Presented by Scott Mongeau of Biomatica at the
Palisade Risk Conference in Amsterdam, March 29, 2011
An energy development ‘risk / reward parity’ level is growing between new petroleum exploration and sustainable energy initiatives. This case uses a biofuel plant case study as an example of how a profitable business case can be made for a sustainable energy project using techniques commonly applied in petroleum exploration and engineering initiatives. The toolkit includes risk analysis using Monte Carlo simulation, sensitivity analysis, optimization, correlation, econometrics, decision trees, and real options.
The biofuel industry is expected to multiply its production by a factor of 50 by 2020. The uncertainties of government subsidy, tax credits, and loan guarantees are crucial to meeting biofuel profit margins. Stochastic analysis greatly improves the ability to pinpoint risk and to identify mitigation strategies. The case study uses @RISK to model biofuel project NPV, Evolver to suggest plant optimisation strategies, and PrecisionTree to guide strategic decision making. All of these software tools are part of the DecisionTools Suite.
The approaches presented have promise as a due-diligence tool for prospective sustainability entrepreneurs, investors, project managers, and firms.
