Fit for Purpose – assumptions in MSW and WtE

End to end solution for treating Metropolitan Sewage and Waste (MSW) is a hot topic, and very much in the fore of forums for 2013. So enthusiastic are the players it is very difficult to differentiate the fact from the ideals. Look and you will see a lot of justification and more than adequate presentation of the material. What is more difficult is to get a clear indication of the capability and improvements over current practices.

The culprit may be assumptions, and they are widely used under management scenarios. If we define assumptions as a statement that is assumed to be true and from which a conclusion can be drawn. It might even be that as we rely more on big data an omission from the assumption can lead us to ignore the obvious. Take this example statement – Our machine can undercut all other in terms of power costs. Then if we find published a number of a competitors, but necessarily the same technology, we can quote that number and assume ours as similar or superior. Yet, as was said it is not the same technology.

Recently a post was read and it said in the US, under US Average Levelized Cost for Plants in the Annual Energy Outlook 2009 and 2010 and 2011, a typical generator running on Biomass has net requirement for a price of 11 c kWh to break even. Then came an assumption from the author that as these tables have no values for Advanced Plasma Conversion it is assumed a value of  $0.044/kwh is the value that you add for comparison. The difficulty is the published number for biomass is taken from experience and certain modeling under a list of data sources. The advanced plasma conversion unit was then part of a hypothetical assessment according to mathematical values that commence with an assumption, and will be correct until proven wrong. The fatal flaw in this is that facts are with the biomass and its testing included load scenarios and importantly it has a generator (that thing that produces electromotive force – electricity) attached. What is obscure is whether the Advanced Plasma Conversion unit is connected to a generator, or whether it needs one. For an investor this is a matter of concern, and for a professional in the industry it says embarrassing!

Another major issue is the maturity of the solutions put forward for you to make a project decision.  At program level you can take liberties and shuffle as you need to, at a project level on time and on budget can be you nemesis if you make the wrong assumptions – as said earlier – assumptions are a management scenario. CO2Land org assumes four scenarios are possible for waste handling solutions. It can be put forward to consider: Business as Usual, Gasification, and Pyrolysis, Plasma conversion.

  1. Business as usual (BAU) is an option fast running out, and in areas of rapid urbanization and rapid growing economies the time has already arrived that it cannot continue, not just because of the carbon issues but because it is an economic cost. This does not discount the importance of carbon, but indicated that developing countries needs the resource recovery as much as it is in need to develop.
  2. Gasification is an effective incineration tool, and innovations are proving to be effective in optimizing syngas recovery and returning additional products from the process for agriculture and raw material recovery.
  3. Pyrolysis is also an incineration tool, albeit at higher temperatures with the added benefit of being able to produce syncrude and chars to order. The process needs to be well managed to avoid the possibility of producing dioxins.
  4. Plasma conversion has been around for some years and has chequed history as an incineration method. Two particular issues have dogged the traditional designs. High and constant power requirement, and not being able to control temperature and ionizing across the plasma bed. Considerable claims are being made of advances in the technology. Confidence is continuing to grow on the refinement of the equipment and a number of sites across the world are being implemented.

The Cost benefit of each scenario indicates:

  • Point one is clear – the high cost of resource recovery weighs heavily when the budget is restricted for an authority and they would promote BAU until an incentive was put forward.
  • Point two and three are relevant and in more recent times the marrying of the two according to need is seeing this technology develop into a useful cost effective solution and should be the method of choice in most instances for the next 7 to 8 years.  By this it is meant it is the best technology to implement for most scenarios now and into the future in that time frame and it useful life for many more.  It also has an advantage of being complimentary to most commercial activities, and the ability to be scalable as required.  The strong point potential is to return a number of waste materials, especially plastics to virgin materials.
  • Point four will be the technology of the future; it has the potential (ideal) and the hopeful expect an almost unending product potential from this technology. The next generation is expected to be approved and producible in around 5 years. The scale of the projects required to cover the capital costs is the biggest limiting factor for future projects.

In more detail is this information the current Waste to Energy scenario suggests the difficulty is with the techno-commercial format. That comparing apples with apples may not be possible. An example is given by 
William G. Acker (http://www.ackerandassociates.com) where he looked for Advanced Plasma Conversion tables in the U.S. Annual Energy Outlook 2009 and 2010 and 2011. In these tables there are no values for Advanced Plasma Conversion. So he then said he must assume that what was claimed by another company representative was a value added to the values. He himself then assessed the closest estimate to which the technology is closest to be the figure for Biomass. This is not his definitive position, all he asks is someone to provide a value to share that is more accurate. However, in the mean time we make the assumption it must be correct until refuted

Then CO2Land org decides to ask a question in a forum on Waste to Energy (WtE): “Excuse the confusion, a lot of justification and adequate presentation of the material is provided. What is not clear is the capability from the production of an energy source to the actual electromagnetic force. In other words: what are the source, type and cost of the generator machine? Or, is your Plasma machine also a generator of electrical power in its own right without the need for other equipment?  The response: Good question!  The discussion then centres on whether matters were assumed or simply relayed on what was actually said on the capacity and nothing more.  Being that capability was not addressed is not the domain of the engineers for not giving you correct info, or how confidential agreement might stop you providing information. It may well be a simple case of the enquirers having no idea on what to ask. They do not ask because it was not obvious or lost in techno-commercial format of the communications.

In the quest for comparing apples to apples, and ignoring that baseline quotes may be flawed. To compare the possible in WtE from our view (to which we will assume you will be at odd. Information supplied illustrated:

A hearth gasifier with a reciprocating low Btu engine and conventional generator can be leased in Australia with an operating cost of 8.2cents per kilowatt-hours, with a 25,000 hours maintenance requirement. These costs are worked assuming a 1MW net unit and economies of scale suggest lower costs for larger units. If I combine the capability of the unit with a pyrolysis retort and produce syncrude and biochar, the offset pricing suggest a decrease in generation capacity will result, but the operating costs will settle at around 5 cents a kWh. The number will vary according to the feedstock quality.

Very recently an indicative quote that asked for capacity to handle MSW with1750 kcal as feedstock and input 300 tonnes per day for using advanced plasma conversion. What would be the project cost? The answer came back in the order of  $6.5m plus the cost of shredder activity and generator sets required – that is the cost to add capability is not in the cost mix.  The difficulty now is the assumption that must be made in the numbers.

In another example of a project where the project is not only proposed, is financed (and currently on hold to commence), is again supplied by William G Acker, of the MSW Plasma Gasification Facility for St. Lucie, Florida. This facility would use 686 ton per day of MSW and would produce 22 MW Gross and 18 MW Net of electricity. The installed cost came to $190,000,000. Amortized the project over 30 years with the Levelized Capital Cost alone (no maintenance cost, no labor cost etc.) comes to $0.0922 per kWh. If we add labor and maintenance costs the total may be ‘assumed’ to be around $0.14 per kWh. Then we must consider the money made for taking the waste off the hands of communities, or business that are paying to, landfill it we then could subtract around $0.03 per kWh from the operating cost resulting in $0.11 per kWh.

This results in CO2Land org asking: Will the actual plasma price to generate electricity please stand!  So we know without assumption forming the core costing criteria a project cost is capable of producing electricity for approximately 11 Cents per kWh, and the example hearth gasifier somewhere from 4.4 to 11 cents per kWh. Albeit other examples might swing wildly towards higher costs depending on the operating and technology vintage.  That said there is no doubt that given time and R&D plasma conversion in whatever form will be the way forward. In other examples plasma systems are doing OK for the job required, but academia and those in the industry say it is some way off being perfected and as efficient as it should be.

If we go back to the influence of assumptions the problem for the industry is that laboratory results and mathematical equations don’t often become reality, as not everything is scalable. In the mean time it is “danger danger, Will Robertson” as borrowed from ‘lost in space’ which was entertaining series a little while back. We also need to be fully aware of the smoke and mirrors approach that do a wonderful job with customers who are not normally that knowledgeable.

