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Elaboration of bankable Business Model from Sourcing to Production (production, combustion, quality control) of the
fuel switch to biomass project in District heating in Kostojevići, Bajina Bašta - Value-for money analysis of the
project Development of a Sustainable Bioenergy Market in Serbia
Vladimir Dženopoljac, PhD Nenad Stanišić, PhD
Faculty of Economics
University of Kragujevac
prepared for:
Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
Dag-Hammerskjöld Weg 1-5
Postfach/ P.O.Box 5180 65760 Eschborn
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Contents
1 INTRODUCTION ................................................................................................................. 4
2 KOSTOJEVIĆI DISTRICT HEATING SYSTEM OVERVIEW ............................................... 6
2.1 General information ....................................................................................................... 6
2.2 District heating system - technical overview .................................................................. 8
2.3 District heating plant energy output ............................................................................... 9
2.4 Energy efficiency overview .......................................................................................... 10
2.5 Economic performance of district heating system ........................................................ 12
3 FUEL SWITCH ANALYSIS ................................................................................................ 14
3.1 Investment and operational costs overview ................................................................. 14
3.2 Woodchips demand and costs analysis ....................................................................... 16
3.3 Woodchips supply analysis ......................................................................................... 17
4 REVENUES AND EXPENSES PROJECTIONS ................................................................ 18
4.1 Heating energy sales plan ........................................................................................... 18
4.1.1 Thermal energy output projection ......................................................................... 18
4.1.2 Thermal energy consumer price and revenues projection .................................... 20
4.2 Heating energy production costs ................................................................................. 21
4.2.1 Investment and operational costs of district heating plant ..................................... 21
4.2.2 Energy production costs estimation ...................................................................... 22
5 SOURCES OF FUNDING .................................................................................................. 25
6 INVESTMENTS IN FIXED ASSETS .................................................................................. 27
7 PERMANENT WORKING CAPITAL REQUIREMENTS ..................................................... 28
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8 FINANCIAL STATEMENTS PROJECTIONS ..................................................................... 30
8.1 Inputs for financial statements ..................................................................................... 30
8.2 Profit and loss statement projection ............................................................................. 34
8.3 Cash flow analysis....................................................................................................... 35
8.4 Balance sheet projection ............................................................................................. 37
9 FINANCIAL ANALYSIS ..................................................................................................... 40
9.1 Ratio analysis .............................................................................................................. 40
9.2 Z score analysis .......................................................................................................... 42
10 INVESTMENT EFFICIENCY INDICATORS .................................................................... 44
10.1 Dynamic efficiency indicators ................................................................................... 44
10.2 Static efficiency indicators ........................................................................................ 45
11 ANALYSIS IN UNCERTAINTY ....................................................................................... 45
11.1 Break-even analysis ................................................................................................ 45
11.2 Sensitivity analysis ................................................................................................... 46
11.3 Setting the price of heating energy .......................................................................... 48
12 PRODUCTION COST REDUCTION AND FINANCIAL BENEFITS IN CASE OF SWITCH
TO BIOMASS ............................................................................................................................ 50
13 CONCLUDING REMARKS ............................................................................................. 55
14 LIST OF ABBREVIATIONS ............................................................................................. 57
15 LIST OF TABLES ........................................................................................................... 58
16 LIST OF FIGURES ......................................................................................................... 60
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1 INTRODUCTION
Several studies conducted in the recent years in Serbia by GIZ DKTI project concludes
that substitution of fossil fuels with biomass in district heating systems would have the
positive effects not only from the perspective of district heating system, but also from the
perspective of local, regional and national economy. This is particularly important
bearing in mind that over 99% of thermal energy in Serbia is produced by direct use of
fossil fuel. District heating can be produced and delivered at more affordable prices to
customers across Serbia, whilst providing robust returns to potential investors, if
available biomass is transferred into cheaper and commercially viable district heating
services. Substitution of fossil fuels with locally produced biomass is in accordance with
the Strategy of energetic development of the Republic of Serbia until 2025, which
assumes reduction of the share of coal and liquid fuel, and increase the share of
biomass and natural gas.
The most important determinant of decision to implement fuel switch to biomass from
the district heating system perspective is the final cost of produced thermal energy
(€/kWh) and the profitability of the project itself. Since fossil fuels substitution with
biomass is a long-term decision, it is therefore necessary to make a dynamic analysis
over twenty years period. Based on this analysis decision makers will have a foundation
for decision-making, taking into account current situation and the future trends.
This study primarily aims to estimate the financial impact of substitution of fossil fuels
with biomass in district heating system (DHS) of Bajina Bašta, particularly in the village
of Kostojevići, which supplies the heat for couple of dozen of households, local health
station, and local primary school. District heating plant in Kostojevici is currently using
heavy fuel oil (HFO) as a fuel for energy production. Since its establishment in 2007, this
plant has negative financial results, i.e. it is operating with losses. The project would
consist of purchasing and installing the new boiler room with biomass (woodchips) as
the main fuel. Total investment is estimated at 163.000,00 EUR.
Based on actual data from previous period and projections for future development of
market price of HFO and woodchips, we have calculated that the fuel costs for thermal
energy production in DHP Kostojevici would be 14,65 €/MWh in case of woodchips and
the 37,8 €/MWh in case of HFO as a fuel. Bearing at mind the estimated energy output
of Kostojevici plant of about 1.000 MWh roughly per year, this means that the whole
investment could be paid off from savings in fuel costs after 7-8 years approximately.
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If all costs of heating energy production are taken into consideration, the unit cost of
thermal energy produced with woodchips as a fuel would be 53,0 EUR/MWh (this
includes the investment cost). If unit cost of energy is performed based on the operating
costs only (without investment), during the period covered by the depreciation life (20
years), the results is 45,5 EUR/MWh. This is significantly lower in comparison with the
unit cost of heating energy produced with HFO as a fuel, which is 64,4 EUR/MWh.
Although the switch from HFO to woodchips as a fuel would generate the substantial
decline in production costs of district heating plant in Kostojevici, this still does not mean
that the proposed investment is financially justified and economically efficient. In order to
explore this, we should take into account the consumer price and revenues from selling
the heating energy. The main conclusions of this particular study are rather negative and
point to the fact that presented project, which would require an initial investment of
163,000 EUR, is not profitable if analyzed separately from the business operations of the
DHS of Kostojevići, and JP “BB-Term” as the carrier of the whole project. If we want this
project to be viable and efficient during the period of 20 years, the selling price of
heating energy should be at 0,11 EUR/kWh or 13,58 RSD/kWh, with all the other factors
intact. This is substantially higher that current price at 0,046 EUR/kWh, and would, thus,
require the significant increase of price, or subsidy by local or national government.
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2 KOSTOJEVIĆI DISTRICT HEATING SYSTEM OVERVIEW
2.1 General information
Kostojevići village belongs to the municipality Bajina Bašta. Kostojevići is located at the
foot of the mountain Povlen around 20 km from town Bajina Bašta.
Figure 1. Geographic location of Kostojevici in Bajina Basta municipality
According to the census of 2011, Kostojevici had 411 inhabitants. The main economic
activities are agriculture and fruit production. According to the census data there is a
trend of population decline, i.e. negative demographic trend. The main reasons are
negative natural population growth and emigrations to the urban and more populated
areas.
The district heating system (DHS) in Kostojevici was introduced in 2007. It is operated
by public company JP “BB Term” as a branch of Bajina Basta district heating system. A
boiler room was built with two light fuel oil boilers were installed, with total capacity of
1.400 kW (2 x 700 kW), accompanied with separate facility for the fuel tank of 100.000
m3 volume and pump station. Heating energy distribution system consists of about
2.900 m of pipes, and was completed in 2008. Heating energy was distributed to 40
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residential buildings (houses), primary school “Dušan Jerković”, and medical station
Kostojevići, with total heated surface of 3.474 m2.
Most of the buildings that are connected to the district heating system were built in
1970s and 1980s, and are still without proper insulation, i.e. are energy inefficient. As
houses in Kostojevici are dispersed throughout wide area, the heating energy
distribution system is relatively long. Accompanied with energy inefficient residential
buildings, this makes the whole district heating system ineffective.
Since DHS establishment, the declining trend of the number of individual consumers, as
the total heated area, appears to be stable. According to the management of “BB Term”
public company, the main reasons were the relatively high price of heating energy and
depopulation of Kostojevici. Currently, district heating system provides heating energy to
the total of 2.552m2 of heating surface (Table 1).
Unit 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Heating
surface m2 2.424 3.474 3.474 3.324 3.209 2.906 2.686 2.552
Heated
volume m3 6.980 9.710 9.710 9.320 9.021 8.233 7.661 7.312
Capacity of
heating
installation
kW 537 747 747 717 694 633 589 562
Table 1. Heating area, volume and capacity of heating installation of Kostojevici DHS in
2008-2015 (source: JP “BB Term”)
The largest consumer is primary school “Dušan Jerković” with surface of 1.424m2. In
accordance with declining heating area, the capacity of heating installations decreased
during the period from 2008 to 2015, from 747 kW to 562 kW (Table 2).
Unit School
Medical
station
Residential
houses TOTAL
Heating surface m2 1.128 50 1.416 1.594
Heated volume m3 3.610 130 3.573 7.313
Power of heating installation kW 278 10 275 563
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Table 2. Heating area, volume and capacity of heating installation of Kostojevici DHS in
2015 (source: JP “BB Term”)
The district heating system in Kostojevići is in function during completely heating period
from September to April. During the heating period, the load district heating system
depends on the needs of consumers and microclimate conditions. Since only one
consumer, primary school, has near 50% of total heating area, the energy needs and
provision mainly depend on primary school working hours. Thus, the heating energy
supply fluctuates a lot and significantly declines during the afternoons, weekends and
school holidays. The high fluctuations in production and supply of heating energy
contribute to the inefficiency of DHS in Kostojevici.
2.2 District heating system - technical overview
District heating plant in Kostojevici consists of two buildings: boiler room and tank
facility, next to each other. Boiler room equipment consists of two boilers of total 1.400
kW (2 x 700 kW) capacity, two expansion tanks of 2 x 1.000 l capacity, daily fuel tank
and system for water treatment. The system is not equipped with automatic control, so
that the monitoring of the system and checking the pressure and temperature is
manually. Three workers are required for proper functioning of the system. Boilers are
fueled with heavy fuel oil (HFO).
Figure 2. Boiler room and tank facility in Kostojevici
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Figure 3. Boilers
The boiler characteristics are: SUPERAC 695, I.VAR. Industry, year of production: 2007,
thermal power: 700 kW, maximum operating temperature: 110oC, maximum operating
pressure: 6 bar, operating range: 90/70o C. Burner: Weishaupt Monarch WM-L20, year
of production: 2005.
Insulation on pipes in the boiler room and on connection of pipes of district heating
system is mostly damaged or missing, causing large heat losses. Repair of the
insulation around the pipeline would reduce costs and the system would be more
efficient. All buildings that are connected to the district heating system are without heat
substations.
2.3 District heating plant energy output
Data about heating energy output of Kostojevici district heating plant (DHP) during the
whole existing period are provided in Table 3 and presented on Figure 4.
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 average
Installation (kW) 537 747 747 717 694 633 589 562 653
Energy output (kWh) 794.554 888.765 1.159.875 1.050.918 1.221.195 994.220 920.426 867.877 987.229
Unit consup. (kWh/kW) 1.480 1.190 1.553 1.466 1.760 1.570 1.562 1.543 1.516
Table 3. Heating energy installations and production in Kostojevici DHP (source: “JP-
Term”)
Maximum installed capacity of 747 kW was achieved in the second year of operation
(2008), when the distribution pipes system was completed. Since 2010, installed
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capacity constantly decline. Maximum of energy output was achieved in 2011/2012
season (over 1.200 MWh). Average energy output during the period from 2007 to 2015
was 987 MWh.
Figure 4. Energy production of Kostojevici DHP (source: “JP BB-Term”)
2.4 Energy efficiency overview
Based on the previous data, the energy efficiency indicators were calculated (Table 4).
Energy Efficiency Indicators
Specific annual heat energy
consumption
Specific annual gross cost of heat
energy
Unit (kWh/m2a) (€/ m2 a)
2007/08 327,79 12,15
2008/09 255,83 9,48
2009/10 333,87 9,27
2010/11 316,16 18,73
2011/12 380,55 23,97
2012/13 342,13 19,33
2013/14 342,68 15,86
2014/15 340,08 11,03
average 329,89 14,98
Table 4. Energy and costs efficiency Indicators (source: Elaboration of Technical Project
Concept from Sourcing to Production of the fuel switch to biomass project in District
heating in Kostojevići, Bajina Bašta)
Average annual consumption of 330 kWh/m2 is extremely inefficient compared to the
recommendation of the Government of the Republic of Serbia of 140 KWh/m2.
0
200
400
600
800
1,000
1,200
1,400
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Energy output (MWh)
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Inefficiency is even higher when compared with the EU recommendations of 65 kWh/m2
for the consumption of thermal energy for heating of residential buildings. The energy
efficiency of the DHS depends on the efficiency of the following three systems:
- System for the production of thermal energy,
- Pipeline systems for hot water distribution,
- Energy efficiency of buildings connected to the DHS.
Reasons for very high-energy inefficiency in DHS Kostojevici are identified in all three
subsystems. First, thermal energy is produced using HFO, which price was relatively
high in the previous period. Second, pipeline for hot water distribution is an energy-
ineffective from the following reasons:
- Large distribution network lengths 2,9 km,
- A small number of buildings connected to the system (25),
- There is no system of water flow regulation the in the distribution system,
- Missing or damaged insulation on the connections of pipes in the distribution
system.
Third, buildings connected on DHS in Kostojevici are all without proper thermal
insulation, and without the possibility of control of air temperature, i.e. heating energy
consumption. Previous list of reasons for energy inefficiency leads us to the list of
recommendations for improving the energy efficiency:
- Consider the switch of fuel from HFO to cheaper energy source,
- Installation of the system for control of hot water flows,
- Proper insulation of pipes network,
- Introduce incentives for insulation of buildings connected to the system,
- Introduce the equipment for thermal energy usage control and measurement and
billing according to the measured consumption.
