Optimization of financing investments in a power-generation company

Transcription

1 Energy Producton and Management n the 21st Century, Vol Optmzaton of fnancng nvestments n a power-generaton company M. Khodorovsky, A. Domnkov & P. Khomenko Ural Federal Unversty after the frst Presdent of Russa B. N. Yeltsn, Russa Abstract Attractng nvestment n the Russan energy ndustry s a necessary condton for mprovng the compettveness of energy companes. It s mportant to create an nvestment budget fnancng structure, n whch the weghted average cost of funds wll be mnmal, and the amount of resources drawn from each source to ft the current market trends and fnancal sustanablty crtera power generaton company. Ths paper dscusses problems of nvestment fnancng optmzaton of a power generaton company, a proposed optmzaton model of nvestment fnancng and calculated parameters for the optmzaton of the nvestment program n the example of a Russan power generatng company. Keywords: power generaton company, nvestment, optmzaton model, fnancal sustanablty, common stocks, preferred stocks, loans, bonds, proect fnancng funds, leasng. 1 Introducton Energy s an mportant nfrastructure sector of the economy. The backbone s a part of modern energy generaton the electrcty and heat producton, on the bass of the exstng power generatng companes. One of the most pressng problems facng the Russan power generaton companes s the problem of attractng nvestment. Ths s due to the necessty to make large captal nvestments to upgrade worn-out assets n power generaton. Deprecaton of producton capacty n the energy sector by some estmates s 60%. Further deteroraton s expected obsolescence of generatng capacty, and by 2020 the volume of dsposed fxed assets n power generaton could reach ISSN (on-lne) do: /eq140061

2 46 Energy Producton and Management n the 21st Century, Vol. 1 75% [1]. The soluton to ths problem requres the use of resources sgnfcant nvestment n the energy generaton sector. Attractng nvestment resources requres the nvolvement of several sources. It s mportant to create a structure of nvestment budget fnancng, n whch the weghted average cost of funds wll be mnmal, and the amount of resources drawn from each source, adequate nvestment needs and crtera of fnancal sustanablty power generaton company. The problem of optmzng the fnancal structure of the company s consdered a fundamental work of leadng foregn and domestc scholars, such as Sharp et al. [2] Brgham and Erhard [3], Blank [4], Lukasewcz [5]. Based on the research n ths area and the specfcs of a power generatng ndustry, an optmzaton model of the nvestment program fnancng power generaton company. 2 The structure of nvestments fnancng and fnancal sustanablty Suppose power generatng company sells nvestment proects. These proects are fnanced from sources of nvestment fnancng power generaton company. Each source of fundng can be attrbuted to ther own or borrowed funds. We denote ths feature wth a k. Investment proects of power generatng companes are dfferent sze of the budget, the level of rsk, cost, and securty and lqudty commtments and other factors determnng the value of the resources. Therefore, for each of nvestment proects fnanced by the -th source s possble to determne the value of resources c. Each nvestment proect meets a certan level of nterest rates on fundng sources, n whch the realzaton of the nvestment proect s not economcally vable, due to the excess of expendture over the dscounted present value of the proect. When optmzng the fnancng of nvestments necessary to consder the mpact of the fnancng structure for the fnancal sustanablty of a power generatng company. To ths end, the model was ntroduced factor of fnancal sustanablty, whch s an ntegral measure of fnancal sustanablty [6] Energy Generatng Company (1). Evaluaton of the model parameters was carred out on the bass of emprcal data about the companes of the energy sector n Russa. G F F F F F F6 (1) where G an ntegral ndex of fnancal sustanablty power generatng company, F1 leverage levels, F2 nterest coverage rato, F3 workng captal rato of ts own sources of fundng, F4 cash rato, F5 cost-beneft rato of own funds, F6 return on EBITDA. It was found that the effect of leverage on the sources of fnancal sustanablty s not lnear (Fg. 1). Increasng the proporton of debt n the structure of fnancng sources to a certan level leads to ncreased fnancal sustanablty due to the postve effect of fnancal leverage. However, a further ISSN (on-lne)

3 Energy Producton and Management n the 21st Century, Vol ncrease n leverage reduces the fnancal sustanablty of a power generatng company due to the reducton of autonomy and ncrease leverage. To account for ths dependence n the optmzaton model wll be ntroduced by non-lnear constrant assocated wth the dependence of the fnancal sustanablty of the proporton of borrowng ntegral ndex of fnancal sustanablty Leverage rato y = x x R² = Fgure 1: The relatonshp between the fnancal sustanablty of power generatng companes and leverage rato. 3 Optmzaton model Determne the value of x as a proporton of funds rased from the -th source at a gven level of nterest rates n the total amount of resources nvolved. The functon mnmzes the cost of rased funds to fnance the nvestment program (2): F ( w) r k x k mn (2) k where r k the cost of the resources nvolved power generatng company of the -th source k-type, x k the share of the -th source of k-type nvestment program n the budget. An optmzaton model wll nclude the followng balances and lmtatons: 1. Restrctons on the cost of fnancng the nvestment program (3) k c x b (3) k ISSN (on-lne)