Another factor of our times is that despite each supplier wanting to win each job, they are fighting for funds within an economy where funds requiring $50M or more are highly competitive. In these instances those projects where the technology is still to be proven it will take second place to those known to do the job.

Evidence of uncertainty in the accuracy of a useful lifecycle may lead you to consider that you might want to lease the plant, it could be a lower risk in these times. The more popular in these circumstances are suggested as those that offer an operational lease rather than a financial risk.

We trust that has covered off on the choices – if you feel too much assumption is made or if you know better – please show yourself!

finding Climate skeptics are a bore

We need to go from hindsight to foresight, no matter what it is it is an issue that impacts us all. And, we find Climate skeptics are a bore. They focus on quantifying an antithesis, and the evidence keeps mounting that they are always being proven ill-informed.  Regardless of the disagreements the “how” of Stern’s argument is still valid, calculating today’s prevention costs against future damage costs.

It could as well be applied to the debate about the existence of man-made climate change – The IPCC is now 99 percent certain that it exists.

Even if it was a likely hypothesis that deniers be true: That, as they decry, the money spent on developing a response to climate change was in vain and achieved no real difference to climatic conditions. CO2Land org says would it not be that the money is well spent when the new products available to the world enhance capacity building, are the result of finding energy alternatives, increase energy efficiency, provide forest protection, reforestation, coastal protection, glacier melting water management, zero waste management, increasing disaster resilience and many other activities that are sensible for a bunch of other reasons? They would be a benefit even if climate change were not a reality.

So instead of boring us with criticism, be productive and calculate the real damage from erring on a macro-economic scale. And, consider the paradigm of wasted opportunity and how you would apply discount costs for finding and implementing alternative energy sources 50 years from now, when oil and gas are or will become scarce? That is when it is too late even to adapt to what is obvious now! As friends recently retorted: It is time to be a doer, we are sick of the gonna (slang for talk about and do nothing)

 

Think eco profit management

Think eco profit management and it means reducing energy options to affordable solutions that improve the organizational bottom line, enhance brand image and accommodate operational expansion. It is showing clients how to implement energy and carbon management systems with confidence. A piece of cake – easy to understand.

Winton Evers the MD of www.EcoProfitManagement.com.au practices sustainability management . Formerly a Chartered Accountant, Winton came across the GHG Accounting Standard and realised how much organisations could improve their financial and environmental performance by managing their carbon emission sources. So why the frustration Winton, asks CO2Land org? The answers could be obvious, it is the obtuse that form opinions in our ‘smartphone’ world at the expense of ‘real’ experiences.

Then we read of another sustainability professional, Mary C. Alford, PE, in another part of the world saying the facts are “The largest companies have embraced sustainability – why? Because it has been shown to save hard dollars – and it has the side advantage of positive spin to customers and even employees (and many other advantages that we know, but let’s pick our battles). But when the corporation is ultimately answering to stockholders, the interest is only in one pillar of the triple bottom line: profit”

Mary continues to ask us to think of the following “What is the carbon footprint of inefficiency? What is the carbon footprint of a failed project? What is the carbon footprint of meaningless travel or pointless meetings? I believe that the selling of sustainability starts with the selling of ‘lean’ business practices. They go hand in hand. Sustainability needs to be rebranded away from granola and polar bears and recycling for corporate boardrooms and rebranded for profitability. (And just for the record – I like granola and polar bears and I recycle everyday – but when I bought a Prius, I only pointed out, to my corporate clients that asked, how much money I saved).

Co2Land org has also noted the increasing use of the connotation of sustainable and the inferences of deniers of change that one that practices sustainable is part of the ‘green’ or ‘granola’ sect. It is possible but, increasingly as Winton and Mary are saying it is about the need to balance the economy, for profit of longer than the short term and CO2Land org advocates if we evaluate and cost benefit is part of the equation it would seem mother nature is fighting back and cost of doing nothing has no benefit. We are clearly saying Climate Change is real, and it does not matter if it is man made or other cause, we have the technology, but do we have the will to innovate?

On a lighter note Urban Dictionary enlightened us with the following definition and antidotes:

Definition 1 granola

Thumbs 475 up, 233 down

 

 

 
  A person who dresses like a hippy, eats natural foods (granola), and is usually a Liberal, but in all other ways is a typical middle class white person, and is likely to revert back to being straight when they finish college.

Did you see that granola chick at the farmer’s market buying bean sprouts?

Yeah, her new Volvo was parked next to me.

Definition 2 granola

Thumbs 278 up, 126 down

 

 

 
  A tree hugging, free spirited hippie minus all the drugs.

Melissa is a granola.

Definition 3 granola

Thumbs 753 up, 189 down

 

 

 
  An adjective used to describe people who are environmentally aware (flower child, tree-hugger), open-minded, left-winged, socially aware and active, queer or queer-positive, anti-oppressive/discriminatory (racial, sexual, gender, class, age, etc.) with an organic and natural emphasis on living, who will usually refrain from consuming or using anything containing animals and animal by-products (for health and/or environmental reasons), as well as limit consumption of what he or she does consume, as granola people are usually concerned about wasting resources. Usually buy only fair-trade goods and refrain from buying from large corporations, as most exploit the environment as well as their workers, which goes against granola core values. The choice of not removing body hair (see amazon) and drug use are not characteristics that define granola people, and people, regardless of granola status, may or may not partake in said activities. This definition is sometimes confused with hippy.

Jack: My best friend is vegan and only buys produce that is organically grown from local farmers. Her and her feminist, vegan boyfriend are both in Greenpeace and advocate for queer rights. She waxes her legs but she’s still granola.

Jill: So that means she’s not a dyke? And she grows her own reefer?

Jack: Just because she’s granola, doesn’t mean she does drugs. Also, granola status has nothing to do with sexual preference.

Jill: Well maybe she’ll know where to buy hemp and how to tie-dye?

Jack: She’s granola, not a hippy. Some granola people are hippy and vice-versa, but they’re not the same thing.

 

Maybe the real medicine is: if we have a bit of a laugh and settle down we can work an understanding – a sustainable one!

The irony of flooding rain and a sunburnt country

The irony of flooding rain and a sunburnt country. Most recently, floods hurt the Australian eastern states, and a matter of weeks before by devastating fires. This is focusing on the thought – Maybe climate change is closer than we think.

The ABC reporter Tracy Hutchison, on Monday 4 February 2013, made a comparison of Australia facing another summer of floods, and that we are not alone. She centred her story on how Indonesia’s capital grappled with a watery chaos and Beijing being brought to a choking halt by smog. Her point being “Australia’s recent re-acquaintance with devastating flooding in Queensland and northern NSW this summer has been another sobering reminder of the climatic shape-shifting wreaking havoc with lives and livelihoods across the country. 

Yes, Dorothea Mackellar might well have written of droughts and flooding rains in the early 1900s (while homesick for Australia as a teenager in England), but you’d be hard-pressed to find much wistful fondness among the many farmers who have watched livestock, equipment and expanses of primary produce wash away their livelihoods for the second time in two years. 

For many of these much-heralded ‘country folk’, the financial and emotional struggle of staying on the land will be too much; they’ve said as much in shocked-filled resignation as the water came back too soon. 

Watching on, from the fire-prone drier states, the unspoken narrative is screaming; where will these people go? What will they do for a living? And who will grow the food they were growing for both domestic and export markets?”

In another irony, the current Queensland Government did not see anything other than a cost/benefit analysis being required to manage the environment. Because of the events the Queensland Premier Campbell Newman is now considering the cost of the climatic events and it is hard to find a benefit calculation other than the need for a capital injection might have to come from public funds to mitigate the damage. One such project would be that some flood-prone residential areas in Queensland could be relocated “to avoid what looks increasingly like the recurring reality of extreme flooding”.

Another pair of ABC reporters, John Morrison & Kerrin Thomas, also on 4 Feb 2013 said New South Wales Premier, Barry O’Farrell, “says his visit to flood-affected regions on the North Coast has reminded him of his visit to Moree around the same time last year. 