This study deals with the first recommendation, i.e. the objective of the study is to
evaluate the economic effects of the fuel switch from HFO to wood biomass (wood
chips). Before we proceed with economic effects, we will consider the current economic
performance of Kostojevici DHS.
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2.5 Economic performance of district heating system
District heating system in Kostojevici operates with substantial financial losses in every
year and is, thus, unprofitable and economically unjustified. Table 5 provides data for
revenues, expenses and financial result for 2011, 2012, and 2013.
2011 2012 2013
REVENUES (in RSD)
Invoice amount 5.568.888 5.568.888 4.986.656
Effectively collected 4.361.910 4.486.385 3.623.583
Remaining amount 1.206.977 1.082.503 1.363.072
Effectively collected (%) 78% 80% 73%
EXPENSES (in RSD) 8.826.817 10.762.572 8.865.869
Workers salaries 1.480.668 1.580.649 1.594.201
Electricity costs 629.749 812.922 885.668
HFO 6.616.400 8.249.000 6.256.000
Maintenance 100.000 120.000 130.000
RESULT (in RSD) -4.464.906 -6.276.187 -5.242.285
Table 5. Financial statement summary for Kostojevici district heating system from 2011
to 2013
According to the data from Table 5, average annual financial loss of Kostojevici DHS is
approximately 5,000,000 RSD, i.e. approximately 40,000 EUR. Although the payment
rate is between 73% and 80% in the period from 2011 to 2013, the financial result would
not be positive even if all revenues are effectively charged from consumers (in fact, the
losses would be still very high). Revenues have declining trend due to decreasing
number of heated buildings, i.e. decreasing heated surface.
On the other hand, total expenses are variable through years. Structure analysis of total
expenses leads to the conclusion that expenses for workers salaries, electricity and
maintenance were stable over the years (expressed in Euros). Variability in total
expenses, thus, can be explained, almost in total, with the fluctuations in fuel costs. Fuel
costs represent over the two thirds (approximately 70%) of total expenses. Even fuel
costs solely are higher that revenues in every year.
Two main conclusions can be made based on previous analysis:
- District heating system in Kostojevici is highly economically inefficient,
- The main factor of total expenses is the cost of fuel.
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Based on this, we should consider if the fuel switch to cheaper energy source, as
woodchips, would lead to substantial expenses decrease and positive financial result of
Kostojevici DHS. In order to do that, we examined in more details the fuel costs. Table 6
summaries the HFO consumption, unit cost and total cost for the period from 2007 to
2015.
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 average
HFO
consumption
(kg)
73.600 82.300 107.400 97.300 113.100 92.100 85.200 80.400 91.425
Total HFO
cost
(€)
29.440 32.920 32.220 62.272 76.908 56.181 42.600 28.140 45.085
Unit HFO
price
(€/t)
400 400 300 640 680 610 500 350 493
Table 6. Fuel consumption, unit price and total fuel cost for DHS Kostojevici from 2007
to 2015 (source: JP “BB Term”)
Total fuel consumption in DHP Kostojevici was on average about 90 tons per year and
declines in the last 4 years, mainly due to decrease in the number of individual private
consumers. During the same period, the annual fuel cost decline even more, and the
reason is the significant decline of the unit HFO price. HFO price is almost halved in the
last 4 years (from 680 EUR in 2012 to 350 EUR in 2015); following the trends on global
market of crude oil (Figure 5). Average HFO price per ton over the whole period was 493
EUR. Average HFO cost was 45.000 EUR per heating season.
Figure 5. Total fuel costs and unit fuel price in DHS Kostojevici from 2007 to 2015
(source: “JP BB-Term”)
0
200
400
600
800
0
20,000
40,000
60,000
80,000
100,000
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Total HFO cost (€) left scale Unit HFO price (€/t) right scale
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3 FUEL SWITCH ANALYSIS
As previously explained the main determinant of total DHP expenses and, thus, of
financial result of DHP in Kostojevici, is the fuel cost. This study examines the financial
effects of fuel switch from HFO to wood chips. Wood chips are a type of renewable
energy source. As such, it is environmentally desirable source of energy. Biomass is
considered CO2 neutral, meaning that biomass combustion emits exactly as much
carbon dioxide as the plant binds in the process of photosynthesis during growth. Thus,
coefficient of carbon dioxide emissions of biomass equals zero.
Increasing usage of renewable energy sources, including biomass, is recognized by
state government as a priority objective of energy policy. According to the Strategy of
energetic development of the Republic of Serbia until 2025, it is necessary to achieve
the target of 27% of renewable energy sources - RES in gross final energy consumption
by 2020. In that sense, financial incentives and subsidies for fuel switch from fossil fuels
to biomass are expected in the next years. Apart from environmental protection reasons,
usage of biomass, even without government subsidies, proved to be economically more
efficient in heating plants, due to the lower cost of fuel per energy output derived.
In order to explore the financial potential of fuel switch in DHS in Kostojevici, we should
determine:
- The costs of investment in procurement of new woodchips fueled boilers, and
required facilities and equipment,
- The required quantity and cost of woodchips, and its availability.
After that, the comparison between HFO and woodchips fueled systems will be made.
3.1 Investment and operational costs overview
Apart from the procurement of new biomass fueled boilers with necessary equipment,
the investment would consists of mechanical works and electrical works on the
construction of a new boiler plant and connecting the new system to the existing
distribution system. According to the GIZ DKTI study “Elaboration of Technical Project
Concept from Sourcing to Production (production, combustion, quality control) of the fuel
switch to biomass project in District heating in Kostojevići, Bajina Bašta”, the new boiler
should has capacity of 800 kW in order to supply the DHS with heating energy needed
for the current heating area. Table 7 summaries the total investment costs.
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Position Investment costs - Description (€)
1. Access road and landscaping plots for the new building and for the route of new pipeline, 10.000
2. Construction of the fuel storage facility and new boiler room 15.000
3. Energy plant, mechanical and electrical equipment works (except boilers) 10.000
4. Biomass boilers and associated equipment 800 kW 70.000
5. Chimneys 8.000
6. Reconstruction of the existing installation for heat distribution 5.000
7. Connecting installations (new and old boiler room) 20.000
8. Documentation, construction management, commissioning of the plant, 15.000
9. Unforeseen costs 10.000
CAPEX (Capital Expenditure) 163.000
Table 7. Investment costs (source: GIZ DKTI study “Elaboration of Technical Project
Concept from Sourcing to Production (production, combustion, quality control) of the fuel
switch to biomass project in District heating in Kostojevići, Bajina Bašta”)
According to provided calculations, total capital expenditure would be 163,000 Euros.
The same study concludes that this investment is feasible from the standpoint of
available plant and storage space and facility constructions needed.
Position Operational costs - Description Unit Cost
1. Maintenance % CAPEX / a 1,0
2. Electricity - costs of the plant kWhel. / MWhht. 70
3. Employee – Labor costs € / a 15.000
4. Removal and disposal of ash € / t 30
5. Chemical treatment of circulating water € / MWhht. 0,5
6. Biomass cost, M30 € / MWhht. 14,65
7. Heavy oil cost € / MWhht. 37,80
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8. The costs of facilities servicing € / a 500
9. Insurance costs % CAPEX / a 0,5
10. Depreciation of equipment and installations % / a 5
11. Depreciation of buildings % / a 1
12. Boiler efficiency % 92
13. Efficiency on the threshold of boiler room % 91
14. Decreasing of energy consumption % / a 1
Table 8. Operational costs for woodchip boiler (source: GIZ DKTI study “Elaboration of
Technical Project Concept from Sourcing to Production of the fuel switch to biomass
project in District heating in Kostojevići, Bajina Bašta)
Boiler for biomass with capacity of 800 kW will settle 100% of the current needs of the
system. In case that the number of consumers of DHS in Kostojevici will increase after
the fuel switch, it would be necessary to install boilers of total capacity of 1000 kW. For
that reason, and for additional support for biomass boiler during the season peaks in
heating energy production, the existing HFO fueled boilers will serve as a backup.
Operational costs of woodchips fueled boiler are estimated as shown in Table 8.
3.2 Woodchips demand and costs analysis
Required annual amount of biomass in the form of wood chips M30 (according to
CEN/TS 14961:2005, Part 4) as calculated in GIZ DKTI study “Elaboration of Technical
Project Concept from Sourcing to Production (production, combustion, quality control) of
the fuel switch to biomass project in District heating in Kostojevići, Bajina Bašta”, are
shown in Table 9.
In order to fit current heating energy demand, it would be necessary to produce 1.163
MWh of energy annually. Using HFO based system, it would be necessary to purchase
108 tones of HFO per year, which represents the total fuel cost of 46.296 euros
(calculations were made based on the price of 430 euros per ton of HFO). The price of
thermal energy generated from heavy oil is 37,8 €/MWh.
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Caloric value
(kWh/t)
Required energy output
(MWh)
Fuel
mass (t)
Unit price
(€/t)
Annual fuel
cost (€)
Biomass
(low
quality)
2.800
1.163
415 45 18.687
Biomass
(high
quality)
3.400 342 45 15.390
Heavy fuel
oil 10.800 108 430 46.296
Table 9. Comparative costs of energy produced by woodchips biomass and heavy fuel
oil (source: GIZ DKTI study “Elaboration of Technical Project Concept from Sourcing to
Production of the fuel switch to biomass project in District heating in Kostojevići
In case of usage the woodchips as a fuel, the total costs depend on the quality of used
woodchips (i.e. the caloric value). Calculations were made for the two calorific values,
2.800 kWh/t and 3.400 kWh/t. Total annual fuel consumption would be 415 tones of low
quality woodchips, i.e. 342 tones of high quality woodchips (in both cases the unit price
of woodchips is approximated at 45 euros per ton). The fuel cost of the heat energy
generated by burning wood chips are 16,07 EUR/MWh (in case of low woodchips
quality), i.e. 13,23 €/MWh (in case of high woodchips quality). Averaged fuel cost is
therefore 14.65 EUR/MWh. Compared with 37,8 €/MWh in case of HFO, the potential
decline in fuel costs in case of biomass usage is substantial (fuel costs are more than
halved).
3.3 Woodchips supply analysis
Previous DKTI GIZ Program studies have estimated the wood biomass potential in
selected municipalities. The results regarding the biomass available for the wood chips
production in Bajina Basta municipality are presented in Table 10 (data from DKTI GIZ
studies: “Design of logistic concepts for wood biomass supply chains for district heating
plants in municipalities of Priboj, Novi Pazar, Bajina Bašta and Nova Varoš”). Available
forest residue and solid sawmill residue, both from broadleaved and conifers, were
considered as potential source.
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Available quantities of biomass Available energy potential
m3/a* t/a GJ/a MWh
Bajina Basta 21.180 14.450 176.387 49.035
Table 10. Available woody biomass and its energy potential in Bajina Basta
municipalities (source: DKTI GIZ studies: “Design of logistic concepts for wood biomass
supply chains for district heating plants in municipalities of Priboj, Novi Pazar, Bajina
Bašta and Nova Varoš)
Wood biomass potential of Bajina Basta municipality is estimated on 14.450 tons
annually. Bearing at mind that the Kostojevici district heating system is very small, with
projected needs of woodchips in the range of 342-415 tons per year, it is obvious that
woodchips supply would not be a problem. Even the wood waste obtained by cleaning
the river Drina upstream from the hydroelectric power plant "Bajina Basta" solely would
be enough to meet the needs of Kostojevici DHP. Public company “Srbijasume”, or
private wood owners could be potential suppliers for the Kostojevici DHP.
4 REVENUES AND EXPENSES PROJECTIONS
The financial feasibility study for the fuel switch from fossil fuels to wood biomass in the
DHS in Kostojevici is going to be based on the projections of thermal energy production
in the next 20 years (period of equipment depreciation), projection of cost of heating
energy for consumers, as well as on presented data on capital and operational costs of
energy production.
4.1 Heating energy sales plan
4.1.1 Thermal energy output projection
Due to the previously mentioned negative natural growth of population in Kostojevici,
and emigration tendencies, it is reasonable to expect that the heating energy demand in
Kostojevici will decrease over time. This trend could be also intensified if the energy
efficiency of the residential buildings will be improved and if the energy consumption
measurements and control system will be introduced. Because of the reduction of
installed capacity, the reduction in heat consumption in residential buildings by 1% per
year is projected.
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Figure 6. Projection of the annual reduction in installed capacity (source: GIZ DKTI study
“Elaboration of Technical Project Concept from Sourcing to Production of the fuel switch
to biomass project in District heating in Kostojevići, Bajina Bašta”)
Consumption of thermal energy in the future will also depend on local climate change.
Reduction in thermal energy consumption per unit of installed capacity due to local
climate change will be 0,1% per annum (Figure 7).
Figure 7. Projection of the annual reduction of unit consumption (source: GIZ DKTI study
“Elaboration of Technical Project Concept from Sourcing to Production of the fuel switch
to biomass project in District heating in Kostojevići, Bajina Bašta”)
As a consequence of the reduction in installed capacity and unit power consumption,
total energy consumption will decrease as shown on Figure 8.
20 | P a g e
Figure 8. Projection of heating energy production (source: GIZ DKTI study “Elaboration
of Technical Project Concept from Sourcing to Production of the fuel switch to biomass
project in District heating in Kostojevići, Bajina Bašta”)
Table 11 presents the projected heating energy production of Kostojevici DHP in the
period of the next 20 years.