4 48 Energy Producton and Management n the 21st Century, Vol. 1 where b the maxmum cost of the resources nvolved to fnance the -th source, c cost of funds rased from the -th source of equty fnancng for the -th proect. 2. Budget balance of the nvestment program (4) x 1 (4) 3. Non-lnear constrant on the rato of debt to equty (5) k 2 k (a x d x e ) G where G an ntegral ndex of fnancal sustanablty power generatng company, a, d, e emprcal coeffcents of the model. 4. Restrctons on the amount of debt (6) S mn k k x S max where S mn the lower lmt value of debt, S max the upper lmt on the amount of borrowed funds. 4. Lmts on the amount of the nvestment proect (7) 0 1 x (7) Model optmzaton of the structure of the nvestment budget power generatng company n a formal statement takes the form (8): F( w) rk xk mn k c xk b k a x d x e G k Smn x Smax k x 1 0 x 1 1, m, 1, n 2 ( k k ) (5) (6) (8) The presented model s a nonlnear optmzaton problem, snce the constrant system contans a non-lnear component. ISSN (on-lne)

5 Energy Producton and Management n the 21st Century, Vol Consder the soluton of the problem of optmzng the structure of the nvestment budget power generaton company as an example of regonal power generatng company TGK-9. The man sources of fnancng of the nvestment program generatng company can be dvded nto ts own, borrowed and borrowed funds (Fg. 2). By ts own assets nclude accumulated retaned earnngs and reserves of the enterprse. The funds rased are fnancal resources receved from the addtonal ssuance of common and preferred shares and government fundng. Borrowngs obtaned on the terms of payment, maturty, repayment to credtors. These nclude bank loans, nvestment loans, proect fnancng funds, leasng, factorng, forfetng, bonds and securtzaton. The nvestment program of the PGC Defnton of budget nvestment proects Fnancng sources of the nvestment program Borrowed funds Addtonal ssue of comm.stocks Addtonal ssue of pref.stocks Publc fnancng Equty Proft Funds Authorzed captal Loans Bank loans Investment loans Proect fnancng Leasng, factorng, forfatng Bonds, securtzaton Optmal plan of fnancng the nvestment program Fgure 2: Optmzaton mechansm of nvestment fnancng power generaton company. Each source of fnancng corresponds to the level of value, whch s determned by the fnancal costs. Holders of common and preferred stock dvdends are pad the net proft of the company durng the reportng perod. On bonds coupon yeld, bank loans, nvestment loans, proect fnance and leasng nterest payments. The cost of securtzaton s also dependent on the coupon rate, as well as organzatonal and management costs assocated wth the actvtes of the SPV. In determnng the optmal structure of fundng sources s mportant to quantfy the value of the cost of resources drawn from each fundng source. Prce of fnancal resources s one of the key factors shapng the structure of the fnancng of the nvestment proect. At the same tme, no less mportant factors n determnng the structure of fundng s management flexblty (flexblty), the degree of rsk (rsk), expected returns and ther varablty (ncome), mantanng control over the busness (control) and tme of the operaton (tmng) [6]. Factors ISSN (on-lne)

6 50 Energy Producton and Management n the 21st Century, Vol. 1 affectng the cost of the resources nvolved power generatng company to fnance the nvestments lsted n the table. 4 Fnancng optmzaton of the nvestment program example Accordng to the nvestment program of TGC-9 n the company mplemented 11 nvestment proects. The data about the name of proects, ther content and the costs of mplementaton are presented n Table 1. Table 1: The nvestment program of TGC-9. Investment proect Budget, mln. Reconstructon of Perm HPP Reconstructon of Perm HPP Constructon of the New-Bereznkovskaya HPP Reconstructon Nzhneturnskaya GRES power plant Constructon Novobogoslovskaya HPP Constructon of HPP Academc Assessment of the level of dvdend payments, n order to calculate the cost of fnancng nvestments through an addtonal ssue of ordnary shares was carred out on the bass of the level of dvdends on common stock man partcpants of the stock market, owned energy generatng sector. Table 2: The level of dvdends maor energy companes. Company name Dvdends, % RusHydro H Inter RAO E. On Russa WGC Enel WGC Mosenergo Irkutskenergo Estmates of the value and volume of fnancng of the nvestment program by ssung ruble bonds can be gven on the bass of calculatng the ndustry average ISSN (on-lne)

