What is finance without the concept of time?

You know that distress call that comes in once in a while from a distant family member or friend asking for a boost because it’s mid-month? I’m sure many can relate. It is always followed by a long text providing the reasons why you should help them. In most cases these reasons, end up guilt-tripping you into sending them MPESA which is then followed by a Thank You note from them and a promise to repay by end month. Well, this promise is never kept and you end up doing constant follow-ups only to be repaid the original amount after a few months. At this point you are just happy that they have repaid you not noticing that from an economic stand point, you have been short-changed since the repaid amount is worth less because of inflation. This is also known as the concept of time value of money. It holds that a dollar today is worth more than a dollar tomorrow. From this one can deduce that time is a very important metric in any financial transaction. It lays the foundation for any form of asset valuation and interest on loans.

When coming up with a financial model, a financial analyst should take into consideration the operations of a business or a project over the modelling period. The timing aspect of a financial model is tracked using the time sheet in the model. The time sheet forms a foundation of any financial model as it is used to map out all the transactions and balances from the beginning of the model period to the end. In a FAST Compliant Financial Model, a time sheet contains calculations with respect to dates, flags and any other time-related computations.

Why is it important to have a time sheet in a financial model?

  • A time sheet provides the basis of the timelines for the financial model. For instance, the time sheet would indicate which columns detail historical values and which ones indicate forecasted values within a financial model
  • A time sheet also helps in answering the question “when?”. A time sheet can be used to map out when a given financial transaction will happen within the financial model timelines
  • It improves flexibility within the financial model. Models that do not incorporate a time sheet in their structure are rigid especially when it comes to making changes that relate to time. For instance, when one wants to change when the valuation for a business will be done, the valuation will need be recomputed in a different cell (relating to the new period) as opposed to just changing the valuation period date

What is contained in a time sheet?

A typical time sheet in a FAST compliant Financial Model will contain the following sections:

  • Time Ruler – This section maps out all the financial model timelines from the beginning of the financial model period to the end
  • Flags – A flag is an ON and OFF switch in a financial model. A flag is normally in binary form whereby a YES will be indicated as 1 and a No as a 0. It is mostly used to indicate the occurrence of an event. For instance, a pre-forecast period flag would show 1’s in the historical period and 0’s in the forecast period

We have received requests from various financial analysts on the need to develop a course that maps out the steps for creating a time sheet. We have put together a short course on the same that can be accessed using this link.  This is the first of several resources we plan to launch on our learning platform. We hope you enjoy the course.

Written by David Ndungu

Renewable Energy: A Visit to Olkaria Geothermal Plant

An analysis of the national energy sector in Kenya carried out by Energising Development Programme (EnDev) shows heavy dependency on wood fuel and other biomass that account for 68% of the total energy consumption (petroleum 22%, electricity 9%, others account for 1%).  This dependency on biomass is not sustainable in the long run and thus the move to renewable energy. As consultants in the Energy sector the InVhestia team, with the invitation of KenGen, decided to take an educational excursion to the Olkaria Power Plant.

KenGen is the leading electric power generation company in Kenya, producing about 75 percent of electricity capacity installed in the country. The company utilizes various sources to generate electricity ranging from hydro, geothermal, thermal and wind. Currently, KenGen’s generated capacity is up to 1630MW in the proportion of 50% Hydropower, 33% Geothermal, 15% Thermal and 2% Wind power. The organization is looking to phase out the non-renewable energy plants by commissioning more in the renewable energy plants especially geothermal in the Olkaria Area.

Olkaria Geothermal Plant is located south of Lake Naivasha. Olkaria I Power Station was the first geothermal power plant in Africa. The plant was commissioned in three phases and has three units each generating 15MW of electricity bringing this to a total of 45 MW. The first unit was commissioned in June 1981, the second and third units in November 1982 and March 1985, respectively. The second phase of Olkaria I was commissioned in 2010. The plant operates at an efficiency level of 95% since commissioning this is due to the wellhead technology developed by the company.

We started off with a quick introduction to the process involved in converting the geothermal energy to electric energy. Wells are dug in the earth and can go to depths of up to 3 km. The aquifers release steam which is fed to the separator which separates into dry and wet steam. The distinction is based on the temperatures. When the steam is heated, anything below 150oC is considered wet steam and reinjected into the well after passing through the cooling towers. The steam that is above 150oC is dry steam and is fed into the turbines. The reinjection is important because it contributed to the green aspect of this type of energy and ensures no wastage. An important point to note was the fact that the only waste produced in the generation process is only water vapour, which is not harmful to the environment. Hydrogen sulfide is also a byproduct of the process which gives the plant the smell of eggs but is not harmful to humans and animals.

After the brief presentation and safety demonstration, we moved own to the plant which is divided into production wells as well as the transmission station. We noticed that there were pipes running throughout the site that were insulated and painted green for camouflage and some were even manipulated in a way that looked like they were passages or archways. We were informed that this was for the benefit of the animals at the Hell’s Gate National Park so that the plant does not interfere with the ecosystem in the park.

We first stopped at an old well which was not part of the production stream by had all the equipment up. The next stop was at the rig where a well was being dug up and we saw the height and magnitude of the rig that enables for the depth of the well to be achieved. The next stop was the power plant where we got to see how the steam from the wells is passed to the turbines. From the separator the steam is directed to three different reservoirs that service three main turbines. It is in the reservoirs that appropriate pressure of steam is regulated so as to enable them drive the turbines. The cooling tower is also part of the plant and is used to get the steam down to an appropriate temperature so it can be reinjected.

We wound up at the Geothermal Spa which offers recreational and therapeutic swimming in the Blue Lagoons. There are three cascading lagoons that receive geothermal water or brine, collected through a system of lagged pipes from various wells within the Olkaria Geothermal field. The brine is said to have a healing effects and is a recreational facility within the plant.

The Global Energy Perspective 2019 reports that wind and solar accounted for more than half of new power generation capacity additions in recent years. This is an indication that renewables will continue to penetrate the global energy mix. The Sustainable Development Goal (SDG) 7 – Ensure Access to Affordable, Reliable, Sustainable and Modern Energy for All, has also contributed to the move to renewable energy globally. This is evident even closer to home with KenGen working to do the same in their plants. As Consultants in the energy sector, InVhestia has worked on a number of energy projects, both wind and hydropower. This includes the Kipeto Wind Farm in Kajiado County that most recently reached financial close and has commenced construction and Embobut Hydropower in Kerio Valley that is currently in the pre-feasibility stage. The trip was imperative to the team, this is so that we are better informed when consulting clients and when a such a time comes that we are called upon to advise on a geothermal project we are sufficiently and appropriately prepared.

This article was written by Jihan Haji, a financial analyst at InVhestia Africa. Jihan has worked on assignments in energy and is a FAST Standard Level 1 Certified financial modeller.