Year MWh year MWh
2016 1129 2026 1077
2017 1124 2027 1072
2018 1119 2028 1066
2019 1114 2029 1061
2020 1108 2030 1056
2021 1103 2031 1051
2022 1098 2032 1046
2023 1092 2033 1041
2024 1087 2034 1036
2025 1082 2035 1030
Table 11. Projection of the heating energy production (source: Own calculation)
4.1.2 Thermal energy consumer price and revenues projection
Thermal energy consumer price in Kostojevici is still charged based on heating surface
of the building and not on the energy consumption. However, PC “BB Term” plans to
introduce the new system of payment based on exact energy consumption in the next
year. For the purpose of this study, it is necessary to express the energy price in terms
of consumed energy, i.e. per unit of energy. If the current price is transformed in the
price per energy unit, the 0,046 EUR/kWh is obtained. Management of the “BB term”
company do not plan to increase significantly the consumer price in the next period,
950
1,000
1,050
1,100
1,150
Projection of heat energy production (MWh)
21 | P a g e
even Kostojevici DHS is economically inefficient with this price. At their opinion, price
increase would result in mass switching off from DHS by residents and switching on
individual heating alternatives. In the next section of this study, the heating energy
consumer price, which would make this investment economically efficient, will be
calculated. Table 12 presents the total revenues for the period of 20 years.
Year Energy production (kWh) Total revenues
2016 1.129.000,00 51.745,83
2017 1.124.000,00 51.516,67
2018 1.119.000,00 51.287,50
2019 1.114.000,00 51.058,33
2020 1.108.000,00 50.783,33
2021 1.103.000,00 50.554,17
2022 1.098.000,00 50.325,00
2023 1.092.000,00 50.050,00
2024 1.087.000,00 49.820,83
2025 1.082.000,00 49.591,67
2026 1.077.000,00 49.362,50
2027 1.072.000,00 49.133,33
2028 1.066.000,00 48.858,33
2029 1.061.000,00 48.629,17
2030 1.056.000,00 48.400,00
2031 1.051.000,00 48.170,83
2032 1.046.000,00 47.941,67
2033 1.041.000,00 47.712,50
2034 1.036.000,00 47.483,33
2035 1.030.000,00 47.208,33
Table 12. Projection of energy projection and revenues
4.2 Heating energy production costs
4.2.1 Investment and operational costs of district heating plant
Based on investment and operational costs presented in section 4.1, the unit cost of
heat energy produced with woodchips burning is calculated as shown in Table 13. Unit
costs of heating energy is estimated on 53,0 € / MWh. This cost includes both the
investment and operational costs.
22 | P a g e
Unit cost of heat energy Unit Value
The investment value - CAPEX € 163.000
Annual production of heat energy (first year of operation) MWh / a 1.129
Total heat production (20 years) MWh 21.593
The operation value (20 years) - OPEX € 981.444
LUC - Levelized Unit Costs € / MWh 53,0
Table 13. Projected unit cost of heat energy (source: GIZ DKTI study “Elaboration of
Technical Project Concept from Sourcing to Production of the fuel switch to biomass
project in District heating in Kostojevići, Bajina Bašta)
The unit cost of heating energy produced with HFO would be 64,4 EUR/MWh in the
same period. However, this value does not include investments in new boilers and
facilities, so it does not make sense to compare these values. Instead, we can compare
only the operational costs of energy produced on alternative fuels. Therefore, the
reference value of 64,4 EUR/MWh in case of HFO usage should be compared with 45,5
EUR/MWh, which represents the operational cost of energy produced by burning the
woodchips.
4.2.2 Energy production costs estimation
Detailed projections of heating energy production costs are given in Table 14.
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Biomass 16.545 16.468 16.390 16.313 16.236 16.159 16.082 16.005 15.929 15.853
Ash 1.093 1.088 1.083 1.078 1.073 1.067 1.062 1.057 1.052 1.047
Electricity 7.906 7.869 7.832 7.795 7.758 7.721 7.684 7.648 7.611 7.575
Water 565 565 565 565 565 565 565 565 565 565 Employee – Labor costs 15.000 15.000 15.000 15.000 15.000 15.000 15.000 15.000 15.000 15.000
Maintenance 1.630 1.630 1.630 1.630 1.630 1.630 1.630 1.630 1.630 1.630
Insurance costs 815 815 815 815 815 815 815 815 815 815
Amortization 4.075 4.075 4.075 4.075 4.075 4.075 4.075 4.075 4.075 4.075
Total costs 47.629 47.510 47.390 47.271 47.152 47.032 46.913 46.795 46.677 46.560
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Biomass 15.776 15.700 15.624 15.548 15.472 15.397 15.321 15.246 15.171 15.096
Ash 1.042 1.037 1.032 1.027 1.022 1.017 1.012 1.007 1.002 997
Electricity 7.538 7.502 7.465 7.429 7.393 7.357 7.321 7.285 7.249 7.213
Water 565 565 565 565 565 565 565 565 565 565
23 | P a g e
Employee – Labor costs 15.000 15.000 15.000 15.000 15.000 15.000 15.000 15.000 15.000 15.000
Maintenance 1.630 1.630 1.630 1.630 1.630 1.630 1.630 1.630 1.630 1.630
Insurance costs 815 815 815 815 815 815 815 815 815 815
Amortization 4.075 4.075 4.075 4.075 4.075 4.075 4.075 4.075 4.075 4.075
Total costs 46.441 46.324 46.206 46.089 45.972 45.856 45.739 45.623 45.507 45.391
Table 14. Projections of energy production costs (source: own calculation)
Based on indicators of energy efficiency and the calculated specific energy consumption
for heating, due to inefficient energy connected buildings, great length of piping and the
small overall power of connected buildings, the heating system in Kostojevići is not
effective. The increase of energy efficiency of district heating system the most influence
have increase the energy efficiency of connected objects. Based on indicators of energy
efficiency classification of objects connected to the district heating system was installed
in the building energy class "G", The goal for the coming period is to take appropriate
measures for energy efficiency, so that the energy consumption for heating buildings
reduce the level of energy level "E" or below 160 kWh/m2a, Implementation of energy
efficiency measures must be planned and organized and carried out in several stages,
At the low level of energy efficiency of district heating systems, in addition to low energy
efficiency of connected objects impact has it that the users are not able to manage the
consumption of thermal energy in accordance with their needs. The first step is to
revision the connections of pipes and to install the systems for measurement and control
of demand for each facility, Installing a system for controlling the delivery of heat
according to the needs of consumers will reduce the supply of thermal energy and thus
the loss of heat,
Activities undertaken during the preparation of this study included the preliminary energy
audit of parts of the district heating system. The next step is to analyze the collected
data, calculate the energy indicators and propose measures for energy efficiency with an
estimate of investment costs and possible effects of implementation. In the next phase,
a decision is made on the implementation of selected measures or packages of
measures and the proposed solution is implemented. The last phase is the monitoring
and analysis of the effects.
Key issues that can be identified by energy audits are:
- Insulation damage to the joints of pipeline of distribution heating system which
leads to accumulation of atmospheric water and penetration of humidity into the
24 | P a g e
structure of pre-insulated pipeline, accelerating further damage, reducing thermal
insulation and reduces the quality of supplied energy,
- The lack of heating substations for each connected facility with high-quality
automatic control which leads to unbalanced supply and irrational use of thermal
energy,
- Water losses in distribution system,
- The absence of insulating layers in the construction of exterior walls and roofing
in buildings that are connected to the district heating system,
- Damage to the installation, which may affect the operational availability of the
technical systems,
- The absence of calorimeters for measuring thermal energy in the connected
buildings
- The absence of the tariff system for the collection of thermal energy to the
measured consumption
After identifying potential savings and undertaking appropriate measures, the effects of
the savings will be achieved through:
- Lower heating costs,
- Reduction of fuel consumption,
- Reduction of CO2 emissions,
- Reduction of environmental pollution,
- Increased comfort and quality of services,
- Reduced costs of fuel and maintenance,
The building sector in Serbia is particularly important, because it accounts for about 40%
of total energy consumption, with a trend for further growth. This high-energy
consumption means that the potential energy and environmental savings in the building
sector are the largest. Most of the energy is consumed for space heating, although in
recent years, increased consumption is recorded for cooling in summer. For this reason,
special attention should be paid to the quality of the insulation structures, good carpentry
and optimal functionality of the heating and cooling installations.
One measure of energy efficiency that brings significant benefits is the use of renewable
energy sources, in this case, the use of biomass for heat production. The effects of great
importance are also environmental benefits, increased comfort of users and image of
local heating company “BB-term” as a socially responsible collective.
25 | P a g e
Financing the construction of the boiler room containing boilers for combustion of
biomass is possible by engaging its own funds, withdrawal of favorable credit lines
specially designated for projects in the field of energy efficiency and use of renewable
energy sources, or the establishment of public-private partnership under ESCO model.
5 SOURCES OF FUNDING
The sources of funding illustrate the origin of invested capital in a business venture. The
basic rule when structuring the sources of funding is to align the sources with the needs
for funding in different periods. The total sources of funding are divided into own capital
and borrowed funds. Own funding is provided by the owner or owners, as well as from
the accumulated earnings from previous years of business. When analyzing the start-
ups, the accumulated earnings in the first year cannot be analyzed since they do not
exist. The borrowed funds are bank loans of different terms and conditions. The main
characteristics of bank loans are their limited availability and constant financial items that
burden the financial results.
“JP BB-Term” seeks to get a banking loan in order to finance the entire investment
project. The needed loan is 163.000 Euros. In communication with the managing
director of the company, the proposed loan would be at 6.0% of yearly interest, with 5
years for returning the loan with interest. The interest and principal ale calculated and
paid monthly. The loan would have seven-month grace period as well. Table 15
summarizes the terms of the banking loan.
Loan amount (EUR) 163.000
Loan duration 5 years
Grace period 7 months
Annual interest rate 6,00%
Repayment method monthly
Table 15. Projected terms of the bank loan
After considering the terms of the banking loan, the payment plan is calculated and
presented in Table 16.
Period Remaining amount Annuity Repayment Interest
6.28.16 163.000,00 1.358,33 1.358,33
7.29.16 163.000,00 1.358,33 1.358,33
26 | P a g e
8.27.16 163.000,00 1.358,33 1.358,33
9.27.16 163.000,00 1.358,33 1.358,33
10.27.16 163.000,00 1.358,33 1.358,33
11.27.16 163.000,00 1.358,33 1.358,33
12.27.16 163.000,00 1.358,33 1.358,33
1.27.17 163.000,00 3.817,06 2.458,73 1.358,33
2.27.17 160.541,27 3.817,06 2.479,22 1.337,84
3.29.17 158.062,05 3.817,06 2.499,88 1.317,18
4.29.17 155.562,17 3.817,06 2.520,71 1.296,35
5.29.17 153.041,46 3.817,06 2.541,72 1.275,35
6.29.17 150.499,75 3.817,06 2.562,90 1.254,16
7.30.17 147.936,85 3.817,06 2.584,26 1.232,81
8.27.17 145.352,59 3.817,06 2.605,79 1.211,27
9.27.17 142.746,80 3.817,06 2.627,51 1.189,56
10.27.17 140.119,30 3.817,06 2.649,40 1.167,66
11.27.17 137.469,90 3.817,06 2.671,48 1.145,58
12.27.17 134.798,42 3.817,06 2.693,74 1.123,32
1.27.18 132.104,67 3.817,06 2.716,19 1.100,87
2.27.18 129.388,48 3.817,06 2.738,83 1.078,24
3.29.18 126.649,66 3.817,06 2.761,65 1.055,41
4.29.18 123.888,01 3.817,06 2.784,66 1.032,40
5.29.18 121.103,35 3.817,06 2.807,87 1.009,19
6.29.18 118.295,48 3.817,06 2.831,27 985,80
7.30.18 115.464,21 3.817,06 2.854,86 962,20
8.27.18 112.609,35 3.817,06 2.878,65 938,41
9.27.18 109.730,70 3.817,06 2.902,64 914,42
10.27.18 106.828,06 3.817,06 2.926,83 890,23
11.27.18 103.901,23 3.817,06 2.951,22 865,84
12.27.18 100.950,01 3.817,06 2.975,81 841,25
1.27.19 97.974,20 3.817,06 3.000,61 816,45
2.27.19 94.973,59 3.817,06 3.025,62 791,45
3.29.19 91.947,97 3.817,06 3.050,83 766,23
4.29.19 88.897,15 3.817,06 3.076,25 740,81
5.29.19 85.820,89 3.817,06 3.101,89 715,17
6.29.19 82.719,00 3.817,06 3.127,74 689,33
7.30.19 79.591,27 3.817,06 3.153,80 663,26
8.28.19 76.437,47 3.817,06 3.180,08 636,98
9.28.19 73.257,38 3.817,06 3.206,58 610,48
10.28.19 70.050,80 3.817,06 3.233,31 583,76
11.28.19 66.817,49 3.817,06 3.260,25 556,81
12.28.19 63.557,24 3.817,06 3.287,42 529,64
27 | P a g e
1.28.20 60.269,82 3.817,06 3.314,81 502,25
2.28.20 56.955,01 3.817,06 3.342,44 474,63
3.29.20 53.612,57 3.817,06 3.370,29 446,77
4.29.20 50.242,28 3.817,06 3.398,38 418,69
5.29.20 46.843,90 3.817,06 3.426,70 390,37
6.29.20 43.417,21 3.817,06 3.455,25 361,81
7.30.20 39.961,96 3.817,06 3.484,05 333,02
8.27.20 36.477,91 3.817,06 3.513,08 303,98
9.27.20 32.964,83 3.817,06 3.542,36 274,71
10.27.20 29.422,47 3.817,06 3.571,88 245,19
11.27.20 25.850,60 3.817,06 3.601,64 215,42
12.27.20 22.248,96 3.817,06 3.631,65 185,41
1.27.21 18.617,30 3.817,06 3.661,92 155,14
2.27.21 14.955,39 3.817,06 3.692,43 124,63
3.29.21 11.262,95 3.817,06 3.723,20 93,86
4.29.21 7.539,75 3.817,06 3.754,23 62,83
5.29.21 3.785,52 3.817,06 3.785,52 31,55
TOTAL 210.454,31 163.000,00 47.454,31
Table 16. The loan repayment plan
Type of cost 2016 2017 2018 2019 2020 2021
Interest 9.508,33 14.909,42 11.674,28 8.100,37 4.152,23 468,01
Repayment 0,00 30.895,33 34.130,47 37.704,38 41.652,52 18.617,30
TOTAL 9.508,33 45.804,75 45.804,75 45.804,75 45.804,75 19.085,31
Table 17. Annual repayment and interest (EUR)
Table 17 presents the annual costs of bank loan throughout the lifetime of the
investment project.