Moree was flooded almost exactly one year ago, as floodwaters travelled downstream from Queensland. 

Barry O’Farrell told ABC’s Statewide Drive program the conditions in Grafton this year are very similar to those in Moree 12 months ago”. To paraphrase BOF’s (Premier Barry O’Farrell – we kid you not, it is a published acronym for his name) point is that the city dwellers think it is unusual and the country folk do not.  Too right mate it is bloody heart breaking for country folk, if you did not know!

The reality is what the city dweller is now able to see change, and the statement of BOF of “unusual” is losing credence as the numbers keep stacking up that something is wrong, and climate related events are becoming more extreme and records are being broken nudging the entire population to think again about climate change.

The point is made again: It is not just Australia that is affected, in Jakarta right now, where record flooding has swamped the CBD for the first time in history. As in Queensland (suggested by the Premier Campbell Newman) there is increasing talk that relocating the Indonesian capital is the only feasible solution to an escalating problem. The ABC reporter Tracy Hutchison said, “Jakarta is sinking. Literally. Years and years of unregulated private water-bores has drained the city’s below-sea-level water table dry. The record rain, coupled with an underdeveloped drainage system and the penchant of Jakartans to use the city’s waterways as rubbish dumps, brought this city of 20-odd million to a standstill of a different kind…. Australians remember the massive economic and political impact when Brisbane flooded two year ago – the disruption and cost to business, the national flood levy, the daily Bligh/Newman media show, the rebuild…..The implications of a non-functioning Jakarta are immense and wide-ranging both for Indonesia and the region. But this is the reality…And while the Indonesian capital grappled with a watery chaos, further north a different kind of stultification was engulfing the Chinese capital. The soupy and toxic coal-fuelled smog that has descended across northern China sent monitoring devices off the scale in Beijing. 

Hospitals recorded a 30 per cent increase in admissions for respiratory-related illnesses and residents were ordered to stay indoors as state-run manufacturing was put on the kind of state-instructed ‘go-slow’ not seen since the Blue Sky policies of the Beijing Olympic preparations….There is something darkly delicious about China’s state-run manufacturing boom on a state-imposed go-slow because Beijing’s middle class, the beneficiaries of the boom, can’t breathe. It’s a vexing Catch-22 for China’s new leadership – how to keep a slowing economy buoyant but avoid a widespread public health crisis – and a new twist on boom or bust. Not to mention the regional economic implications for trading partners like Australia, whose coal-exporters might possibly be the elephant in the (Beijing hospital) room? 

It doesn’t seem that long ago that “environmental refugees” living on increasingly brackish low-lying Pacific island states of Kiribati and Tuvalu were dismissed as the political fodder of fear-mongering climate change campaigners. Now, sadly, relocations from what were once primary food-producing areas are a new way of life – and it’s not just Kiribatins and Tuvaluans feeling the watery heat. 

Widespread record flooding and deadly landslides have been a common theme across the Pacific this summer – PNG, Fiji, Samoa and the Cook Islands have all battled extreme weather events from ferocious cyclones and record rains. A 

It used to be that a few thousand people with wet feet in the Pacific never got much traction outside environmental campaigner circles; perhaps this faraway time of a planet impacted by a changing climate might be closer than we think”. 

Tracey Hutchison broadcasts throughout Australia and the Asia Pacific for ABC News Radio and Radio Australia.

Bringing this closer to home in the story “Fitzroy River continues rising amid ‘sea of water’” by Paul Robinson, Monday February 4, 2013 –the story is of central Queensland and the city of Rockhampton where it two has been hit by severe floods in as many years of the Fitzroy reaching up to 9.2m. This height has the potential to cut off the city for as much as two weeks at a time. Flooding also closed the Airport. However the problem for the city is that much of the water coming in also came from further inland, which brings its own problems in terms of trade. And extensive damage to agriculture. 

Quoted is “We’ve seen loss of livestock, there’s tractors that have been washed out of sheds, four-wheelers that are a couple of hundred metres down the paddock, there’s a lot of irrigation gear and pump sheds that have just gone missing, tanks, like a lot of fodder, round bales, small bales and lucerne, all gone,” he said. 

”Tourism hit

A central Queensland tourism body says tourist operators can expect further hits to business as Rockhampton prepares for Saturday’s flood peak. 

Capricorn Enterprise says highways cut by floodwaters severely damage tourism”. Also affected is rail infrastructure and mining activities and it is reported that “rail company Aurizon says coal rail lines to Gladstone could be closed for more than a week…. An Aurizon spokeswoman says crews are still unable to fully assess the situation because the rail line is under water. However, she says at the moment they expect the Moura and Blackwater systems will reopen within seven to 10 days. 

Freight operations along the coast have also been interrupted by flooding of the Queensland Rail network”. 
We should also say roads are also cut or restricted for use at different points too.

CO2Land org thinks maybe BOF had it the wrong way around. Country folk are finding it unusual that 10, 50 and 100 years events are happening, seemingly every 2 years. It is city folk that are tending to think it is normal and even the assistance appeals are failing to reach the targets.  Is it too late, how can we adapt at this rate? What is the cost of taking the high ground!

EPBC Powers – COAG passing the ball?

A seemingly disjointed argument: Commonwealth devolving EPBC powers to States and Territories and the Founder-CEO of GIST Advisory, a specialist consulting firm which helps governments and corporations discover, measure, value and manage their impacts on natural and human capital held a seminar at the Australian National University (ANU), 5 December 2012. In essence, both argue over the move from federalism models of influence to enterprise models.

As an analogy, and as we in all likelihood, need the technology to research effectively, our IT systems giants can be brought into the highlights: Apple is a Federalism model and Microsoft an Enterprise model.  Co2Land org puts forward the difference is the application of standards and accreditation. One is a moderator and influencer, and he other is a executive lobbyist and controller. Another way of putting it – Apple makes devices that influence the development of things that make it work and manage the introductions of the applications that can be framed fro the devices. Microsoft makes thing work for the information flows that fit the enterprise and its vested interests, and strictly controls the infrastructure platforms they will work to within the select enterprise. If you translate that to Federal and State and Territory government workings, you might see the possibility of a run away train through select enterprise if the influence is replaced by vested interest other than the good of society, or our long term future.

If we go back to the Environmental Protection and Biodiversity Conservation Act of 1999 (EPBC) concerns:

  • We notice that Andrew Campbell, Director, Research Institute for Environment and Livelihoods, Charles Darwin University, headlines ‘Commonwealth handballs environmental protection to States and Territories’, and talks of the COAG proposal to devolve EPBC powers to States and Territories, “even for matters of national significance, may be OK in principle but seems sure to end in tears. States & Territories are dis-investing in environmental capacity and are often proponents or at least key stakeholders in big development projects. Existing S/T legal frameworks are patchy. Hard to imagine that the Commonwealth will invest sufficiently in monitoring or compliance to ensure that other jurisdictions adhere rigorously to the COAG agreement”. He then said “when inevitable controversy occurs, the Commonwealth Minister will be blamed anyway”.
  •  Preceding Campbell, 0n 5 December 2012, http://theconversation.edu.au ,the Conversation printed, ‘Commonwealth should keep final say on environment protection’. This creditable account even offered what interests the authors may have to declare including:  Lee Godden has received funding from the Australian Research Council for a project on environmental governance and climate change. Jacqueline Peel receives funding from the Australian Research Council under grants relating to climate change regulation and litigation. Lisa Caripis has volunteered with a number of climate change advocacy groups including the Australian Youth Climate Coalition (AYCC).
  •  The ‘Conversation’ story is compelling and to quote “Almost 30 years ago, the  Australian High Court gave the Commonwealth Government constitutional authority to make laws protecting the national environment. Now, a Council of Australian Governments (CoAG) agreement will severely limit the practical scope of that Commonwealth power. CoAG has initiated a fast-tracked process to effectively devolve Commonwealth development approval powers under the Environment Protection and Biodiversity Act 1999 (EPBC Act) to the states. This could see a return to a highly decentralised system of environmental management in Australia, which means nationally significant areas and problems could receive inadequate attention”.

