materials according to the milestones: (100 points)
- Peer review: (50 points)
Each student will be asked to anonymously peer-review another student's project report. Your review should be thoughtful and draw on material that we have discussed in class over the course of the semester. More information on the peer-review process will be forthcoming.