6 INVESTMENTS IN FIXED ASSETS
The total investments in business operations are categorized as investments in fixed
assets and investments in permanent working capital. The investments in fixed assets
include investments in intangible assets and investments in physical and financial
assets. There are several types of investments in intangible assets: concessions,
patents, and licenses. On the other hand, investments in physical and financial assets
are those investments made in the tangible assets that are expected to be used in a
company longer than one fiscal year. The most important forms of material asset
investments are investments in buildings, technological equipment, hydro equipment,
28 | P a g e
electro equipment, machinery, land, transportation vehicles, computers, office
equipment and the like.
Type of investment Amount (EUR) Sources of funding
The woodchip facility 163.000,00 loan
Permanent working capital 7.802,51 own funds
Total own funding 7.802,51 4,57%
Total bank loan 163.000,00 95,43%
Total investments 170.802,51 100,00%
Table 18. The investments in fixed assets
Figure 9. The structure of fixed assets investment
The investments in physical assets are presented in Table 18 and Figure 9.
7 PERMANENT WORKING CAPITAL REQUIREMENTS
The permanent working capital investments represent the second form of total
investments in the business venture. The permanent working capital can be explained
as the difference between working capital induced by the business activities and sources
of working capital.
Annual PWC needs (EUR)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Business induced working capital
Stocks 17.896,7
3 17.813
,58 17.729,
44 17.646,2
9 17.562,92
17.478,77
17.395,63
17.312,25
17.230,10
17.147,96
17.064,81
16.982,67
16.900,29
16.818,15
16.736,00
16.654,85
16.572,71
16.491,56
16.410,42
16.329,04
95%
5%
The woodchip facility Permanent working capital
29 | P a g e
Stocks of unfinished products
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
Stocks of finished
products
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
73.614,73
Accounts receivable
51.745,83
51.516,67
51.287,50
51.058,33
50.783,33
50.554,17
50.325,00
50.050,00
49.820,83
49.591,67
49.362,50
49.133,33
48.858,33
48.629,17
48.400,00
48.170,83
47.941,67
47.712,50
47.483,33
47.208,33
Cash balance
51.745,83
51.516,67
51.287,50
51.058,33
50.783,33
50.554,17
50.325,00
50.050,00
49.820,83
49.591,67
49.362,50
49.133,33
48.858,33
48.629,17
48.400,00
48.170,83
47.941,67
47.712,50
47.483,33
47.208,33
Sources of permanent working capital
Suppliers 17.638,0
0
17.556
,00
17.473,
00
17.391,0
0
17.30
9,00
17.22
6,00
17.14
4,00
17.06
2,00
16.98
1,00
16.90
0,00
16.81
8,00
16.73
7,00
16.656,0
0
16.575,0
0
16.494,0
0
16.414,0
0
16.333,0
0
16.253,0
0
16.173,0
0
16.093,0
0
Salaries
and wages
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
15.000,00
PWC needs (EUR)
Working
capital 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Business
induced working capital
11.176,22
11.136,31
11.096,30
11.056,39
11.010,09
10.970,08
10.930,16
10.883,86
10.844,05
10.804,23
10.764,32
10.724,51
10.678,30
10.638,49
10.598,67
10.558,95
10.519,14
10.479,42
10.439,70
10.393,60
Stocks 1.739,9
6 1.731,
88 1.723,7
0 1.715,61
1.707,51
1.699,32
1.691,24
1.683,14
1.675,15
1.667,16
1.659,08
1.651,09
1.643,08 1.635,10 1.627,11 1.619,22 1.611,24 1.603,35 1.595,46 1.587,55
Stocks of
unfinished products
204,49 204,49 204,49 204,49 204,4
9
204,4
9
204,4
9
204,4
9
204,4
9
204,4
9
204,4
9
204,4
9 204,49 204,49 204,49 204,49 204,49 204,49 204,49 204,49
Stocks of finished products
2.044,85
2.044,85
2.044,85
2.044,85 2.044
,85 2.044
,85 2.044
,85 2.044
,85 2.044
,85 2.044
,85 2.044
,85 2.044
,85 2.044,85 2.044,85 2.044,85 2.044,85 2.044,85 2.044,85 2.044,85 2.044,85
Accounts
receivable
4.312,1
5
4.293,
06
4.273,9
6 4.254,86
4.231
,94
4.212
,85
4.193
,75
4.170
,83
4.151
,74
4.132
,64
4.113
,54
4.094
,44 4.071,53 4.052,43 4.033,33 4.014,24 3.995,14 3.976,04 3.956,94 3.934,03
Cash balance
2.874,77
2.862,04
2.849,31
2.836,57 2.821
,30 2.808
,56 2.795
,83 2.780
,56 2.767
,82 2.755
,09 2.742
,36 2.729
,63 2.714,35 2.701,62 2.688,89 2.676,16 2.663,43 2.650,69 2.637,96 2.622,69
Sources of PWC
2.719,83
2.713,00
2.706,08
2.699,25 2.692
,42 2.685
,50 2.678
,67 2.671
,83 2.665
,08 2.658
,33 2.651
,50 2.644
,75 2.638,00 2.631,25 2.624,50 2.617,83 2.611,08 2.604,42 2.597,75 2.591,08
Suppliers 1.469,8
3 1.463,
00 1.456,0
8 1.449,25
1.442,42
1.435,50
1.428,67
1.421,83
1.415,08
1.408,33
1.401,50
1.394,75
1.388,00 1.381,25 1.374,50 1.367,83 1.361,08 1.354,42 1.347,75 1.341,08
Salaries and wages
1.250,00
1.250,00
1.250,00
1.250,00 1.250
,00 1.250
,00 1.250
,00 1.250
,00 1.250
,00 1.250
,00 1.250
,00 1.250
,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00
PWC 8.456,3
9 8.423,
31 8.390,2
1 8.357,14
8.317,67
8.284,58
8.251,50
8.212,03
8.178,96
8.145,90
8.112,82
8.079,76
8.040,30 8.007,24 7.974,17 7.941,12 7.908,06 7.875,00 7.841,95 7.802,51
PWC difference compared
to previous year
0,00 -33,08 -33,09 -33,08 -
39,47
-
33,09
-
33,08
-
39,47
-
33,07
-
33,07
-
33,08
-
33,07 -39,45 -33,07 -33,07 -33,05 -33,07 -33,05 -33,05 -39,44
Table 19. Permanent working capital in 20 years
The working capital that is needed by the business operations consists of average
stocks, average level of receivables in a fiscal year, and used cash. The sources of
working capital are average payables, e.g. the amount we owe to our suppliers, as well
as employees’ salaries. We deduct this amount from the needed working capital since
this is the amount that suppliers credit us in business operations. The structure and
dynamics of permanent working capital is presented within Table 19.
30 | P a g e
8 FINANCIAL STATEMENTS PROJECTIONS
8.1 Inputs for financial statements
In order to present properly the financial results, we must present the structure of
projected revenues from business operations. To do so, one must bear in mind the basic
principles of accounting for disclosing the revenues and costs of operations. These
principles entail intelligibility, relevance, precaution, and reliability. The revenues are
usually defined as inflow of economic benefits within certain time interval, which result
from regular business operations. Contrary to the definition of revenues, the costs of
operating a business are the economic outflows within the certain time interval. This
economic outflow is reflected through cash out flows, decrease in assets or increase of
company’s debt. The structure and dynamics of costs in the analyzed investment project
is given in the following tables.
Year Energy production (kWh) Total revenues
2016 1.129.000,00 51.745,83
2017 1.124.000,00 51.516,67
2018 1.119.000,00 51.287,50
2019 1.114.000,00 51.058,33
2020 1.108.000,00 50.783,33
2021 1.103.000,00 50.554,17
2022 1.098.000,00 50.325,00
2023 1.092.000,00 50.050,00
2024 1.087.000,00 49.820,83
2025 1.082.000,00 49.591,67
2026 1.077.000,00 49.362,50
2027 1.072.000,00 49.133,33
2028 1.066.000,00 48.858,33
2029 1.061.000,00 48.629,17
2030 1.056.000,00 48.400,00
2031 1.051.000,00 48.170,83
2032 1.046.000,00 47.941,67
2033 1.041.000,00 47.712,50
2034 1.036.000,00 47.483,33
2035 1.030.000,00 47.208,33
Table 20. The projection of total revenues
31 | P a g e
Figure 10. Comparison between annual energy production and revenues (logarithmic
scale)
Type of cost 2016. 2017. 2018. 2019. 2020. 2021. 2022. 2023. 2024. 2025.
Biomass 16.545 16.468 16.390 16.313 16.236 16.159 16.082 16.005 15.929 15.853
Ash 1.093 1.088 1.083 1.078 1.073 1.067 1.062 1.057 1.052 1.047
TOTAL 17.638 17.556 17.473 17.391 17.309 17.226 17.144 17.062 16.981 16.900
Type of cost 2026. 2027. 2028. 2029. 2030. 2031. 2032. 2033. 2034. 2035.
Biomass 15.776 15.700 15.624 15.548 15.472 15.397 15.321 15.246 15.171 15.096
Ash 1.042 1.037 1.032 1.027 1.022 1.017 1.012 1.007 1.002 997
TOTAL 16.818 16.737 16.656 16.575 16.494 16.414 16.333 16.253 16.173 16.093
Table 21. Projection of material costs
Job position Number of employees
Average monthly net
salary
Annual salary costs
2016-2035 (EUR)
Employees 3 416,67 15.000,00
TOTAL 3 15.000,00
Table 22. Employee costs
-
1.00
2.00
3.00
4.00
5.002016
2017
2018
2019
2020
2021
2022
2023
2024
20252026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Total revenues
Energy production(mWh)
32 | P a g e
Fixed assets
Value Depreci
ation rate
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
The woodchip facility
163.000 5% 154.850 146.700 138.550 130.400 122.250 114.100 105.950 97.800 89.650 81.500
Present value
163.000 154.850 146.700 138.550 130.400 122.250 114.100 105.950 97.800 89.650 81.500
Annual depreciation cost 8.150 8.150 8.150 8.150 8.150 8.150 8.150 8.150 8.150 8.150
Fixed assets
Value Depreciation rate
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
The woodchip facility
163.000 5% 154.850 146.700 138.550 130.400 122.250 114.100 105.950 97.800 89.650 81.500
Present value
163.000 154.850 146.700 138.550 130.400 122.250 114.100 105.950 97.800 89.650 81.500
Annual depreciation cost 8.150 8.150 8.150 8.150 8.150 8.150 8.150 8.150 8.150 8.150
Table 23. Projected cost of depreciation and amortization (EUR)
Type of
cost Unit 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Electricity Kwh 7.906 7.869 7.832 7.795 7.758 7.721 7.684 7.648 7.611 7.575
TOTAL 7.906 7.869 7.832 7.795 7.758 7.721 7.684 7.648 7.611 7.575
Type of
cost Unit 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Electricity Kwh 7.538 7.502 7.465 7.429 7.393 7.357 7.321 7.285 7.249 7.213
TOTAL 7.538 7.502 7.465 7.429 7.393 7.357 7.321 7.285 7.249 7.213
Table 24. Projected costs of energy
Type of cost Parameter Annual cost per
parameter
Annual cost
2016-2035 EUR
The woodchip facility effective investment 1,00% 1.630,00
TOTAL 1.630,00
Table 25. Projected maintenance costs
33 | P a g e
Type of cost Parameter Annual cost per
parameter
Annual cost
2016-2035 EUR
The woodchip facility effective investment 0,30% 489,00
Employees number of employees 108,67 326,00
TOTAL 815,00
Table 26. Projected insurance costs
Type of cost
Annual
cost per
parameter
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Banking fee 0,50% 258,73 257,58 256,44 255,29 253,92 252,77 251,63 250,25 249,10 247,96
TOTAL
258,73 257,58 256,44 255,29 253,92 252,77 251,63 250,25 249,10 247,96
Type of cost
Annual
cost per
parameter
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Banking fee 0,50% 246,81 245,67 244,29 243,15 242,00 240,85 239,71 238,56 237,42 236,04
TOTAL
246,81 245,67 244,29 243,15 242,00 240,85 239,71 238,56 237,42 236,04
Table 27. Projected banking costs
Type of cost Parameter Annual cost per
parameter
Annual cost
2016-2035
EUR
Property tax effective investment amount 0,40% 652,00
TOTAL 652,00
Table 28. Annual property tax projection
Type of cost
Annual cost
2016-2035 EUR
Telecommunications 6.000,00
Business trips 5.000,00
Personal costs 5.000,00
Water and supplies 565,00
Other costs 5.000,00
TOTAL 21.565,00
Table 29. Projection of other costs
34 | P a g e
8.2 Profit and loss statement projection
The basic financial statements that will be analyzed are profit and loss statement, cash
flow and balance sheet. Since this investment project can be viewed as a start-up (as
mentioned in the decision assumptions section), the above-mentioned financial
statements will be presented in the form of projections for the period of twenty
consecutive years (2016-2035).
In the profit and loss section of this bankable study, we will analyze revenues, costs, and
financial result of investing in new woodchip boiler in Bajina Bašta. This financial
statement shows whether project achieves gross profit or not. This serves later for
calculation of income tax. In this case, we used the tax rate of 15%. The projected profit
and loss statement is presented in Table 30.