At the ANU scheduled seminar for GIST – Pavan Sukhdev, he defines an economy as one that improves human well-being and social equity while also reducing environmental risks and ecological scarcities. While focused on an economy: It is an urgent need to build a green economy as was the primary theme of the ‘Rio+20’ conference in June this year. Mr Sukhdev suggests that micro-level rather than macro-level changes are required to bring about a green economy, and that corporations have an important role to play in this regard.

Co2Land org asks what can be achieved by short term solutions being put to long term problems? An economy – is it an accounting function or a heritage action?  Why write about this? We must address this and other issues, and posts like this might help tackle, and influence us to avoid looming catastrophic damage to the environment, and at the very least mitigate trends in climate change. The word here is ‘responsible’ as in held accountable for bad actions, and praise for good ones. Ball passing, as described by Campbell, then becomes irresponsible!

Clean Energy (Unit Issue Charge—Auctions) Amendment Bill 2012 – passed

The seven bills passed the Senate, and the Clean Energy (Unit Issue Charge—Auctions) Amendment Bill 2012, without amendments, by 34 votes to 28 on Monday night, 26 Nov 2012. The Australian ETS will link to the EU ETS and all that is required for law is Royal Assent.

What is a bill? A bill is a proposal for a law or a change to an existing law. A bill becomes law (an Act) when agreed to in identical form by both houses of Parliament and assented to by the Governor-General.

Reference source: http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r4896

Progress of the amendment bill include:

  • House of Representative introduced and read first time 19 September 2012 to six other presentations and the third reading agreed on 11 October 2012;
  • SENATE introduced and read first time 11 October 2012 to eight other presentations where the text of bill as passed both Houses was announced on 26 November 2012.

Some advocates for the carbon price are disappointed that this passage means the end of the $15 floor price of the original premise for the local scheme, and that argument can be respected.

Albeit the bill has passed relatively quickly and by the numbers, there is little or no support to be found with the executive of the opposition leadership. On ‘the far side’, excuse the reference to cartoon characterization, it is still preferred to retort to name calling and demonization of anyone with fortitude to promote change. The question that will remain until tested is: Will we regret tying ourselves to the EU scheme, as that scheme has shown weakness in its auction system and has required intervention to stay afloat?  CO2Land org will speculate the answer is we would be far more exposed if we did not take the step. We are not alone.

Apart from the deniers the evidence is we have to go with the system. This is further emphasized when most of the industries and the economies evolve around the need for the certainty. The ETS systems bring with them a market to focus on and give them a need for the market to plan for their future in the carbon constrained world.

It is still very perplexing as to why climate change deniers can say “a bigger con than ours as it has achieved zero except make some feel good”, “they don’t call her Juliar for nothing”.  ‘They’ can easily traced to the opposition and the rallying against the carbon tax and vowing to repeal it if in government.

The opposition tack is shallow and continues to describe the carbon tax as a shambles, despite no evidence of any magnitude of negative affects being demonstrated because of the price. The greater threat to energy prices is all gaming activities on energy prices, a lackluster energy regulatory regime and the need for revenue gains for cash strapped States. Posted on September 14, 2012 by co2land The cold hard facts on state finances can be taken from this table:

  NSW VIC QLD WA SA TAS
2011/12 -$940 -$811 na -$178 -$120 -$80
2012/13 -$1000 -$635 na -$284 -$400 -$120

Table: Estimated impact of GST reduction on State budgets, 2011/12 and 2012/13 ($m). Source: State budget papers

The greater danger is the A bot leadership is to do not a thing to genuinely address the need for certainty, other than promise to repeal the legislation and leave us isolated from the global benefits. The tragic comedy continues where one Nationals senator Ron Boswell said as quoted by the ABC on renewable energy targets and the carbon price driving up electricity prices. “Australia is in an expensive energy hole right now because … of the carbon tax, and it is time we stop digging”. No need to comment on that one, it answers itself as to what is the problem!

CO2Land org notes carbon pricing was one of the most significant changes to the Australian economy, it will be enduring but not endearing and it will be important for business to know the way to calculate the environmental cost of their activities. Otherwise they may be penalized by those places where emitters pay. We are not alone and not going to be alone. The EU ETS is followed by California’s first auction sellout – they have even found some businesses have experienced outstanding business performance in the carbon markets and plan awards ceremonies for same, and China’s planned expansion to position itself as number 2 ETS market ahead of California should give confidence to our businesses and innovators that understand the importance of carbon and to be a sustainable entity. Posted on November 14, 2012 by co2land “The official start for California’s Carbon Pollution Allowances purchase of permits at auction starts 14 November 2012.” In a previous story California’s ‘carbon market mandate’ posted on 9 October 2012 by co2land it was said “Looking at what the Californian’s have done: They have taken the approach that big business can be encouraged from polluting the environment”. The http://news.yahoo.com/california-sells-first-pollution-permits-222337650.html reports on 19 November 2012 that the sellout of 23.1M permits attracted $10.09 each.

If you need more, or need to know what all this really means to the two way linking of the EU ETC, the AU ETS and Carbon pricing following is the Federal Government’s link on the agreement

Download the PDF

Australia and European Commission agree on pathway towards fully linking emissions trading systems (88 kB)

 

 

SMART the two way difference!

We hear smart phone, meters, grids, systems all around us and we can be driven to distraction hearing this and not knowing what is really means. Our frustration includes that dictionaries do little to help us understand what SMART really means in the context of today. The context being SMART is more about what is deliverable through clever two-way communication.  But does that mean workable one-way communication is dumb?

Research suggests the first known uses of the term occur in the November 1981 issue of Management Review by George T. Doran (source Wikipedia). Now if we look at the objectives given by our source we find: “SMART / SMARTER is a mnemonic to guide people when they set objectives, often called Key Performance Indicators (KPIs), for example for project management, employee performance management and personal development. The letters broadly conform to the words Specific, Measurable, Attainable, Relevant and Timely with the addition of the words Evaluate and Reevaluate used in more recent literature.”

However, when we talk in terms of technology we note: “S.M.A.R.T. (Self-Monitoring, Analysis and Reporting Technology; often written as SMART) is a monitoring system for computer hard disk drives to detect and report on various indicators of reliability, in the hope of anticipating failures. When a failure is anticipated by S.M.A.R.T., the user may choose to replace the drive to avoid unexpected outage and data loss. The manufacturer may be able to use the S.M.A.R.T. data to discover where faults lie and prevent them from recurring in future drive designs.”

Then for our energy supply we note: In addition to growing concerns about the electricity grid’s robustness and reliability, the grid was designed and built with one basic objective in mind – keeping the lights on. Meanwhile, other concerns have become increasingly important in the political and public dialogue about the status and future of the electrical grid, particularly: Energy efficiency
- Environmental impacts
- Consumer choice.

Worldwide governments and utilities are investing in new technologies in order to keep up with demand for energy and build a grid that: Runs more efficiently
- Generates higher-quality power
- Resists attack
- Is self-healing
- Enables consumers to manage their energy use better and reduce costs
- Integrates decentralised generation (e.g., bioenergy, renewable energy. Gas fired), and storage (such as fuel cell) technologies.

In addition to meeting the need for reliable, high-quality power, these technologies are intended to meet the economy’s energy needs as efficiently as possible, optimizing energy consumption and related environmental impacts such as greenhouse gas emissions.

CO2Land org notes these technologies are often referred to generically as smart grid technologies. In this usage of Smart, the SMART grid describes a set of related technologies, rather than specific technology with a generally agreed-on specification.

