Risk Based Business Planning
Renewable Risk Based Business Plan
- Client
- Altran SpA & K Energy
- Country
- Italy
- Year
- 2012
- Industry
- Renewables
- Service
- Risk Management
High CAPEX and exploration risks make geothermal projects hard to finance. To support the financing of a 2 billion euro geothermal power plant, kwantis built a risk based business plan with a probabilistic NPV and IRR.
The challenge
Geothermal energy can be cost competitive with fossil fuel alternatives. Yet over the last thirty years it has been deployed more slowly than other renewables, mainly because of the high CAPEX (capital expenditure) and the risks of exploration and development, which limit the possibility of financing.
The goal here was to support the financing of a 2 billion euro geothermal power plant.
Our approach
kwantis built a risk based business plan: a business plan that includes all the project uncertainties, highlights the main critical points and tailors mitigation actions to increase the probability of project success.
- Risk assessment: the work started with a complete risk assessment, to give a high-level understanding of the project risks and to prioritize them.
- Probabilistic profitability: all the identified risks were then included in the cash flow model, and the plant’s profitability was evaluated through a Monte Carlo simulation, with NPV (Net Present Value) and IRR (Internal Rate of Return) both calculated on a probabilistic basis.
The outcome
The risk assessment made management, team members and stakeholders more alert to the top risks, so that they could be monitored effectively.
The probabilistic NPV and IRR showed the probability of reaching a predefined level of profitability, giving a level of confidence on the cash flow estimate.