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
TOTAL REVENUES
51.745,83 51.516,67 51.287,50 51.058,33 50.783,33 50.554,17 50.325,00 50.050,00 49.820,83 49.591,67
Sales revenues 51.745,83 51.516,67 51.287,50 51.058,33 50.783,33 50.554,17 50.325,00 50.050,00 49.820,83 49.591,67
TOTAL COSTS 83.123,06 88.404,00 85.047,71 81.353,66 77.285,14 73.479,78 72.891,62 72.772,25 72.653,10 72.534,96
Material costs 17.638,00 17.556,00 17.473,00 17.391,00 17.309,00 17.226,00 17.144,00 17.062,00 16.981,00 16.900,00
Employee costs 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00
Amortization 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00
Energy costs 7.906,00 7.869,00 7.832,00 7.795,00 7.758,00 7.721,00 7.684,00 7.648,00 7.611,00 7.575,00
Maintenance 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00
Insurance costs 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00
Banking costs 258,73 257,58 256,44 255,29 253,92 252,77 251,63 250,25 249,10 247,96
Taxes 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00
Other costs 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00
Interest 9.508,33 14.909,42 11.674,28 8.100,37 4.152,23 468,01 0,00 0,00 0,00 0,00
GROSS PROFIT
-31.377,23 -36.887,34 -33.760,21 -30.295,33 -26.501,81 -22.925,61 -22.566,62 -22.722,25 -22.832,27 -22.943,29
Income tax 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
NET PROFIT -31.377,23 -36.887,34 -33.760,21 -30.295,33 -26.501,81 -22.925,61 -22.566,62 -22.722,25 -22.832,27 -22.943,29
CUMULATIVE NET PROFIT
-31.377,23 -68.264,56 -102.024,77 -132.320,10 -158.821,91 -181.747,52 -204.314,14 -227.036,39 -249.868,66 -272.811,95
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
TOTAL REVENUES
49.362,50 49.133,33 48.858,33 48.629,17 48.400,00 48.170,83 47.941,67 47.712,50 47.483,33 47.208,33
Sales revenues 49.362,50 49.133,33 48.858,33 48.629,17 48.400,00 48.170,83 47.941,67 47.712,50 47.483,33 47.208,33
TOTAL COSTS 72.414,81 72.296,66 72.177,29 72.059,14 71.941,00 71.823,85 71.705,71 71.588,56 71.471,41 71.354,04
Material costs 16.818,00 16.737,00 16.656,00 16.575,00 16.494,00 16.414,00 16.333,00 16.253,00 16.173,00 16.093,00
Employee costs 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00
Amortization 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00 8.150,00
Energy costs 7.538,00 7.502,00 7.465,00 7.429,00 7.393,00 7.357,00 7.321,00 7.285,00 7.249,00 7.213,00
Maintenance 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00
Insurance costs 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00
35 | P a g e
Banking costs 246,81 245,67 244,29 243,15 242,00 240,85 239,71 238,56 237,42 236,04
Taxes 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00
Other costs 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00
Interest 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
GROSS PROFIT
-23.052,31 -23.163,33 -23.318,96 -23.429,98 -23.541,00 -23.653,02 -23.764,04 -23.876,06 -23.988,08 -24.145,71
Income tax 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
NET PROFIT -23.052,31 -23.163,33 -23.318,96 -23.429,98 -23.541,00 -23.653,02 -23.764,04 -23.876,06 -23.988,08 -24.145,71
CUMULATIVE NET PROFIT
-295.864,26 -319.027,59 -342.346,55 -365.776,52 -389.317,52 -412.970,54 -436.734,58 -460.610,64 -484.598,72 -508.744,42
Table 30. Profit and loss statement projection
The projection of profit and loss shows that the investment in new woodchip-based
boiler in Kostojevići will not achieve positive financial result in the projected 20-year
period of boiler exploitation. The only aspect that will improve project’s profitability is the
absence of interest costs after 2021. However, this positive effect will not improve the
project’s overall problem with profitability.
8.3 Cash flow analysis
The cash flow report is the financial statement that is derived from the profit and loss
statement of the project. The appearance and contents are based on previous financial
statement, with adjustments that must be made since the cash flow reports is based
upon cash inflows and cash outflows. By doing so, one can analyze the liquidity aspects
of the project in question. The structure and dynamics of Kostojevići investment cash
flow statement is presented in Table 31.
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
CASH IN-FLOWS
41.396,67 41.213,33 41.030,00 40.846,67 40.626,67 40.443,33 40.260,00 40.040,00 39.856,67 39.673,33
Sales revenues 41.396,67 41.213,33 41.030,00 40.846,67 40.626,67 40.443,33 40.260,00 40.040,00 39.856,67 39.673,33
CASH OUT-FLOWS
74.973,06 111.149,33 111.028,18 110.908,04 110.787,66 83.947,08 64.741,62 64.622,25 64.503,10 64.384,96
Material costs 17.638,00 17.556,00 17.473,00 17.391,00 17.309,00 17.226,00 17.144,00 17.062,00 16.981,00 16.900,00
Employee costs 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00
Energy costs 7.906,00 7.869,00 7.832,00 7.795,00 7.758,00 7.721,00 7.684,00 7.648,00 7.611,00 7.575,00
Maintenance 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00
Insurance costs 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00
Banking costs 258,73 257,58 256,44 255,29 253,92 252,77 251,63 250,25 249,10 247,96
Taxes 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00
Other costs 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00
Interest 2 14.909,42 11.674,28 8.100,37 4.152,23 468,01 0,00 0,00 0,00 0,00
Repayment 0,00 30.895,33 34.130,47 37.704,38 41.652,52 18.617,30 0,00 0,00 0,00 0,00
Income tax 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
NET CASH FLOW
-33.576,39 -69.936,00 -69.998,18 -70.061,37 -70.161,00 -43.503,75 -24.481,62 -24.582,25 -24.646,44 -24.711,62
36 | P a g e
CUMULATIVE NET CASH FLOW
-33.576,39 -103.512,39 -173.510,57 -243.571,94 -313.732,94 -357.236,69 -381.718,31 -406.300,56 -430.946,99 -455.658,61
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
CASH IN-FLOWS
39.490,00 39.306,67 39.086,67 38.903,33 38.720,00 38.536,67 38.353,33 38.170,00 37.986,67 37.766,67
Sales revenues 39.490,00 39.306,67 39.086,67 38.903,33 38.720,00 38.536,67 38.353,33 38.170,00 37.986,67 37.766,67
CASH OUT-FLOWS
64.264,81 64.146,66 64.027,29 63.909,14 63.791,00 63.673,85 63.555,71 63.438,56 63.321,41 63.204,04
Material costs 16.818,00 16.737,00 16.656,00 16.575,00 16.494,00 16.414,00 16.333,00 16.253,00 16.173,00 16.093,00
Employee costs 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00
Energy costs 7.538,00 7.502,00 7.465,00 7.429,00 7.393,00 7.357,00 7.321,00 7.285,00 7.249,00 7.213,00
Maintenance 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00
Insurance costs 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00
Banking costs 246,81 245,67 244,29 243,15 242,00 240,85 239,71 238,56 237,42 236,04
Taxes 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00
Other costs 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00
Interest 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Repayment 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Income tax 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
NET CASH FLOW
-24.774,81 -24.840,00 -24.940,62 -25.005,81 -25.071,00 -25.137,19 -25.202,37 -25.268,56 -25.334,75 -25.437,37
CUMULATIVE NET CASH FLOW
-480.433,42 -505.273,42 -530.214,05 -555.219,86 -580.290,85 -605.428,04 -630.630,41 -655.898,97 -681.233,72 -706.671,09
Table 31. Cash flow projections
An important notion to the presented cash flow statement is the payment ratio.
According to the information obtained from the general manager of JP BB-Term from
Bajina Bašta, the average payment ratio (the ratio between invoiced amounts to the
consumers and the amount actually paid by the consumers) is 80%. This data was
included in Table 31 when projecting the amounts of cash in-flows in the projected
period of twenty years.
Similarly to the balance sheet (profit and loss) statement, the cash flow analysis shows
that the investment in new boiler in Kostojevići will not achieve positive cash flow
throughout of the project duration. In other words, if the investment is made, it has to be
heavily subsidized at some point of the project exploitation. In this analysis we have not
included the actual savings and positive effects of the investment regarding public
interest and environmental aspects. These aspects must be taken into account by the
municipal and state officials as well.
37 | P a g e
8.4 Balance sheet projection
31. 12. 2016
31. 12. 2017
31. 12. 2018
31. 12. 2019
31. 12. 2020
31. 12. 2021
31. 12. 2022
31. 12. 2023
31. 12. 2024
31. 12. 2025
ASSETS (A+B)
142.798,99 98.551,18 79.648,11 71.395,01 63.099,09 81.566,33 92.398,54 84.101,62 75.847,61 67.592,61
A Fixed assets
154.850,00 146.700,00 138.550,00 130.400,00 122.250,00 114.100,00 105.950,00 97.800,00 89.650,00 81.500,00
The facility 154.850,00 146.700,00 138.550,00 130.400,00 122.250,00 114.100,00 105.950,00 97.800,00 89.650,00 81.500,00
B Working capital
-12.051,01 -48.148,82 -58.901,89 -59.004,99 -59.150,91 -32.533,67 -13.551,46 -13.698,38 -13.802,39 -13.907,39
Stocks 3.989,30 3.981,22 3.973,03 3.964,95 3.956,84 3.948,66 3.940,58 3.932,47 3.924,49 3.916,50
Receivables 4.312,15 4.293,06 4.273,96 4.254,86 4.231,94 4.212,85 4.193,75 4.170,83 4.151,74 4.132,64
PWC cash 2.874,77 2.862,04 2.849,31 2.836,57 2.821,30 2.808,56 2.795,83 2.780,56 2.767,82 2.755,09
Cash from in-flows
-23.227,23 -59.285,13 -69.998,18 -70.061,37 -70.161,00 -43.503,75 -24.481,62 -24.582,25 -24.646,44 -24.711,62
EQUITY & LIABILITIES (C + D + E)
142.798,99 98.551,18 79.648,11 71.395,01 63.099,09 81.566,33 92.398,54 84.101,62 75.847,61 67.592,61
C Equity -22.920,84 -36.266,50 -21.032,17 8.425,94 41.789,37 78.880,83 89.719,87 81.429,78 73.182,53 64.934,28
D Short-term liabilities
33.615,16 36.843,47 40.410,46 44.351,77 21.309,72 2.685,50 2.678,67 2.671,83 2.665,08 2.658,33
Suppliers 1.469,83 1.463,00 1.456,08 1.449,25 1.442,42 1.435,50 1.428,67 1.421,83 1.415,08 1.408,33
Employee salaries and wages
1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00
Loan due next year
30.895,33 34.130,47 37.704,38 41.652,52 18.617,30 0,00 0,00 0,00 0,00 0,00
E Loan due more than one year
132.104,67 97.974,20 60.269,82 18.617,30 0,00 0,00 0,00 0,00 0,00 0,00
31. 12. 2026
31. 12. 2027
31. 12. 2028
31. 12. 2029
31. 12. 2030
31. 12. 2031
31. 12. 2032
31. 12. 2033
31. 12. 2034
31. 12. 2035
ASSETS (A+B)
59.339,51 51.084,51 42.787,68 34.532,68 26.277,67 18.021,77 9.766,77 1.510,86 -6.745,04 -15.043,78
A Fixed assets
73.350,00 65.200,00 57.050,00 48.900,00 40.750,00 32.600,00 24.450,00 16.300,00 8.150,00 0,00
The facility 73.350,00 65.200,00 57.050,00 48.900,00 40.750,00 32.600,00 24.450,00 16.300,00 8.150,00 0,00
B Working capital
-14.010,49 -14.115,49 -14.262,32 -14.367,32 -14.472,33 -14.578,23 -14.683,23 -14.789,14 -14.895,04 -15.043,78
Stocks 3.908,42 3.900,43 3.892,42 3.884,44 3.876,45 3.868,56 3.860,57 3.852,69 3.844,80 3.836,88
Receivables 4.113,54 4.094,44 4.071,53 4.052,43 4.033,33 4.014,24 3.995,14 3.976,04 3.956,94 3.934,03
PWC cash 2.742,36 2.729,63 2.714,35 2.701,62 2.688,89 2.676,16 2.663,43 2.650,69 2.637,96 2.622,69
Cash from in-flows
-24.774,81 -24.840,00 -24.940,62 -25.005,81 -25.071,00 -25.137,19 -25.202,37 -25.268,56 -25.334,75 -25.437,37
EQUITY & LIABILITIES (C + D + E)
59.339,51 51.084,51 42.787,68 34.532,68 26.277,67 18.021,77 9.766,77 1.510,86 -6.745,04 -15.043,78
C Equity 56.688,01 48.439,76 40.149,68 31.901,43 23.653,17 15.403,94 7.155,68 -1.093,56 -9.342,79 -17.634,86
D Short-term liabilities
2.651,50 2.644,75 2.638,00 2.631,25 2.624,50 2.617,83 2.611,08 2.604,42 2.597,75 2.591,08
Suppliers 1.401,50 1.394,75 1.388,00 1.381,25 1.374,50 1.367,83 1.361,08 1.354,42 1.347,75 1.341,08
38 | P a g e
Employee salaries and
wages
1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00 1.250,00
Loan due next year
0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
E Loan due more than one year
0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Table 32. Balance sheet projection of the proposed project
Table 32 depicts the projected data on balance sheet for the investment in Kostojevići
woodchip-based boiler. However, since the investment is not profitable and liquid
throughout the life of the project, the balance sheet would not be in balance (in terms of
equality between assets and equity and liabilities). This is why this projected balance
sheet contains additions in the section of cash flow (subsidy) and equity (additional
capital requirement). This serves as the recommendation for proper officials to bear in
mind that this project would require these instruments of extra help in order to be
profitable and sustainable. The Figure 11 shows the size of this deficit in the projected
period of the project.