Continuing on with SMART technologies these fall into five main areas:

  1. Two-way integrated communications: allow for real-time control, information and data exchange to optimize system reliability, asset utilization, and security.
  2. Sensing and measurement: evaluate congestion and grid stability, congestion and grid stability, monitor equipment health, detect energy theft, and support control strategies support.
  3. Advanced components: flexible alternating current transmission system devices, high-voltage direct current, first- and second-generation superconducting wire, high-temperature superconducting cable, distributed energy generation and storage devices, composite conductors, and “intelligent” appliances.
  4. Advanced control that enables rapid diagnosis of and precise solutions to specific grid disruptions or outages.
  5. Improved interfaces and decision support that reduce complexity so that operators and managers have tools to effectively and efficiently operate a grid with increasing numbers of variables.

Therefore it could be said Smart Grid is a two way communication system fundamentally concerned with the long-term sustainability of the system.

Then if we go back to SMART project management:

There is no point communicating if you do not want an effect. The effect you want to achieve must start with effective communication giving or developing a clear picture of what you want to achieve. At this point you could be evolving dumb communication as suggested at the start of this discussion – a one-way exchange keeping people informed and being supportive. The one-way communication could be reports, a newsletter or other required proforma. It may be elegant, stylish and easy to read or it might be rubbish – A scruffy report leaves the impression of a lack of control or lack of concern for what is good for the result.

To be smart in this context the communication must achieve change. That is the desired change and several key elements need to be incorporated. To start with, the most important element is:

The information needs to be Specific, Measureable, Achievable, Realistic and Time framed – SMART.

The second element is illustrate the reason why it is important TO YOU. If your audience does not believe you are feeling the need how can you expect them to understand the need.

The last element is to get mutuality. A communication that recognises the receiver can expect something of value for them too. Sometimes called WIIFM – What’s in it for me. It is said SMART people understanding WIIFM trumps altruism 8 out of 10 times.

Of course it must be ethic mutuality, and there is no point in communicating with someone if you don’t want change or an effect.

What does the formal classical description of smart refer to:

“smart  (smärt)

adj. smart·er, smart·est (the freedictionary)

1.

a. Characterized by sharp quick thought; bright. See Synonyms at intelligent.

b. Amusingly clever; witty: a smart quip; a lively, smart conversation.

c. Impertinent; insolent: That’s enough of your smart talk.

2. Energetic or quick in movement: a smart pace.

3. Canny and shrewd in dealings with others: a smart negotiator.

4. Fashionable; elegant: a smart suit; a smart restaurant; the smart set. See Synonyms at fashionable.

5.

a. Capable of making adjustments that resemble human decisions, especially in response to changing circumstances: smart missiles.

b. Manufactured to regulate the amount of light transmitted in response to varying light conditions or to an electronic sensor or control unit: smart windows.

6. New England & Southern U.S. Accomplished; talented: He’s a right smart ball player.

intr.v. smart·ed, smart·ing, smarts

1.

a. To cause a sharp, usually superficial, stinging pain: The slap delivered to my face smarted.

b. To be the location of such a pain: The incision on my leg smarts.

c. To feel such a pain.

2. To suffer acutely, as from mental distress, wounded feelings, or remorse: “No creature smarts so little as a fool” (Alexander Pope).

3. To suffer or pay a heavy penalty.

n.

1. Sharp mental or physical pain. See Synonyms at pain.

2. smarts Slang Intelligence; expertise: a reporter with a lot of smarts.

Are their other SMART’s out there? Check out this list of acronym, is there more?

Acronym Definition
SMART Self-Monitoring, Analysis, and Reporting Technology (hard drive feature; warns of problems before total failure)
SMART Self-Management and Recovery Training
SMART Science, Mathematics and Research for Transformation
SMART Start Making A Reader Today
SMART Simple Modular Architecture Research Tool
SMART Suburban Mobility Authority for Regional Transportation
SMART Small Missions for Advanced Research in Technology (NASA)
SMART Stormwater Management and Road Tunnel (project; Malaysia)
SMarT Save More Tomorrow
SMART Simple Multi-Attribute Rating Technique (software development)
SMART Sikh Mediawatch and Resource Task Force
SMART Stress Management And Relaxation Training
SMART Swatch Mercedes Art (Daimler-Benz automobile model)
SMART Sex Offender Sentencing, Monitoring, Apprehending,. Registering, and Tracking (US Department of Justice)
SMART Specific, Measurable, Achievable, Realistic, Timely
SMART System to Manage Accutane Related Teratogenicity
SMART Specific, Measurable, Achievable, Relevant, Time-Bound
SMART Simulation and Modeling for Acquisition, Requirements and Training
SMART Secondary Materials and Recycled Textiles Association
SMART Special Medical Augmentation Response Team (US Army MEDCOM)
SMART South Metro Area Rapid Transit
SMART Speed Monitoring Awareness Radar Trailer
SMART Satellite Mutual Aid Radio Talkgroup
SMART Specific, Measurable, Attainable, Realistic, Tangible
SMART State Messaging and Archive Retrieval Toolset (US State Department)
SMART Somatic Mutation and Recombination Test
SMART Save Money and Reduce Taxes
SMART Systemwide Mental Assessment Response Team (Los Angeles Police Department)
SMART Sustainable Model for Arctic Regional Tourism
SMART Special Malaysia Disaster Assistance and Rescue Team
SMART Special Military Active-Retired Travel Club
SMART Strategic Marketing and Research Techniques
SMART Sonoma-Marin Area Rapid Transit (California Bay Area)
SMART System Metric and Reporting Tool
SMART Specific, Measurable, Actionable, Relevant, and Timely (process metrics)
SMART Soundly Made, Accountable, Reasonable, and Thrifty
SMART Southern Modified Auto Racing Teams
SMART State of Missouri Alcohol Responsibility Training
SMART Smart Motorcyclists Attend Rider Training
SMaRT Sunnyvale Materials Recovery and Transfer Station (Sunnyvale, California)
SMART Somatotrophics, Memory, and Aging Research Trial (clinical trial)
SMART System of Measurement And Reporting for Technologies (Canada)
SMART Surface Mining Association for Research and Technology
SMART Shared Many-To-Many ATM Reservations
SMART Supply Maintenance Aviation Re-Engineering Team (Links maintenance and supply chains)
SMART Self-Measurement for the Assessment of the Response to Trandolapril
SMART Specific, Measurable, Appropriate, Realistic, Time-Bound
SMART Simple Maintenance of Arts
SMART Specific, Measurable, Attainable, Results-oriented, Time-based
SMART Sun Metro Area Rapid Transit
SMART Standard Modular Avionics Repair and Test (software)
SMART Statistical Methodology Analysis Reporting Technique (performance monitoring model)
SMART Senior Medication Awareness and Training
SMART Sunset Marketing and Revitalization Team (Rail advocacy group)
SMART SCSI Managed Array Technology (Compaq Smart Controller)
SMART Sailor/Marine American Council of Education Registry Transcript
SMART Students Making A Right Turn
SMART Securities Market Automated Regulated Trading Architecture
SMART Supportability Management Assessment Report Tool
SMART Sichang Marine Science Research and Training Station
SMART Safety and Mission Assurance Review Team
SMART Secure Messaging And Routing Terminal
SMART Structural Maintenance And Repair Team
SMART Stockton Metropolitan Transit District
SMART System Monitoring and Remote Tuning
SMART Susceptibility Model Assessment with Range Test
SMART Simulation and Modeling Anchored in Real-World Testing
SMART Sequential Modular Architecture for Robotics and Teleoperation (Sandia Labs)
SMART System to Motivate and Reward Teachers
SMART School Management And Record Tracking
SMART Shop Floor Modeling, Analysis, and Reporting Tool
SMART Service de Mesure et d’Analyse de La Radioactivité et des Éléments Tracés (French: Service Measurement and Analysis of Radioactivity and Trace Elements)
SMART Sales Marketing and Real Technologies Pty Ltd (Melbourne, Australia)
SMART Stockpile Materials Requirement Tabulator
SMART Solid Modeling Aerospace Research Tool
SMART Strategies for Motivating and Rewarding Teachers (Houston, Texas)
SMART Shipboard Modular Arrangement Reconfiguration Technology
SMART Southern Maine Alternative to Residential Treatment
SMART Special Medical Augmentation Reaction Team (US Army, Medical Command)
SMArt Sensor-Fuzed Munitions for Artillery
SMART Specific, Motivating, Achievable, Rewarding, and Tactical
SMART Service Management and Resource Tool (Covad)
SMART Short Maturity Analytic and Reporting Tool
SMART Small Motor Aerospace Technology
SMART Stress-Marginality and Accelerated-Reliability Testing
SMART Submarine Message Automated Routing Terminal
SMART Stock Management And Replenishment Tracking (B&Q)
SMART Supply Maintenance Assessment Review Team
SMART Space Mission Assessment for Reliability and Tactics
SMART Sensors Mounted As Roving Threads
SMART Student Managed Academic Resource Time
SMART Signaal Multibeam Acquisition Radar for Tracking (Dutch naval radar)
SMART Synthetic Multiple Aperture Radar Technology
SMART Sustainable Multi Species Agricultural Resource User Trial
SMART Stimulated Martensite-Austenite Reverse Transformation
SMART Stereoscopic Mapping and Rescaling Technology
SMART Super Music Action Ready Team (cartoons)
SMART Systems Management Analysis, Research & Test
SMART Service Management Analysis and Reporting Tool (Sprint)
SMART Shipboard Multipurpose Analysis and Reduction Tool
SMART Scalable Multi-Priority Allocation of Resources and Traffic (Newbridge)
SMART Soldiers Manual, Army Training
SMART Simulation and Modeling Assistant for Research and Training
SMART Simulation Model for Allocation of Resources for Training
SMART Skilled Motor Vehicle and Rider Training
SMART Ship’s Material Assessment and Readiness Testing
SMART System for the Management of Rejected Transactions
SMART Supply Management Army Retrieval Technique
SMART Standard Multiple Application Regulation Topology
SMART Submarine Modernization and Alterations Requirements Tool
SMART Swinger and Magnetic Analyzer with a Rotator and Twister
SMART Special-emphasis Material Action & Reporting Technique
SMART System Management & Allocation of Resources Technique
SMART Satellite Maintenance And Repair Techniques
SMART Southeast Michigan Astrologers’ Round Table
SMART Structures et Marché Agricoles, Ressources et Territoires (French: Agricultural and Market Structure, Resources and Territories)
SMART Southeast Michigan Area Rapid Transit (Metro Detroit public transit system)
SMART National Science and Mathematics Access to Retain Talent (federal grant)
SMART Security Management Architecture (Check Point Software Technologies Ltd.)
SMART Simple, Manageable, Achievable, Realistic, Timely
SMART Service Maîtrise des Risques au Travail (French: Service Risk Management at Work; Electricité de France)

