Sark7 uses the DecisionTools Suite to provide due diligence for prospective investors in ‘green’ initiatives

Risk analysis software from Palisade (www.palisade.com) is used by Sark7 to develop the profitable business case for sustainable energy projects. The in-depth financial analysis generated enables potential capital investors to make an informed decision on whether a project is of interest to them given a specific risk threshold and expectation of returns.

“Environmental experts and enthusiasts need to be realistic about whether their proposal is financially viable if they are going to attract the funds that will make it a reality,” explains Scott Mongeau, founder and consultant at Sark7. “Palisade’s risk analysis tools provide the language that is familiar to the financial world, as a result of which the project is more likely to receive funding. Sustainability criteria can therefore be met at the same time as providing investors with a risk-balanced return - so everyone wins.”

Sark7 uses various components of Palisade’s DecisionTools Suite to demonstrate the viability of a biofuel plant initiative as an example. @RISK models the biofuel project’s Net Present Value (NPV), PrecisionTree informs strategic scenario decision-making and Evolver suggests plant optimisation strategies. This approach offers a due-diligence tool for prospective sustainability entrepreneurs, investors, project managers, providers and organisations.

@RISK enables probability distributions for each of the major inputs, in order that the variables of each can be measured and analysed. Overall, the @RISK model demonstrates that, given proper integrated engineering, financing, and risk hedging (via option and future derivatives), a biofuel plant can be managed in a profitable fashion – profitability being at risk where the margin between feedstock and ethanol prices narrows significantly.

Throughout the project, PrecisionTree guides the decision-making process by enabling different scenarios to be analysed depending on the particular combination of integrated roll-out factors contemplated. For example, the option of whether to build a large scale biofuel plant can be weighed up against developing a smaller plant by comparing central risk / reward factors such as the investment required and the chance of technical success.

Evolver provides the ability to run complex, multivariate optimisation problems, identifying the most cost effective, efficient, advanced plant possible while controlling financing costs and economic risk exposures.

“Palisade’s risk analysis software is simply ‘the best thing since sliced bread’, especially in our increasingly complex, uncertain global world. Because it runs in Excel, it is accessible to everyone and doesn’t become the exclusive domain of technical experts. Despite being highly sophisticated technology, it actually streamlines human conversations because it allows for integrated, like-to-like analysis of risks from the standpoint of highly specialised but distributed experts. Integrated simulation allows for the assessments of lawyers, economists, engineers, managers, and financiers to come together so that the proportional risks in mega-projects, large implementations and new technologies are clear to all,” concludes Mongeau.

Sark7 presents a biofuel plant as an example, but the principles are equally applicable to sustainable energy initiatives such as wind or solar energy.

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