Technical Guide 14: Best practice guideline for life cycle analysis of heat plant projects

This Technical Guide is intended to provide guidance to advisers and decision makers in considering installation of heat plant, providing background information and a methodology and tools for:

• The evaluation of the costs and benefits of the available options for heat supply over the life of a facility and the selection of the best option
• The comparative lifetime costs of heat from plant fueled by electricity, gas, coal and biomass over the project lifetime, and
• The preparation of the financial business case for the heat project as a basis for obtaining project approvals

The standardised framework for evaluation provided in this guide will ensure that comprehensive evaluations are undertaken, while providing the basis for consistency of decision making. The Technical Guide includes an Excel based analysis tool for users, as a basis for financial and risk analysis and presentation of the results.

The lifecycle analysis is based on identification of the levelised cost of energy (LCOE) through discounted cash flow analysis of all financial aspects of the heat project, plus the identification of the non-monetary and  intangible benefits  of externalities.

The methodology includes recommendations on how to deal with assumptions and undertake a financial risk and sensitivity analysis, and how to present these findings to decision makers.

• view DCF Analysis Heat Plant spreadsheet