Are you smart enough yet? If I was dumb I might say it is ART (attainable, result orientated and Targeted).  Because it is simply then a rating or action to occur if, rather than IF, THEN, ELSE!

Deciding to be or not to be – agricultural production

In a rural neck of the woods trouble is brewing, land values are going too high! A farmer was willing to participate in CFI, albeit for a modest return. In light of stock holdings being low in the district the idea of leasing the neighbours land was attractive. Until someone decided the Internet was a good place to advertise an enthusiastically priced land sale.

Why is this important? Because everyone then develops higher wealth expectations and the issue is the inputs become higher and the price consumers are willing to pay for the agricultural and livestock remains low.

If we accept this will happen regardless, we need to re-evaluate the purpose and future in terms of commitment to incentives. But first we need to determine the price that could be and what the market will withstand. Beef and Central (www.beefcentral.com) ran an excellent story on: What value is a fair market price to pay for rural land? Written by Michael J. Vail, Tre Ponte Corporate, Brisbane 26 Oct 2012. Verbatum “Capital Budgeting for Investment, using the Discounted Cash-Flow (DCF) Method, and Net Present Value (NPV)”

Quoting: “It is important to understand the methods used by sophisticated and experienced business-people in the world of finance and economics, both here in Australia and overseas, when making large-scale capital expenditure budgeting decisions; whether it be for investments below one million dollars or up to several hundred million dollars.

One excellent method which is technically sound, and is supported by courts when deciding cases, is the Expected Net Present Value of a Future Expected Cash-Flow Income-Stream, also called Discounted Cash-Flow (DCF) Analysis.

When finance and economic analysis is in

progress, the concept of ‘flows’ is used, to show where the money goes. Money flows ‘in’ or ‘out’, with Net Cash-Flow available to pay dividends to owners of capital.

The basic premise is as follows, you:

1. Understand a business’ past cash-flows (both in and out),

2. Understand the nature of the income cycle,

3. Understand the cost structure of the business,

4. Understand what influences (both internal and external) the business model is sensitive towards,

5. Understand the accounting and economic break-even points, for sales dollars and sales quantity,

6. Understand supply and demand issues, at the micro and macro level, for this type of business, and

7. Have a view of the future, and for the business.

8. Make assumptions (which are documented), for each line of the cash-flow.

9. Project the cash-flow forward in time for three years, using zero-based budgeting; with the balance of the current year, plus one full year, shown month-by-month, and then two further years shown on an annual basis.

10. Identify and understand the risks of the project, and, whilst mitigating where you may, come to a conclusion whether the business is more or less risky than the market (using a proxy company where you can).

11. Derive a Before-Tax, Discount Rate, which fully describes the expected risk in the project going forward over the life of the project (eg Opportunity Cost of Capital).

12. Do not use the Weighted Average Cost of Capital (WACC) method to derive the Discount Rate, unless there is an appropriate amount of equity ‘hurt-money’ on the table, and the owner’s residential property is not being used as collateral for any loans; as evidenced in the balance sheet. Otherwise use an Opportunity Cost of Capital proxy, such as the Borrowing Rate plus a Margin-of-Safety.

13. Insert the Discount Rate into the Present Value (PV) formula applicable to the circumstance, and derive a Multiple.

14. Apply this Multiple to the Earnings Before Interest and Taxes (EBIT) figure from the cash-flows above, bringing these future cash-flows back to a single number, as it would be in the present-day, discounting for time and risk.

15. A way to think about it is; if I was offered a dollar today, or a dollar in one year’s time, and the opportunity cost of not taking the dollar today is 10pc, which will I prefer? If I take the dollar today, and put it in the bank, where I can earn 10pc, I will have $1.10 in one year’s time. So, if I wait, I will be $0.10 out of pocket. Conversely, how much would I have to invest today to receive a dollar in one year’s time? The answer is $0.91 ($1.00 / 1.1). A rational person will choose to take the dollar today.

16. This is similar to what is termed a ‘perpetuity’; where an amount is “grossed-up” to what it might look like ‘at the end-of-time’.

17. Take one dollar and invest it ‘perpetually’ at 10pc per annum, and it becomes $10.00 ($1.00/ 0.1); however, when you calculate the number of years (n) to ‘perpetuity’ ($10 = $1 x (1.1)n), it is only 24-years and 58-days. Granted, this is a long period of time, though it is hardly what we imagine as perpetuity; whatever that means. However in our modelling, some assumptions are made.

18. Another example: If $1.00 @ 25pc in perpetuity equals $4.00, then the time to perpetuity equals 6.212567-years (n = log 4 / log 1.25), or 6-years and 78-days.

19. So we may observe that as perceived risk rises, the pay-off horizon shortens; or the PV shrinks. The converse is also true. This is an example of the risk/return trade-off; as there is an inverse relationship (and therefore a negative slope) between them.

20. This adjustment for interest income (or expense), is referred-to as the ‘time-value-of-money’.

21. Another concept to understand in relation to NPV analysis (where positive NPV projects are acceptable investments) is the question, what is the hurdle rate of return (IRR), or the maximum borrowing-rate (less a Margin-of-Safety), where NPV equals zero?

22. A rational investor will surely pay no more than the number this discount hurdle rate equates to under the assumptions given; yet if the long-term view of interest rates over the term of the project is less than this hurdle rate, one will see a higher NPV and is more likely to invest.