Figure 11. Assets and equity deficit over projected period
-20,000.00
-
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
20162017201820192020202120222023202420252026202720282029203020312032203320342035
Cash deficit
Equitydeficit
39 | P a g e
Discount rate 15,00%
Date of investment
Investment amount
Discount factor Present value of
investment on December 31, 2016
30.06.2016 171.456,39 1,00 171.456,39
30.06.2017 -33,08 0,87 -28,76
30.06.2018 -33,09 0,76 -25,02
30.06.2019 -33,08 0,66 -21,75
30.06.2020 -39,47 0,57 -22,57
30.06.2021 -33,09 0,50 -16,45
30.06.2022 -33,08 0,43 -14,30
30.06.2023 -39,47 0,38 -14,84
30.06.2024 -33,07 0,33 -10,81
30.06.2025 -33,07 0,28 -9,40
30.06.2026 -33,08 0,25 -8,18
30.06.2027 -33,07 0,21 -7,11
30.06.2028 -39,45 0,19 -7,37
30.06.2029 -33,07 0,16 -5,37
30.06.2030 -33,07 0,14 -4,67
30.06.2031 -33,05 0,12 -4,06
29.06.2032 -33,07 0,11 -3,53
30.06.2033 -33,05 0,09 -3,07
30.06.2034 -33,05 0,08 -2,67
30.06.2035 -39,44 0,07 -2,77
TOTAL 170.802,51 171.243,67
Table 33. The present value of the investment
31.12.2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
CASH IN-FLOWS 41.396,67 41.213,33 41.030,00 40.846,67 40.626,67 40.443,33 40.260,00 40.040,00 39.856,67 39.673,33
Sales revenues 41.396,67 41.213,33 41.030,00 40.846,67 40.626,67 40.443,33 40.260,00 40.040,00 39.856,67 39.673,33
CASH OUT-FLOWS
74.973,06 80.255,15 76.900,00 73.207,10 69.139,96 65.335,73 64.748,73 64.630,73 64.512,73 64.395,73
Material costs 17.638,00 17.556,00 17.473,00 17.391,00 17.309,00 17.226,00 17.144,00 17.062,00 16.981,00 16.900,00
Employee costs 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00
Energy costs 7.906,00 7.869,00 7.832,00 7.795,00 7.758,00 7.721,00 7.684,00 7.648,00 7.611,00 7.575,00
Maintenance 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00
Insurance costs 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00
Banking costs 258,73 258,73 258,73 258,73 258,73 258,73 258,73 258,73 258,73 258,73
Taxes 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00
Other costs 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00
Interest 9.508,33 14.909,42 11.674,28 8.100,37 4.152,23 468,01 0,00 0,00 0,00 0,00
Income tax 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
NET CASH FLOW
-170.802,51 -33.576,39 -39.041,81 -35.870,00 -32.360,43 -28.513,29 -24.892,40 -24.488,73 -24.590,73 -24.656,06 -24.722,39
CUMULATIVE NET CASH FLOW
-170.802,51 -204.378,91 -243.420,72 -279.290,73 -311.651,16 -340.164,45 -365.056,85 -389.545,57 -414.136,30 -438.792,36 -463.514,75
Discount factor 1,15 1,32 1,52 1,75 2,01 2,31 2,66 3,06 3,52 4,05
DISCOUNTED NET CASH FLOW
-171.243,67 -29.196,86 -29.521,22 -23.585,11 -18.502,18 -14.176,14 -10.761,67 -9.206,22 -8.038,75 -7.008,79 -6.111,00
DISCOUNTED CUMULATIVE
-171.243,67 -200.440,54 -229.961,76 -253.546,87 -272.049,05 -286.225,19 -296.986,86 -306.193,08 -314.231,83 -321.240,63 -327.351,62
40 | P a g e
NET CASH FLOW
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
CASH IN-FLOWS 39.490,00 39.306,67 39.086,67 38.903,33 38.720,00 38.536,67 38.353,33 38.170,00 37.986,67 37.766,67
Sales revenues 39.490,00 39.306,67 39.086,67 38.903,33 38.720,00 38.536,67 38.353,33 38.170,00 37.986,67 37.766,67
CASH OUT-FLOWS
64.276,73 64.159,73 64.041,73 63.924,73 63.807,73 63.691,73 63.574,73 63.458,73 63.342,73 63.226,73
Material costs 16.818,00 16.737,00 16.656,00 16.575,00 16.494,00 16.414,00 16.333,00 16.253,00 16.173,00 16.093,00
Employee costs 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00 15.000,00
Energy costs 7.538,00 7.502,00 7.465,00 7.429,00 7.393,00 7.357,00 7.321,00 7.285,00 7.249,00 7.213,00
Maintenance 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00 1.630,00
Insurance costs 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00 815,00
Banking costs 258,73 258,73 258,73 258,73 258,73 258,73 258,73 258,73 258,73 258,73
Taxes 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00 652,00
Other costs 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00 21.565,00
Interest 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Income tax 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
NET CASH FLOW
-24.786,73 -24.853,06 -24.955,06 -25.021,39 -25.087,73 -25.155,06 -25.221,39 -25.288,73 -25.356,06 -25.460,06
CUMULATIVE NET CASH FLOW
-170.802,51
-488.301,48 -513.154,54 -538.109,60 -563.130,99 -588.218,72 -613.373,78 -638.595,18 -663.883,90 -689.239,96 -714.700,02
Discount factor 4,65 5,35 6,15 7,08 8,14 9,36 10,76 12,38 14,23 16,37
DISCOUNTED NET CASH FLOW
-171.243,67 -5.327,74 -4.645,21 -4.055,89 -3.536,24 -3.083,14 -2.688,19 -2.343,72 -2.043,46 -1.781,65 -1.555,62
DISCOUNTED CUMULATIVE NET CASH FLOW
-171.243,67 -332.679,36 -337.324,58 -341.380,47 -344.916,71 -347.999,86 -350.688,04 -353.031,77 -355.075,22 -356.856,88 -358.412,49
Table 34. Economic flow projections
Table 34 shows the projected values for economic flow of the proposed project. These
projections serve as the basis for calculations of static and dynamic indicators of
project’s efficiency (payback period, net present value, index of profitability and internal
rate of return).
9 FINANCIAL ANALYSIS
Financial analysis of the project consists mainly of ratio analysis and Z score analysis.
9.1 Ratio analysis
The ratio analysis represents specific segment of financial analysis of a project. The
essence of ratio analysis is in comparing and assessing the relationships between
certain financial statements elements. It is the good benchmark for future business
decisions. In terms of woodchip boiler ratio analysis, the results of this analysis are
presented in the Table 35. The main elements of this analysis are:
- liquidity ratios,
41 | P a g e
- activity ratios, - financial structure ratios, and - profitability ratios
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
1) Liquidity ratios
General liquidity ratio -0,36 -1,31 -1,46 -1,33 -2,78 -12,11 -5,06 -5,13 -5,18 -5,23
Rigorous liquidity ratio
-0,48 -1,41 -1,56 -1,42 -2,96 -13,58 -6,53 -6,60 -6,65 -6,70
Net operating funds (EUR)
-45.666 -84.992 -99.312 -103.356 -80.460 -35.219 -16.230 -16.370 -16.467 -16.565
2) Activity ratios
Customer turnover 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00
Average payment period
30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00
Supplier turnover 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00
Average receivable period
30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00
3) Financial structure ratios
Loan/invested capital 116,05% 136,80% 126,41% 88,20% 33,77% 3,29% 2,90% 3,18% 3,51% 3,93%
Long-term sources of funding/invested capital
76,46% 62,61% 49,26% 37,88% 66,23% 96,71% 97,10% 96,82% 96,49% 96,07%
4) Profitability ratios
EBIT rate -42,26% -42,66% -43,06% -43,47% -44,01% -44,42% -44,84% -45,40% -45,83% -46,26%
Net profit margin -60,64% -71,60% -65,83% -59,33% -52,19% -45,35% -44,84% -45,40% -45,83% -46,26%
Efficiency coefficient 62,25% 58,27% 60,30% 62,76% 65,71% 68,80% 69,04% 68,78% 68,57% 68,37%
ROA -20,01% -30,57% -37,89% -40,11% -39,41% -31,69% -25,94% -25,75% -28,55% -31,99%
ROE 415,09% 124,65% 117,84% 480,64% -105,55% -38,00% -26,77% -26,55% -29,53% -33,22%
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
1) Liquidity ratios
General liquidity ratio -5,28 -5,34 -5,41 -5,46 -5,51 -5,57 -5,62 -5,68 -5,73 -5,81
Rigorous liquidity ratio
-6,76 -6,81 -6,88 -6,94 -6,99 -7,05 -7,10 -7,16 -7,21 -7,29
Net operating funds (EUR)
-16.662 -16.760 -16.900 -16.998 -17.097 -17.196 -17.294 -17.393 -17.492 -17.635
2) Activity ratios
Customer turnover 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00
Average payment period
30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00
Supplier turnover 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00 12,00
Average receivable period
30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00 30,00
3) Financial structure ratios
Loan/invested capital 4,47% 5,18% 6,17% 7,62% 9,99% 14,53% 26,73% 172,38
% -38,51% -17,22%
Long-term sources of funding/invested capital
95,53% 94,82% 93,83% 92,38% 90,01% 85,47% 73,27% -72,38% 138,51% 117%
4) Profitability ratios
EBIT rate -46,70% -47,14% -47,73% -48,18% -48,64% -49,10% -49,57% -50,04% -50,52% -51,15%
Net profit margin -46,70% -47,14% -47,73% -48,18% -48,64% -49,10% -49,57% -50,04% -50,52% -51,15%
Efficiency coefficient 68,17% 67,96% 67,69% 67,49% 67,28% 67,07% 66,86% 66,65% 66,44% 66,16%
ROA -36,32% -41,95% -49,68% -60,60% -77,42% -107% -171% -423% 916% 221%
ROE -38% -44% -53% -65% -85% -121% -211% -788% 460% 179%
Table 35. Ratio analysis
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The liquidity ratios present useful information about project’s ability to pay all of its
related obligations when they are due. The most important ratios in this sense are:
- general liquidity ratio, - strict liquidity ratio, and - net working capital
The liquidity of the project in question is problematic. In terms of general liquidity ratio,
which should be at 2 for the project to be quality in terms of cash flow, this ratio is
negative throughout the project life cycle. Similar situation is with rigorous liquidity ratio
and net working capital.
Activity ratios tend to show the dynamics of receiving and paying obligations during the
years in question. Financial structure ratios analyze the relationship between own and
borrowed funds. In other words, these ratios relate to financial leverage of the project.
These ratios are:
- ratio between borrowed and total funds, - ratio between long-term and total funds, and - interest rate coefficient ratio
In the case of investing in woodchips boiler in Bajina Basta, the analysis reveals that the
majority of funds will be in the form of commercial banking loan. The conditions of the
loan itself were already presented.
Profitability ratios explain the earning power of the project in question. Ratio numbers
used to describe this are:
- EBIT rate, - net profit margin, - efficiency coefficient, - return on assets (ROA) - return on equity (ROE)
These ratios also show the negative profitability during the entire course of project exploitation.
9.2 Z score analysis
Z score analysis tests whether the project can go into the bankrupt zone during its
lifetime. The results of Z score are interpreted in the following manner:
43 | P a g e
• Z > 2,99 – safety zone
• 1,81 < Z < 2,99 – danger zone
• Z < 1,81 – possible bankruptcy
The project in questions has the problem with potential bankruptcy until the fifth year of
exploitation. The first five years are critical due to the existence of banking loan in this
period. Table 36 shows the results of this analysis.