7 Energy Producton and Management n the 21st Century, Vol performance and the value of the coupon bonds outstandng. The raw data used for the calculaton are gven n the table. Table 3: The coupon rate of the terrtoral generatng companes. Bond ssue Maturty Coupon Yeld to maturty Total outstandng, mln TGC TGC TGC TGC TGC TGC TGC TGC Avg.: The average coupon rate s 7.96% per annum, whle the average yeld on bonds wth 5-year maturty s more than 8%. The average volume of bonds n crculaton s 4,375 mln. Thus, for the fnancng of the nvestment program can accommodate commercal paper worth 5 bllon rubles wth a yeld of 8% per annum. Evaluaton of nterest rates on bank and nvestment lendng, leasng was made on the bass of the Bank of Russa and the average ndcators of the rsk of each proect [7]. The resultng model parameters to optmze the fnancng of nvestment proects from each source are presented n Table 4. In the model, the ablty to fnance nvestment proects wth an addtonal ssue of shares ( = 1), bonds ( = 2), bank loans ( = 3), nvestment lendng and proect fnancng ( = 4) and leasng ( = 5). In assessng the relatonshp between the emprcal parameters ntegral ndcator of fnancal sustanablty and leveraged nvestment n the budget model was obtaned non-lnear constrant, presented n Table 5. In ths paper have been optmzed sources of nvestment fnancng for three dfferent values of the coeffcent of fnancal sustanablty: not less than 0.58, mnmum 1.48, not 2.05 below. As a result of the optmzaton problem on the bass of the model (7) and the data n Tables 1, 4 and 5 receved several optmal fnancng structures nvestment, based on the dfferent values of the fnancal sustanablty (Fgs 3, 4 and 5). ISSN (on-lne)

8 52 Energy Producton and Management n the 21st Century, Vol. 1 Table 4: The cost of fnancng nvestment proects from varous sources Table 5: Emprcal evaluaton of the model ndex of fnancal sustanablty G Common stock 2% Inv.loans & Pro.nv. 17% Bonds 19% Bank loans 62% Fgure 3: The results of optmzaton of fundng nvestment program TGK-9 (G = 0.58). ISSN (on-lne)

9 Energy Producton and Management n the 21st Century, Vol Inv.loans & Pro.nv. 15% Bonds 18% Common stock 8% Bank loans 59% Fgure 4: The results of optmzaton of fundng nvestment program TGK-9 (G = 1.48). Inv.loans & Pro.nv. 16% Bonds 16% Common stock 10% Bank loans 58% Fgure 5: The results of optmzaton of fundng nvestment program TGK-9 (G = 2.05). 5 Concluson The problem of nvestment for energy companes s one of the most mportant. Investments can be fnanced from nternal (stocks, reserves and proft) and external sources (long-term and short-term borrowngs, accounts payable). To reduce the costs of mantenance nvolved resources necessary to acheve the optmal structure of fnancng nvestment. These tasks could be performed by non-lnear optmzaton technques to optmze the structure of nvestment ISSN (on-lne)

10 54 Energy Producton and Management n the 21st Century, Vol. 1 fnancng power generaton company wth regard to ts fnancal stablty. Applcaton of ths method allows to acheve a fnancal structure n whch s receved the mnmum average cost of fundng under the gven constrants defned by the budget of nvestment proects and the requrements for fnancal stablty power generaton company. References [1] Annual Report 2011 of JSC TGC -9 [2] Wllam Sharpe, Gordon J. Alexander, Jeffrey W Baley Investments. Infra M: Moscow, p [3] Eugene F. Brgham, Mchael C. Ehrhardt: Fnancal Management. 10th ed. Peter: St. Petersburg, [4] Blank I.A. Fundamentals of Fnancal Management Text.: 2 t, 2nd ed., Rev. and add. Elga, Nck Center: Kev, [5] Lukasewcz I.J. Fnancal Management 2nd ed., Rev. and add. Pengun Books: Moscow, [6] Kanke A.A. Koshevaya I.P. Analyss of fnancal and economc actvty of the 2nd ed., Rev. and add. Forum: INFRA-M: Moscow, p. [7] The weghted average nterest rate on loans to credt nsttutons to ndvduals and non-fnancal nsttutons n rubles. Offcal ste of the Bank of Russa. /d_rates_2-7.htm & pd = cdps & sd = ITM_60399 [8] Domnkov A. Compettve development of cogeneraton energy. Ural State Techncal Unversty: Ekaternburg 364 p., [9] Volgna O.A., Golodnaya N.Y., Odyako N.N., Schumann G.I. Mathematcal modelng of economc processes and systems. Publshng house VSUES 2008: Vladvostok 84 p. [10] Holod N.I. Kuznetsov A.V., Zhhar Y.N. Economc-mathematcal methods and models 2nd ed. Belarusan State Economc Unversty: Mnsk, p. [11] Orlova I.V., Polovnkov V.A. Economcs and Mathematcal Methods and Models: Computer Modelng. Hgh school textbook: Moscow, p. [12] Akulch I.L. Mathematcal programmng examples and problems Hgher School: Moscow, p. [13] Sheremet A.D. Megashev E.V. Methods of fnancal analyss of busness 2nd ed., Rev. and add. Infra- M: Moscow, p. [14] Shevchuk D.A. Fnance companes Moscow, p. ISSN (on-lne)