23. And if expected EBIT increases, due to better management or market conditions, then the NPV will also rise.

24. A positive side effect of a higher EBIT as a percentage of Revenue, is that perceived lending risk will also fall, leading to lower risk premiums being applied.

shall illustrate with an example.

If rural, pastoral and grazing land in the Blackall/Tambo Shire of Central Western Queensland, in large part, has an average carrying capacity for a cow-and-calf unit of 1:21-Acres, then the carrying capacity of the cow alone is 1:14.69-Acres (if weaning percentages are 80pc and bulls are joined at 3pc).

If a Margin-of-Safety of 10pc is added-on to this carrying capacity, then the number becomes 1:16.15-Acres per cow (Dry Unit Equivalent).

To arrive at a fair estimate of market value, for what this parcel of land is worth on a per-Acre basis (Walk-In, Walk-Out, including stock, plant and all things necessary for the continuing operation of a Going Concern enterprise), you should request trading and profit and loss statements from the vendor (under signed Confidentiality and Non-Disclosure Agreements) going back at least five years, and the lodged income tax returns which accompanied them. This is an important step as a part of the data verification process.

There may well be resistance to this request from the vendor, as this data is of a private and sensitive nature. However this level of disclosure, is what everyone else in the real world complies with, to ensure there is full-information on the table for a prospective purchaser to review.

The production of same gives the purchaser some higher level of comfort around the numbers, and therefore a lower level of risk premium will be applied in the NPV analysis. Also, where there is un-certainty beyond rationality, lenders will also put a higher risk premium on any funding requirements.

To continue with my example, I will assume the following inputs and equations:

1. A purchaser will not borrow more than one-half of the expected market value of the total adult cattle herd.

2. A purchaser will not borrow more than 20pc of the total Asset Value of the enterprise including all things necessary; including the land component.

3. The parcel of land is around 36,000-Acres in size.

4. The average market value of the herd is $850.00 each. (It should be around $1300.00 per Head.)

5. The average adjusted EBIT, over the period covering the past five years, and expected over the next three years, is $450,000.

6. The carrying capacity, as calculated above, is 1:16.15-Acres (Dry Unit Equivalent).

7. That an appropriate regression equation to calculate a ‘Bare of Stock and Plant’ Price for comparison, may be:-

• Y = $770.00 x (X) -0.717,where ‘X’ equals Carrying Capacity expressed as ‘Acres per Beast’.

8. That an appropriate regression equation to calculate a ‘WIWO (Operating)’ Price for comparison, may be:-

• Y = $1,417.30 x (X) -0.86,where ‘X’ equals Carrying Capacity expressed as ‘Acres per Beast’.

9. That the average Opportunity Cost of Investment is 9.5 percent per annum (Compound).

10. That a purchase should be looked-at like a perpetual Bond, paying annuity income as a coupon, and with NPV at Zero (0), to find the ‘price you should pay no more than’; using a multiple of income, and a cost to buy (reflecting perceived risk).

11. The formula for this calculation may be:-

• NPV = (EBIT x (1 + (1/Opportunity Cost))) – Original Cost.

• Setting NPV to Zero (0), the equation changes to,

• (EBIT x (1 + (1/Opportunity Cost))) = Original Cost

12. A rational risk-averse investor, only invests in positive NPV projects; so where NPV equals zero(0), you are indifferent as to whether you will invest or not.

13. There is no ‘one-true-value’.

14. Equations which model what might happen, only model our expectations of future expected cash-flow and value, and are not accurate; as only actual outcomes are measurable and real.

15. The concept of ‘common-sense’ should be fastidiously applied, and in large doses.

Expected Value per Acre: To Buy

• Bare of Stock and Plant:

– Y = $770.00 x (21.0) -0.717  = $3.124M. (or $86.79 per Acre.)

– We use the higher carrying capacity of 1:21.0 -Acres because the place is a blank piece of paper, and may have many uses; however that is the long-term carrying capacity of the place, on the average.

• WIWO (as a Going Concern):-

– Y = $1,417.30 x (16.15) -0.86  = $4.664M. (or $129.55 per Acre.)

• Value to Pay No More Than (WIWO):

– NPV = (EBIT x (1 + (1/Opportunity Cost))) – Original Cost.

– Set NPV equal to Zero (0).

– Equation becomes:-

o (EBIT x (1 + (1/Opportunity Cost))) = Original Cost.

o ($450K. x (1 + (1/0.095))) = Original Cost.

– Original Cost = $5.1868M. (or $144.08 per Acre)

– Therefore, the break-even value per Acre above, is the maximum you should pay; if the EBIT is $450K. and the borrowing cost is 9.5pcpa.

– Of course, if either variable changes, then so will the answer.

• ‘True’ value for WIWO lies between $129.55 and $144.08 per Acre.

• As you can see, it is important to have a view of the future, to ensure you do not pay too much.

• As each case is different, please consult with your advisor; however, the above should give you food for thought.

• Of course, ‘value’ is in the eye of the beholder; price is what you pay, and value is what you get.

• Be aware that under this model, if all else remains constant under the WIWO example above, except if Item-2 changes to 30pc, then the value per Acre you are willing to pay may fall to $87.72. This is a big difference, and it indicates the higher level of perceived operating and financial risk, as Debt/Equity ratio moves from 20pc or 2/8 (25pc), to 30pc or 3/7 (43pc).

• Alternately, if the Expected Future Revenue looks set to jump (due to the signing of a long-term trade agreement with another country), then the Demand Curve for beef will shift quickly relative to the Supply Curve (which is fixed in the short-term), and of course you should expect to receive a higher capital payment if you are a seller; and conversely pay more if you are a buyer.

Expected Value per Acre: To Lease or for Agistment

If you did not want to buy through lack of access to capital, and merely required Agistment, or a Lease, on a per-Head-per-Week basis (as applied to adult cattle), and the expected yield was similar to the Opportunity Cost of Capital, then the following may apply:-

– ((Value / Acre) x (Opportunity Cost) x (Carrying Capacity / Acre)) / 52-Weeks.

– Or, our old friend, (Beast Area Valuation x Opportunity Cost) / 52-Weeks.

– Dry Cattle  = ($144.08 x 9.5pc x 16.15) / 52 = $4.25 per Head per Week, or

– Dry Cattle  = ($2,326.89 x 9.5pc) / 52-Weeks = $4.25 per Head per Week.

– Wet Cattle = ($144.08 x 9.5pc x 23.10) / 52 = $6.08 per Head per Week, or

– Wet Cattle = ($3,328.25 x 9.5pc) / 52-Weeks = $6.08 per Head per Week.

– Same income overall will eventuate, but able to carry less adult cattle; per the assumptions above.

– You will note BAV is different for Wet or Dry cattle. How can this be? It is exactly the same block of land! Therefore, BAV may be confusing, and should only be used as a rough guide when valuing agricultural land.

Conclusions

What I have tried to show here, in the above assumptions and calculations, is that a rational approach needs to be made to the valuation of any investment, no matter where, or what it is; else you run the risk of paying too much.

It may also mean having your banker/financier see the investment as more high-risk than it otherwise should be, and therefore self-justifying charging you a higher interest rate premium, as applied on borrowed funds, than necessary; which may have the unintended consequence of leading to a higher risk of bankruptcy in marginal investments; remember this type of business is usually asset-rich, but cash-poor (though it should not be); so always build into your calculations a Margin-of-Safety.

The Discounted Cash-Flow (DCF) Method and the calculation of the Net Present Value (NPV) of an income stream, is a very appropriate way to value an asset of this type, and is used by investors from all walks of life; whilst also being strongly supported by the Courts, as a valid and robust approach to valuing assets.

The ‘accounting equation’ (where Assets = Liabilities + Equity), like all good algebra, must stay in balance. When valuing a business using this Method, you are valuing the Assets which you need to operate the business; however, if you are buying the business’ legal structure (ie a Pty Ltd company, for example), then take out any Surplus Assets and remove any Liabilities you are not absorbing, to arrive at the Equity Value (where Assets minus Liabilities = Equity).