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Net operating funds -45.666,17 -84.992,30 -99.312,35 -103.356,75 -80.460,63 -35.219,17 -16.230,13 -16.370,22 -16.467,47 -16.565,72
Total assets 142.798,99 98.551,18 79.648,11 71.395,01 63.099,09 81.566,33 92.398,54 84.101,62 75.847,61 67.592,61
I = 1 / 2 X 0,71 -0,23 -0,61 -0,89 -1,03 -0,91 -0,31 -0,12 -0,14 -0,15 -0,17
Net profit -31.377,23 -36.887,34 -33.760,21 -30.295,33 -26.501,81 -22.925,61 -22.566,62 -22.722,25 -22.832,27 -22.943,29
Total assets 142.798,99 98.551,18 79.648,11 71.395,01 63.099,09 81.566,33 92.398,54 84.101,62 75.847,61 67.592,61
II = 1 / 2 X 0,84 -0,18 -0,31 -0,36 -0,36 -0,35 -0,24 -0,21 -0,23 -0,25 -0,29
EBIT -21.868,89 -21.977,91 -22.085,94 -22.194,96 -22.349,58 -22.457,60 -22.566,62 -22.722,25 -22.832,27 -22.943,29
Total assets 142.798,99 98.551,18 79.648,11 71.395,01 63.099,09 81.566,33 92.398,54 84.101,62 75.847,61 67.592,61
III = 1 / 2 X 3,10 -0,47 -0,69 -0,86 -0,96 -1,10 -0,85 -0,76 -0,84 -0,93 -1,05
Equity -22.920,84 -36.266,50 -21.032,17 8.425,94 41.789,37 78.880,83 89.719,87 81.429,78 73.182,53 64.934,28
Total liabilities 165.719,83 134.817,67 100.680,28 62.969,07 21.309,72 2.685,50 2.678,67 2.671,83 2.665,08 2.658,33
IV = 1 / 2 X 0,42 -0,06 -0,11 -0,09 0,06 0,82 12,34 14,07 12,80 11,53 10,26
Revenues 51.745,83 51.516,67 51.287,50 51.058,33 50.783,33 50.554,17 50.325,00 50.050,00 49.820,83 49.591,67
Total assets 142.798,99 98.551,18 79.648,11 71.395,01 63.099,09 81.566,33 92.398,54 84.101,62 75.847,61 67.592,61
V = 1 / 2 X 1,00 0,36 0,52 0,64 0,72 0,80 0,62 0,54 0,60 0,66 0,73
Z TEST -0,58 -1,21 -1,54 -1,58 -0,73 11,56 13,53 12,19 10,85 9,48
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Net operating funds -16.661,99 -16.760,24 -16.900,32 -16.998,57 -17.096,83 -17.196,06 -17.294,32 -17.393,56 -17.492,79 -17.634,86
Total assets 59.339,51 51.084,51 42.787,68 34.532,68 26.277,67 18.021,77 9.766,77 1.510,86 -6.745,04 -15.043,78
I = 1 / 2 X 0,71 -0,20 -0,23 -0,28 -0,35 -0,46 -0,68 -1,26 -8,17 1,84 0,83
Net profit -23.052,31 -23.163,33 -23.318,96 -23.429,98 -23.541,00 -23.653,02 -23.764,04 -23.876,06 -23.988,08 -24.145,71
Total assets 59.339,51 51.084,51 42.787,68 34.532,68 26.277,67 18.021,77 9.766,77 1.510,86 -6.745,04 -15.043,78
II = 1 / 2 X 0,84 -0,33 -0,38 -0,46 -0,57 -0,75 -1,10 -2,04 -13,27 2,99 1,35
EBIT -23.052,31 -23.163,33 -23.318,96 -23.429,98 -23.541,00 -23.653,02 -23.764,04 -23.876,06 -23.988,08 -24.145,71
Total assets 59.339,51 51.084,51 42.787,68 34.532,68 26.277,67 18.021,77 9.766,77 1.510,86 -6.745,04 -15.043,78
III = 1 / 2 X 3,10 -1,20 -1,41 -1,69 -2,10 -2,78 -4,07 -7,54 -48,99 11,02 4,98
Equity 56.688,01 48.439,76 40.149,68 31.901,43 23.653,17 15.403,94 7.155,68 -1.093,56 -9.342,79 -17.634,86
Total liabilities 2.651,50 2.644,75 2.638,00 2.631,25 2.624,50 2.617,83 2.611,08 2.604,42 2.597,75 2.591,08
IV = 1 / 2 X 0,42 8,98 7,69 6,39 5,09 3,79 2,47 1,15 -0,18 -1,51 -2,86
Revenues 49.362,50 49.133,33 48.858,33 48.629,17 48.400,00 48.170,83 47.941,67 47.712,50 47.483,33 47.208,33
Total assets 59.339,51 51.084,51 42.787,68 34.532,68 26.277,67 18.021,77 9.766,77 1.510,86 -6.745,04 -15.043,78
V = 1 / 2 X 1,00 0,83 0,96 1,14 1,41 1,84 2,67 4,91 31,58 -7,04 -3,14
Z TEST 8,08 6,63 5,11 3,48 1,64 -0,70 -4,78 -39,03 7,30 1,16
Table 36. Z score analysis
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10 INVESTMENT EFFICIENCY INDICATORS
The projected efficiency of the investment project plays a significant role in the
assessment of the project’s feasibility. There are two categories of efficiency indicators:
dynamic (that take into account the time value of money), and static (which do not take
into account time value of money concept).
10.1 Dynamic efficiency indicators
The basic dynamic efficiency indicators of the project, which will be used to assess the
profitability of the proposed project, are:
• Net present value (NPV),
• Profitability index (Ip), and
• Internal rate of return (IRR)
Net present value represents the difference between present value of net cash inflows
and present value of initial investment. Present values are calculated with discount
method. The evaluation criterion in case of NPV is its amount. If the NPV amount is
positive, the project should be considered for implementation. In the case of JP “BB-
Term”, the NPV is calculated as follows:
PVId)(1
NCIn......
d)(1
NCI2
d)(1
NCI1NPV
n2
= -358.412,49 EUR
NPV – Net present value,
NCIn – Net cash inflow in year n,
n – The lifetime of the project,
d – Discount rate (in this case 15%)
PVI – Present value of investment
Profitability index (Ip) represents the ratio between present value of the project’s benefits
and present value of investments. In case of investment in new boiler in Kostojevići, the
profitability index is calculated as follows:
45 | P a g e
PVI
NPVIp -209.30%
Profitability index shows the percentage of initial investment of the project that can be
reinvested in the second project, after the completion of the first one. In our case, the
profitability index is negative, which warns the investors not to invest.
Internal rate of return (IRR) is the discount rate that equalizes NPV of the project with
zero. In other words, IRR equalizes the present value of cash inflows with the present
value of cash outflows. This indicator is important because it points to the possible
annual interest rate that can be paid from the project’s cash outflows. It is important that
IRR has the value above the mentioned interest rate in order for the project to be
acceptable. IRR for this particular project is not possible to calculate since the
calculation requires at least one positive value for cash in-flows.
10.2 Static efficiency indicators
The basic static indicator of investment efficiency is the payback period. Payback period
represents the time needed for cash inflows to return the initial investment in the project.
The criterion for applying this indicator is selecting the project with the shortest
acceptable payback period. Since the project does not have positive cash flow in none
of the years in question, it is not possible to calculate this measure of project
performance.
11 ANALYSIS IN UNCERTAINTY
11.1 Break-even analysis
2035
Material costs 16.093,00
VARIABLE COSTS 16.093,00
Employee costs 15.000,00
Amortization 8.150,00
Energy costs 7.213,00
Maintenance 1.630,00
Insurance costs 815,00
Banking costs 236,04
Taxes 652,00
Other costs 21.565,00
Interest 0,00
FIXED COSTS 55.261,04
TOTAL COSTS 71.354,04
46 | P a g e
Table 37. Break-even calculation
Value break-even= ratecosts Variable-1
costs Fixed= 929,993.98 EUR
Figure 12. Break-even diagram
The break-even diagram shows that this project would reach the edge of profitability only
in situation when the capacity utilization reaches 177.6%, which is not likely to happen in
the current circumstances.
11.2 Sensitivity analysis
The sensitivity analysis illustrates project’s sensitivity towards certain chosen key inputs.
The chosen inputs in this situation are total revenues, material costs, energy costs, and
maintenance costs. The changes in these chosen parameters are reflected in certain
key performance indicators; in this case, these are net present value and profitability
index. As we can see, the project is much more sensitive to revenues changes in the
analyzed period (Table 38 and Figure 13 and 14).
Parameter Parameter change Net present value
(EUR) Profitability index
Base value 0% -358.412,49 -209,30%
Total revenues -5,00% -370.617,00 -216,87%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
0.00% 25.00% 100.00% 177.60%
Capacity utilization
Capacity utilization
Revenues
Fixed costs
Variable costs
Total costs
Break-evenpoint
47 | P a g e
Total revenues -10,00% -382.821,51 -224,47%
Total revenues +5% -346.207,98 -201,76%
Total revenues +10% -334.003,48 -194,25%
Material costs -5,00% -352.991,19 -206,18%
Material costs -10,00% -347.569,90 -203,06%
Material costs +5% -363.833,79 -212,42%
Material costs +10% -369.255,09 -215,53%
Energy costs -5,00% -355.987,88 -207,90%
Energy costs -10,00% -353.563,27 -206,50%
Energy costs +5% -360.837,10 -210,70%
Energy costs +10% -363.261,72 -212,10%
Maintenance costs -5,00% -357.899,87 -209,00%
Maintenance costs -10,00% -357.387,24 -208,71%
Maintenance costs +5% -358.925,12 -209,60%
Maintenance costs +10% -359.437,74 -209,89%
Table 38. Sensitivity analysis
Figure 13. Net present value sensitivity
-390,000.00
-380,000.00
-370,000.00
-360,000.00
-350,000.00
-340,000.00
-330,000.00
-320,000.00
-310,000.00
-300,000.00
-5,00% -10,00% +5% +10%
Net present value sensitivity
Total revenues
Material costs
Energy costs
Maintenance costs
48 | P a g e
Figure 14. Profitability index sensitivity
‘
11.3 Setting the price of heating energy
The study showed that at current conditions, in terms of purchasing price of woodchips,
the selling price of heating, the conditions of the proposed loan, and the financial
analysis implemented, everything points to the conclusion that the project is not
adequate for further pursuing in terms of investment. However, the model implemented
allows us to alter the level of selling prices in order to achieve the projects long-term
profitability. The best way to do this is to implement sensitivity analysis when selling
price is the main input, and the net present value is the variable whose appropriateness
we would like to achieve. The reason why we choose net present value as the main
predictor of project’s profitability is its ability to assess the project’s efficiency during the
entire period of its exploitation. The sensitivity analysis revealed the following
relationship between selling price and net present value (Table 39).
-230.00%
-225.00%
-220.00%
-215.00%
-210.00%
-205.00%
-200.00%
-195.00%
-190.00%
-185.00%
-180.00%
-175.00%
-5,00% -10,00% +5% +10%
Profitability index sensitivity
Total revenues
Material costs
Energy costs
Maintenance costs
49 | P a g e
Parameter Parameter increase Net present value
(EUR) Profitability index
Price per kWh 20,00% -309.594,46 -179,32%
Price per kWh 50,00% -236.367,41 -135,26%
Price per kWh 100,00% -114.322,33 -64,13%
Price per kWh 250,00% 7.722,75 4,25%
The needed price 246,84% 0,01 0,00%
Table 39. Setting the price
Since the base value for the price was 0,04583 Eur/Kwh, we come to the conclusion that
the desired price for this project (in order to achieve its long-term profitability measured
by net present value) should reach 0,11313 Eur/Kwh or 13.58 RSD/Kwh. The
relationship is presented in the Figure 15.
Figure 15. The desired price
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
20.00% 50.00% 100.00% 250.00%
Price per kWh
The price = 0,11313 Eur/Kwh
50 | P a g e
12 PRODUCTION COST REDUCTION AND FINANCIAL BENEFITS IN CASE
OF SWITCH TO BIOMASS
This study has shown that the Kostojevici district heating plant (DHP) is economically
inefficient with substantial financial losses in every year since the establishment in 2007.
Average annual financial losses of Kostojevici DHS are approximately 40.000 EUR per
year. This loss has to be covered by the profits in the other divisions of Bajina Basta
public company “BB Term” which is responsible for heating energy production or by the
local government subsidies and donations to “BB Term”. Right now, Kostojevici DHP
losses are too big burden for BB Term and local government, bringing into question the
further existence of Kostojevici district heating system.
As shown in previous analysis, switching to biomass (wood chips in particular) as a fuel
for heating energy production in Kostojevici DHP, would not make this plant profitable
giving the current heating energy consumer price i.e. the plant would still make losses
(although much smaller) unless the price of heating energy is increased by 250%.
However, this does not mean that there is no incentive to switch the plant to woodchips
instead of HFO, if the plant is going to operate in the long period, despite the absence of
economic motives. In that case, fuel switch to woodchips would provide significant
savings in fuel costs, i.e. in energy production costs, which would make financial losses
much smaller and, thus, more bearable for BB Term company and local government.
Table 40 compares the costs of HFO and woodchips in the next 20 years based on
average estimated HFO and woodchips prices and estimated energy production
(average HFO cost is 37,8 EUR/MWh, while the average woodchips cost is 14,65
EUR/MWh). The average annual HFO costs for Kostojevici DHP in the next 20 years
would be 40.800 EUR, while the costs of woodchips would be 15.800 EUR annually, i.e.
the saving on fuel would be app. 25.000 EUR annually on average.
Year Energy production
MWh HFO costs
EUR Woodchips costs
EUR
Fuel costs reduction
EUR
2016 1.129,00 42.676,20 16.539,85 26.136,35
2017 1.124,00 42.487,20 16.466,60 26.020,60
2018 1.119,00 42.298,20 16.393,35 25.904,85
2019 1.114,00 42.109,20 16.320,10 25.789,10
2020 1.108,00 41.882,40 16.232,20 25.650,20
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2021 1.103,00 41.693,40 16.158,95 25.534,45
2022 1.098,00 41.504,40 16.085,70 25.418,70
2023 1.092,00 41.277,60 15.997,80 25.279,80
2024 1.087,00 41.088,60 15.924,55 25.164,05
2025 1.082,00 40.899,60 15.851,30 25.048,30
2026 1.077,00 40.710,60 15.778,05 24.932,55
2027 1.072,00 40.521,60 15.704,80 24.816,80
2028 1.066,00 40.294,80 15.616,90 24.677,90
2029 1.061,00 40.105,80 15.543,65 24.562,15
2030 1.056,00 39.916,80 15.470,40 24.446,40
2031 1.051,00 39.727,80 15.397,15 24.330,65
2032 1.046,00 39.538,80 15.323,90 24.214,90
2033 1.041,00 39.349,80 15.250,65 24.099,15
2034 1.036,00 39.160,80 15.177,40 23.983,40
2035 1.030,00 38.934,00 15.089,50 23.844,50
Total 816.177,60 316.322,80 499.854,80
Table 40. Estimated fuel costs
As fuel costs are only a part of total energy production costs, Table 41 compares the
total production costs of Kostojevici DHP with HFO and woodchips as a fuel. As
previous analysis has shown, the unit cost of thermal energy produced with woodchips
as a fuel would be 53,0 EUR/MWh (with investment included), while the unit cost of
heating energy produced with HFO as a fuel, which is 64,4 EUR/MWh.
Year Energy production Energy production costs
with HFO
Energy production costs with woodchips (investment included)
Energy production costs reduction
MWh EUR EUR EUR
2016 1.129,00 72.707,60 59.837,00 12.870,60
2017 1.124,00 72.385,60 59.572,00 12.813,60
2018 1.119,00 72.063,60 59.307,00 12.756,60
2019 1.114,00 71.741,60 59.042,00 12.699,60
2020 1.108,00 71.355,20 58.724,00 12.631,20
2021 1.103,00 71.033,20 58.459,00 12.574,20
2022 1.098,00 70.711,20 58.194,00 12.517,20
2023 1.092,00 70.324,80 57.876,00 12.448,80
2024 1.087,00 70.002,80 57.611,00 12.391,80
2025 1.082,00 69.680,80 57.346,00 12.334,80
2026 1.077,00 69.358,80 57.081,00 12.277,80
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2027 1.072,00 69.036,80 56.816,00 12.220,80
2028 1.066,00 68.650,40 56.498,00 12.152,40
2029 1.061,00 68.328,40 56.233,00 12.095,40
2030 1.056,00 68.006,40 55.968,00 12.038,40
2031 1.051,00 67.684,40 55.703,00 11.981,40
2032 1.046,00 67.362,40 55.438,00 11.924,40
2033 1.041,00 67.040,40 55.173,00 11.867,40
2034 1.036,00 66.718,40 54.908,00 11.810,40
2035 1.030,00 66.332,00 54.590,00 11.742,00
Total 1.390.524,80 1.144.376,00 246.148,80
Table 41. Estimated energy production costs (investment included)
As shown in Table 41, the average total costs of heating energy production with HFO as
a fuel would be 69.500 EUR per year, while the total costs with woodchips would be
57.200 EUR per year. This represents the average annual costs reduction of 12.300
EUR. Bearing at mind the current annual losses of Kostojevici DHP which equals app.
