Assessment of Effectiveness of Private Investments Performed in Power Energy Enterprises

David Jafaridze GTU full professor Zviad Gachechiladze Doctorate

It is principally important to develop optimal and adapted with Georgian circumstances, methodology of assessment of effectiveness of investments in Energy production of Georgia. This question is discussed in detail in the work [1], where authors developed the integral value of generalized assessment of effectiveness of investments performed in energy production plants in consideration with the factors of tariff, inflation, exchange rate of national currency and deposit interest rate. This value is based on local period of time and is easily adapted with the conditions of dynamical development of process, but criteria of the economical effectiveness of investment is considered to be the quantity of positive growth in time of generalized integral value.
The mentioned article is dedicated to the solution of the mathematic modeling of multi-factorial generalized integral value of assessment of effectiveness of private investment enclosed in the construction of energy production plants that are under the operation and to the assessment of effectiveness of investments involved in construction of air turbine power stations according to drawn out mathematic models. Construction of power energy objects is mainly carried out in Georgia under foreign or national investment, so that, two mathematic models of generalized integral value of economic effectiveness of investment need to be processed:
1) multi-factorial mathematic model of generalized integral value of economic effectiveness of private investment accomplished in the national currency for the construction of power stations;
2) multi-factorial mathematic model of generalized integral value of economic effectiveness of private investment accomplished in the foreign currency for the construction of power stations.
Based on the capital investment effectiveness evaluation generalized integral criterion [1] and after certain rearrangement, first mathematical model is determined as follows:

Where Wt denotes annual net electric energy production in kvh; Yt denotes 1 kvh electric energy production tariff; Kt denotes capital investment volume in a year t; Kt denotes net asset value; APt denotes revenues from noneconomic activity; aH denotes depreciation rate; Ct denotes annual operational expenses without depreciation; At denotes annual depreciation assignment; Rt denotes annual interest real rate; T denotes effectiveness assessment period; Tc denotes investment execution period; Jt denotes inflation rate; EH.t denotes capital productivity for power energy enterprises [5].
When a power energy enterprise construction is invested in the foreign currency, cash flow should be calculated in the national currency and then converted into the foreign currency [12] in accordance with the following formula:

<
Where AIo.I.t denotes cash flow in the predictive prices; IB.K.t denotes the national currency exchange annual variation; IS.t denotes the foreign currency annual inflation rate; Z0 denotes the national currency exchange toward the foreign currency in the base period;
Cash flow in the predictive prices is calculated as follows:

To evaluate private investment economical effectiveness incurred the construction of the Georgian power energy enterprises, it is necessary to analyze the factors involved in the generalized integral criterion [1] and make long run prognosis. See table 1.

In accordance with the mathematical extrapolation method, the prognosis formulas are being derived for the above mentioned factors.
Interest rate predictive formula equals to:

Y=0.98929(Y-1) – 0.79887(Y-2)+10.379456, (5)

Where Y-1 denotes the previous year value.
Inflation rate predictive formula equals to:

Y=0.766959·t-0.8946(Y-1)+200.2029, (6)
Where t denotes calculation year number, Y-1 denotes inflation value of the previous year.
USD/GELexchange rate predictive formula equals to:

(7)

Where t denotes calculation year number,
On the basis of the derived formulas, predictive values for the above mentioned factors are determined. The middle-term predictive data for the above mentioned factiors are illustrated in the following chart.

Middle-run predictive values for the electrical energy tariffs for the power energy suppliers are determined by GNERC [7].
To verify the goodness of the derived formulas (1) and (4) in practise let’s apply it to an exampe. For this purpose JSC “Energy Invest” Gardabani gas turbine power plant capital investment economical effectiveness is evaluated, which was recently constructed by the foreign investment. The power plant 2005-2009 technical and economical parameters were examined on the place. The power plant general design characteristics is shown in the table 2.

Based on the tables (1,2,3), chart (2) data and explored documents on place the necessary economical information for investment effectiveness assessment in JSC “Energy Invest” gas turbine power plant is shown in the table 4. As per Georgian electric energy balance 2010-2012 [13], gas turbine power plant is regarded as power system reserve source, that has influenced the prediction data.

After putting the table 4 data into the formula 4, generalized effectiveness index would be, as shown in figure 2. The analysis of the chart shows that investment effectiveness incurred in the power plant is fully paid out in 2010 and the effectiveness index continues positive growth tendency.

It should be emphasized, that the Gardabani gas turbine power plant construction final project involved construction of combined cycle power plant with installed capacity of 160 MW (see table 1). Combination of gas turbine and boiler allows to produce the more electric energy with the same natural gas consumption. Capacity enhancement is reached due to utilization of the high temperature exhaust gasses into the boiler as a result producing extra energy. The boiler installation was delayed because the existing simple cycle gas turbine power plant is stopped mostly in reserve according to the Georgian electric energy balance. After starting up the Georgia-Turkey high voltage transmission line in 2013 high efficiency thermal power plant operation in base regime will be reasonable.
In view of actuality of the issue, it wouldn’t be uninteresting to assess investment effectiveness of combining the simple cycle gas turbine and the boiler. Middle term predictive data are shown in table 5. Investment effectiveness calculation process is based on the data of production capacity, net present value of main funds, recurrent operation costs and the existing business plan.

After putting the table 5 data into the formula 4 investment effectiveness for the combined cycle gas turbine power plant would be as shown in the chart 3. Regarding the chart, effectiveness index has dropped in 2012 because of reinvestment outlay but then the effectiveness index continues positive growth tendency.