Look to the long-term patterns in the data for randomness, trend, cycle, and seasonality, etcetera, by using a 13-week Weighted Moving Average of Revenue (for example), only looking back to learn; however, have a view of the future, and remember, you value an asset with a view to the future expected income from it.

The past has a memory, which carries forward, though dissipating with the passage of time; usually exponentially, depending upon the accepted usage and effect. Remember the past is just a guide to the future, so only look back to learn.

Do not pay too much; as you make your profit when you buy, not when you sell.

I encourage debate, and am happy to be proved wrong.

Good Luck, and thank you for your time.” End quote. The analysis is part of a series to Beef and Central by Michael Vail, and is addressed to investors making capital budgeting decisions towards a long-term investment in the agricultural production industry. Co2Land org posts this not as advice but for information only.

CO2Land org only adds that these numbers will change as values change and if you recall sentiments over commitment periods for CFI, you may now consider insurance packages may be the new industry to protect the family – assuming families are still allowed to compete in agriculture.

Co/trigeneration sequel – Balancing Energy in your Business

In its draft report on Electricity Networks and the Regulatory Frameworks the Productivity Commission encourages a standard approach to Embedded generation (12.2) and puts a focus on minor distributed generation such as PVs, VAWTs etc (13), and the disparities in tariffs. The general theme is to push toward time based pricing to assist technologies where it can be incorporated within a strategy of load lopping.

On 4 November CO2Land (www.co2land.org) posted “Balancing Energy in Your Business” and a quote from the story said “It might be time, if you have not already, consider curtailment opportunities, renewable generation, cogeneration or trigeneration (albeit some high profile projects may well prove to be an embarrassment for overblown claims), or combinations of technologies with emphasis on energy savings.” This sequel further explains the pros and cons of cogeneration and trigeneration. The message is fully understand it first!

Increasingly common, where gas connections are possible, is the embedding of co-generation and there is an increase trigeneration. A little 101 here:

  • Cogeneration: Also known as combined heat and power, cogeneration uses wasted heat from gas-fired engines to project into other processes such as generating more electricity or producing heating.
  • Trigeneration: Combined cooling, heat and power – goes a step further, simultaneously producing power, thermal energy and cooling. The cooling can be used for production processes or climate control.

Gas Today (www.gastoday.com.au/news/benefits_of_cogeneration_and_trigeneration/078333 ) ran a story on Benefits of cogeneration and trigeneration where the authors said: “Cogeneration and trigeneration are already well established in Australia, with a growing clientele of property owners and developers incorporating them into their new or existing buildings or plants. Flexibility in design makes these applications easy to adapt to different customer demands, and thus cogeneration and trigeneration plants can be found in various different locations, including:

  • Urban areas with office buildings or retail complexes;
  • Residential areas;
  • Industrial or manufacturing facilities, such as breweries, abattoirs and dairies;
  • Hospitals;
  • Education facilities including universities and schools;
  • Airports;
  • Government sites such as state and federal agencies; and
  • Data centres.”

However, with all good marketing efforts should come the balancing with ‘real’ stories. After reading a post of Dru Spork (Manager at Grocon in Sydney), he made the comment  “those with experience should be able to chuckle along with this”, and what did he mean? Pitfalls we suspect and what to avoid when sizing. Some common mistakes and problems are:

  1. Design size for load lopping rather than operation. This can mean the unit is insufficient to handle the building load if isolated from grid connection.
  2. Total reliance on standards measures (AS3000) design ratings and not correctly sizing to match operation. That is not measuring correctly the actual equipment selections coupled with absorbed power/run power modelling.
  3. Not considering the ‘what if’ on the power requirements when other energy efficiency initiatives or technologies are introduced. Will there be a need to run the generator?
    The economics are very important for the business case and overblown estimates could mean a stranded asset. Consider:
  • The Capex investment for different load operations.
  • Modelling the generator operation modeled at say 100%, 75% and 50% load (to predict available electrical load) and match this to absorber performance at 100%, 75% and 50% – rather than checking the quality of the heat output and how this works with the absorbers.
  • Determine building heat load in the operational model.
  • Be prepared for battles with the electrical authorities over fault levels and approval procedures (project approvals can take around 18 months).
  • Empty buildings do not need power. The operations modelling of the generators assume occupation and operations of the building.

CO2Land org considers it is not uncommon that such projects fail and it tend to be because the introduction was not planned as well as it should have been. When talking to Ahmed Abdoh, he said “that is why we in Carbon Training International offer the only nationally recognised course in Cogeneration and Trigeneration that can help how to take the right decision on size and type. check out our course on www.co2ti.com . The primary material of the Course is the work of Winton Evers (Ecoprofit Management) and Ahmed Abdoh (CO2Planet) moderated by Bill McGhie (CO2Ti).

We also ask you to consider, you will get noise complaints from the adjacent buildings when operating, you will not get $120 per KWH value every day for generating, for these projects a ‘too analytical’ engineering report is a good report!

Power of Choice – review by AEMC of DR

All community is affected by the rising cost of energy. Something can be done, and the “Power of Choice” review being run by the Australian Energy Market Commission (AEMC) and a Senate Select Committee on Electricity Prices Inquiry is underway. Both these essential bodies need to be influenced and informed about how essential the implementation of and effective Demand Response (DR) is in the National Electricity Market (NEM) in saving $billions, and continuous saving thereafter.

Over the last 11 years there have been a number of Reviews that have made clear recommendations[1] that Demand Response (DR) should be implemented in our electricity markets.  Unfortunately, all these recommendations for implementation of DR have been ignored, with the exception of DR for Reserve Capacity in Western Australia’s Wholesale Electricity Market (WEM) which works very well.  In hindsight, the lack of an effective DR mechanism in the NEM in particular has cost electricity users an estimated Present Value (PV) of $15.8 Billion[2] (this is in the order of a 9% impost on their annual electricity bills).  Worse still this loss to the community is continuing to grow.

The “Power of Choice” Review is an unfinished work, and CO2Land org has experience in the material of Demand Response (DR). DR is most effective as a formal aggregation of small amounts of demand reduction from a larger electricity users who are contracted to reduce this pre-agreed amount of their demand at times when their are extreme wholesale prices, extreme peaks in demand or in emergencies.  It is much cheaper way to address these short term events than our current outdated approach of spending billions of dollars on more generators and networks which are only needed for a total of about 40 hours per year.

In the push for acceptance of DR becoming a part of the National Electricity Market (NEM) an article was written in the Daily Telegraph, 5 Sept 2012,  (link: http://www.dailytelegraph.com.au/news/power-shift-to-cut-household-bills/story-e6freuy9-1226465075377) after it was relayed some of the source contributions were gleaned from an EnerNOC sponsored report recently completed by CME.

CO2Land org and those mentioned in this post accept we look forward and hope the AEMC is now convinced that DR is essential to minimize further price rises.

If you are confused with the terminology, hopefully the following will help you better understand: The energy market has three components that affect the price we pay: Price response (PR), Demand Response (DR) and the Emergency response (ER).  Price is largely inelastic, and as we are experiencing alternative energy sources we notice the costs have similar or more Price effects to introduce them. Demand Response (DR) is the most volatile price driver in the market where smaller splices of time require a greater build and increase capital required for infrastructure projects (pole and wires builds and maintenance needs to cater for the demand growth). Emergency Response (ER) is an energy security problem and is reactionary to large events with little warning.

References to support this view are:

[1]

  • Alan Fels, Chair of ACCC, speaking at the Inaugural EUAA Conference on 19 November 2001
  • The Parer Review 2002 “Towards A Truly National And Efficient Energy Market”
  • The EUAA April 2004 “Trial of a Demand Side Response Facility for the National Electricity Market”
  • The ERIG Review November 2006 “Review of Energy Related Financial Markets”
  • Stages 1 & 2 of the Demand Side Participation Review (Stage 3 still in progress)

[2]