40.000 EUR, this reduction would decrease the losses by 30%.
If we compare the heating energy production costs with HFO and biomass without
investment costs included, different result is obtained (Table 42). The unit costs of
energy produced with woodchips would be 45,5 EUR/MWh in average over the 20 years
period. While the average cost of production the heating energy with HFO is still 69.500
EUR per year, the costs of energy production with woodchips would be 49.100 EUR per
year, i.e. the production costs would be reduced for 20.400 EUR per year.
Year Energy production Energy production costs
with HFO
Energy production costs with woodchips
(investment not included)
Energy production costs reduction
MWh EUR EUR EUR
2016 1.129,00 72.707,60 51.369,50 21.338,10
2017 1.124,00 72.385,60 51.142,00 21.243,60
2018 1.119,00 72.063,60 50.914,50 21.149,10
2019 1.114,00 71.741,60 50.687,00 21.054,60
2020 1.108,00 71.355,20 50.414,00 20.941,20
2021 1.103,00 71.033,20 50.186,50 20.846,70
2022 1.098,00 70.711,20 49.959,00 20.752,20
2023 1.092,00 70.324,80 49.686,00 20.638,80
2024 1.087,00 70.002,80 49.458,50 20.544,30
53 | P a g e
2025 1.082,00 69.680,80 49.231,00 20.449,80
2026 1.077,00 69.358,80 49.003,50 20.355,30
2027 1.072,00 69.036,80 48.776,00 20.260,80
2028 1.066,00 68.650,40 48.503,00 20.147,40
2029 1.061,00 68.328,40 48.275,50 20.052,90
2030 1.056,00 68.006,40 48.048,00 19.958,40
2031 1.051,00 67.684,40 47.820,50 19.863,90
2032 1.046,00 67.362,40 47.593,00 19.769,40
2033 1.041,00 67.040,40 47.365,50 19.674,90
2034 1.036,00 66.718,40 47.138,00 19.580,40
2035 1.030,00 66.332,00 46.865,00 19.467,00
Total 1.390.524,80 982.436,00 408.088,80
Table 42. Estimated energy production costs (investment not included)
Figure 16 depicts potential reductions in costs of fuel and total production costs in case
of fuel switch to biomass over the period from 2016 to 2035.
Figure 16. Estimated fuel costs and total energy production costs reduction
Although presented reduction in costs would not be enough to push the Kostojevici DHP
in profit zone, it is reasonable to calculate the investment return period based on these
costs reductions, if the plant is going to be operational in the next period.
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
20162017201820192020202120222023202420252026202720282029203020312032203320342035
production costs reduction (investment incl.) fuel costs reduction
production costs reduction (investment not incl.)
54 | P a g e
Figure 17 depicts the investment return by total energy production costs reduction in
case of fuel switch to woodchips. As shown, the total investment cost (loan and interest
payment) would be paid off in 10 years based on lower DHP’s production costs.
Figure 17. Estimated investment paid off by reduction in production costs
-250,000
-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
250,000
20162017201820192020202120222023202420252026202720282029203020312032203320342035
55 | P a g e
13 CONCLUDING REMARKS
Kostojevici district heating plant (DHP) is economically inefficient with substantial
financial losses in every year since the establishment in 2007. Average annual financial
losses of Kostojevici DHS are approximately 40.000 EUR per year. This brings into the
question the further existence of district heating plant in Kostojevici. In order to find
economically viable solution, substitution of HFO fueled boilers with biomass fueled
boilers is proposed. This study has estimated the potential economic effects and the
bankable business plan was developed.
Substitution of heavy fuel oil (HFO) with woodchips as a fuel in district heating system in
Kostojevici village could lead to economic benefits in form of lower costs of fuel and thus
lower cost of production of heating energy. Expressed per unit of produced thermal
energy, the fuel cost in case of woodchips as a fuel would be 14,65 €/MWh during the
next 20 years (the depreciation time of investment), in comparison with 37,8 €/MWh in
case of HFO as a fuel.
If all costs of heating energy production are taken into consideration, the unit cost of
thermal energy produced with woodchips as a fuel would be 53,0 EUR/MWh (this
includes the investment cost). This is lower than the unit cost of heating energy
produced with HFO as a fuel, which is 64,4 EUR/MWh.
Although the switch from HFO to woodchips as a fuel would generate the substantial
decline in production costs of district heating plant in Kostojevici, this still does not mean
that the proposed investment is financially justified. In order to explore economic
efficiency of the project, we should take into account the consumer price and revenues
from selling the heating energy. If the last three-year average selling price is taken into
account, this project fails to accommodate to the basic demands of any investor. If this
investment was covered only by the commercial banking loan, the investment would not
pay off in the long run (20 years). The project would need heavy subsidy by the
municipality or the state, in which case it is possible for it to create financial and
economic value in this period. All aspects of this bankable study (profitability, cash flow,
ratio analysis, Z score analysis, sensitivity analysis) lead to the conclusion that this
investment project should not be pursued under the current circumstances. If we want
this project to be viable and efficient during the period of 20 years, the price per kWh
56 | P a g e
should be at 0,11 EUR/kWh or 13,58 RSD/kWh, with all the other factors intact. This
price is substantially higher than the current one - approximately 0,046 EUR/kWh or 5,5
RSD/kWh.
However, this does not mean that there is no incentive (under the current
circumstances) to switch the plant to woodchips instead of HFO, if the plant is going to
operate in the long period, despite the absence of economic motives. Fuel switch to
woodchips would provide significant savings in fuel costs, i.e. in energy production
costs, which would make financial losses much smaller and, thus, more bearable for BB
Term company and local government.
Reduction in annual costs of fuel in case of using the woodchips instead of HFO is
estimated at approximately 25.000 EUR in average over the next 20 years period.
Bearing at mind the other costs associated with production of heating energy, annual
reduction in total costs of Kostojevici DHP would be approximately 20.400 EUR over the
same period. Thus, the total investment cost (loan and interest payment) would be paid
off in 10 years based on lower DHP’s production costs.
All financial indicators would be much better if the national or local government would
introduce the subsidy which the Kostojevici DHP would be eligible to use. This subsidy
could be the one for the economic development of border areas, underdeveloped areas,
or the subsidy for producing the heating energy from renewable energy sources
(including wood biomass). Without such subsidies, or without the substantial consumer
price increase, the DHP in Kostojevici would not be able to become profitable. However,
if DHP in Kostojevici is going to exist in the long period anyway, the fuel switch to
biomass makes economic sense, in terms of reduction of production costs and, thus,
lowers losses.
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14 LIST OF ABBREVIATIONS
CAPEX
Capital expenditure ......................... 21 CO2
Carbon-dioxide ................................ 13 DHP
district heating plant .......................... 8 DHS - District heating systems ............. 4
EBIT
Earnings before interest and taxes . 41 EUR
Euro ................................................ 24 HFO
Heavy fuel oil ................................... 4 Ip
Profitability index ............................. 43 IRR
Internal rate of return....................... 43 km
kilometers .......................................... 5 kW
kilowat ............................................... 7
kWh
Kilowat per hour ................................ 4 MWh
megawat per hour ............................. 9 NCI
Net cash in-flow .............................. 43 NPV
Net present value............................ 43 OPEX
Operating expenditures .................. 21 PVI
Present value of investment ........... 43 RES
Renewable energy source .............. 13 ROA
Return on assets............................. 41 ROE
Return on equity ............................. 41 RSD
Serbian dinar .................................. 11
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15 LIST OF TABLES
Table 1. Heating area, volume and capacity of heating installation of Kostojevici DHS in
2008-2015 (source: JP “BB Term”) .................................................................................. 7
Table 2. Heating area, volume and capacity of heating installation of Kostojevici DHS in
2015 (source: JP “BB Term”) ........................................................................................... 8
Table 3. Heating energy installations and production in Kostojevici DHP (source: “JP-
Term”) .............................................................................................................................. 9
Table 4. Energy and costs efficiency Indicators (source: Elaboration of Technical Project
Concept from Sourcing to Production of the fuel switch to biomass project in District
heating in Kostojevići, Bajina Bašta) .............................................................................. 10
Table 5. Financial statement summary for Kostojevici district heating system from 2011
to 2013........................................................................................................................... 12
Table 6. Fuel consumption, unit price and total fuel cost for DHS Kostojevici from 2007
to 2015 (source: JP “BB Term”) ..................................................................................... 13
Table 7. Investment costs (source: GIZ DKTI study “Elaboration of Technical Project
Concept from Sourcing to Production (production, combustion, quality control) of the fuel
switch to biomass project in District heating in Kostojevići, Bajina Bašta”) .................... 15
Table 8. Operational costs for woodchip boiler (source: GIZ DKTI study “Elaboration of
Technical Project Concept from Sourcing to Production of the fuel switch to biomass
project in District heating in Kostojevići, Bajina Bašta) .................................................. 16
Table 9. Comparative costs of energy produced by woodchips biomass and heavy fuel
oil (source: GIZ DKTI study “Elaboration of Technical Project Concept from Sourcing to
Production of the fuel switch to biomass project in District heating in Kostojevići .......... 17
Table 10. Available woody biomass and its energy potential in Bajina Basta
municipalities (source: DKTI GIZ studies: “Design of logistic concepts for wood biomass
supply chains for district heating plants in municipalities of Priboj, Novi Pazar, Bajina
Bašta and Nova Varoš).................................................................................................. 18
Table 11. Projection of the heating energy production (source: Own calculation) ......... 20
59 | P a g e
Table 12. Projection of energy projection and revenues ................................................ 21
Table 13. Projected unit cost of heat energy (source: GIZ DKTI study “Elaboration of
Technical Project Concept from Sourcing to Production of the fuel switch to biomass
project in District heating in Kostojevići, Bajina Bašta) .................................................. 22
Table 14. Projections of energy production costs (source: own calculation) ................. 23
Table 15. Projected terms of the bank loan ................................................................... 25
Table 16. The loan repayment plan ............................................................................... 27
Table 17. Annual repayment and interest (EUR) ........................................................... 27
Table 18. The investments in fixed assets ..................................................................... 28
Table 19. Permanent working capital in 20 years .......................................................... 29
Table 20. The projection of total revenues..................................................................... 30
Table 21. Projection of material costs ............................................................................ 31
Table 22. Employee costs ............................................................................................. 31
Table 23. Projected cost of depreciation and amortization (EUR) ................................. 32
Table 24. Projected costs of energy .............................................................................. 32
Table 25. Projected maintenance costs ......................................................................... 32
Table 26. Projected insurance costs .............................................................................. 33
Table 27. Projected banking costs ................................................................................. 33
Table 28. Annual property tax projection ....................................................................... 33
Table 29. Projection of other costs ................................................................................ 33
Table 30. Profit and loss statement projection ............................................................... 35
Table 31. Cash flow projections ..................................................................................... 36
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Table 32. Balance sheet projection of the proposed project .......................................... 38
Table 33. The present value of the investment .............................................................. 39
Table 34. Economic flow projections ............................................................................. 40
Table 35. Ratio analysis ................................................................................................ 41
Table 36. Z score analysis ............................................................................................. 43
Table 37. Break-even calculation .................................................................................. 46
Table 38. Sensitivity analysis ......................................................................................... 47
Table 39. Setting the price ............................................................................................. 49
Table 40. Estimated fuel costs ....................................................................................... 51
Table 41. Estimated energy production costs (investment included) ............................. 52
16 LIST OF FIGURES
Figure 1. Geographic location of Kostojevici in Bajina Basta municipality ....................... 6
Figure 2. Boiler room and tank facility in Kostojevici ........................................................ 8
Figure 3. Boilers .............................................................................................................. 9
Figure 4. Energy production of Kostojevici DHP (source: “JP BB-Term”) ...................... 10
Figure 5. Total fuel costs and unit fuel price in DHS Kostojevici from 2007 to 2015
(source: “JP BB-Term”) .................................................................................................. 13
Figure 6. Projection of the annual reduction in installed capacity (source: GIZ DKTI study
“Elaboration of Technical Project Concept from Sourcing to Production of the fuel switch
to biomass project in District heating in Kostojevići, Bajina Bašta”) ............................... 19
Figure 7. Projection of the annual reduction of unit consumption (source: GIZ DKTI study
“Elaboration of Technical Project Concept from Sourcing to Production of the fuel switch
to biomass project in District heating in Kostojevići, Bajina Bašta”) ............................... 19
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Figure 8. Projection of heating energy production (source: GIZ DKTI study “Elaboration
of Technical Project Concept from Sourcing to Production of the fuel switch to biomass
project in District heating in Kostojevići, Bajina Bašta”) ................................................. 20
Figure 9. The structure of fixed assets investment ........................................................ 28
Figure 10. Comparison between annual energy production and revenues (logarithmic
scale) ............................................................................................................................. 31
Figure 11. Assets and equity deficit over projected period ............................................ 38
Figure 12. Break-even diagram ..................................................................................... 46
Figure 13. Net present value sensitivity ......................................................................... 47
Figure 14. Profitability index sensitivity .......................................................................... 48
Figure 15. The desired price .......................................................................................... 49
Figure 16. Estimated fuel costs and total energy production costs reduction ................ 53
