LectureSix - Project Management

JIMMA UNIVERSITY
Department of Electrical And Computer

Engineering
Power System Planning and Management:

ECEG-6306
By: Dr. Milkias B. (Ph.D.)
Asssistant Professor, Adama

Science And Technology University
Milkias B. 8/11/2020 1
POWER SYSTEM
PLANNING
AND
MANAGEMENT-
ECEG-6306
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OUTLINE
▪ 1. FUNDAMENTALS
 Introduction
 Planning & economics
▪ 2. Load data and Forecasting
▪ 3. Power quality and Reliability analysis
▪ 4. DESIGN PRINCIPLES & PRACTICE OF SUBSTATION
 Substation sizing and spacing
 Substation location
 Effect of changing load density
 Effect of changing primary voltage
 Cost interaction of substation size and spacing vs primary voltage and
load density
▪ 5. PROJECT MANAGEMENT
 Project evaluation
 Financing
 Project phases
 Key points
▪ 6. UNIT COMMITMENT
 Unit commitment
 Spinning reserve
 Priority list method/Merit order scheduling
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5.
PROJECT
MANAGEMENT
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5. PROJECT MANAGEMENT
 Engineers may feel that high engineering standards and excellence in
design should be the major factors in the award of contracts. It is a fact
of life that in a highly competitive environment, a good design is the
only one part of the overall project process.
 Indeed, even compliance with the specification may be of secondary

importance if the contractor is able to offer alternative, equally viable
schemes with substantial cost savings.
 Low price, short and certain delivery and low cost financing are also
major factors leading to the success of the project from both the
client’s and contractor’s point of view.
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5.1 Project Evaluation
▪ The electricity supply company must satisfy demand for power by the
consumer and obtain sufficient revenue from sales to meet investor
requirements and future expansion plans.
▪ In order to achieve these goals, investment in generating, transmission

and distribution plant is necessary.
▪ Money on capital projects is spent now in the hope or expectation of

sufficient returns or profit at a later date in the future.
▪ Investment may be for:

 Replacement of equipment possibly to reduce maintenance costs (cost
reduction)
 Expansion of transmission or distribution capability to reach more
customers
 Provision of new products.
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...
▪ The problem is to find ‘good’ projects by imagination,
alertness and creativity (plus a degree of luck) in order
to spot the investment opportunity.
▪ Imagine, for example, the problems that international
aid agencies might have in trying to identify a ‘good’
project. They will be provided with different schemes
for projects but only a small number will be viable and
be capable of bringing about the required benefits.
▪ Thus, it is necessary to look at both the financial and
the economic costs and benefits of the project before a
final investment decision may be made.
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▪ Financial Assessment: Financial project investment
assessments look at the project purely in monetary terms.
▪ The basic points are
i. Annual rate of return: this simple appraisal method looks
at initial investment, total cash inflows resulting from the
project and average annual profit.
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...
▪ ii. Payback: to allow for the timing of returns from the
project, the payback method of assessment may be used.
▪ This is a simple project financial appraisal method which
indicates how many years it will take before the original
amount invested in the project is ‘paid back’ – i.e, the time
before cumulative return exceed the intial investment with,
generally the shorter the period the better.
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iii. Discounted cash flow: In order to forecast and analyse better on a
particular project investment, more information about both the amounts of
cash generated and the timing involved is required. Having said this, no
method of analysis gives a precise answer or avoids the risks involved. The
timing assumed in the analysis may not be correct, the forecasted cash
quantities may be inaccurate, the opportunity cost of capital may vary as
interest rates and tax regimes change during the life of the project and non-
financial aspects (cost benefit analysis, political situation, etc.) all need to be
considered.
iv. Sensitivity analysis: Obviously the end result of any such financial
analysis can only be as good as the input data and original assumptions.
Such items as interest rates, cost of materials, exchange rates and inflation
may all change during the life of the project and have an effect on the
viability of the project. For the more sophisticated analysis, the sensitivity of
the results to such changes are considered.
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Economic Assessment
▪ Economic appraisals look beyond this and include such
intangibles, converted to money terms, as general benefits
to the community that the project will bring about.
▪ For example, a distribution scheme might allow the
community to stop chopping down trees for fuel
(thereby saving the environment from soil erosion)
and allow greater productivity in the community.
▪ The economic appraisal of electrical transmission

and distribution schemes is generally a three stage
process.
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▪ First, the scheme has to be shown to be the least cost option. Various
technically viable schemes are therefore considered and costed.
▪ Secondly, an estimation of the financial and economic benefits as

revenues plus cost savings is made.
▪ Thirdly, a comparison between the discounted benefits and costs is

computed using discounted cash flow techniques.
▪ The economic assessment basically includes cost benefit analysis

(including resource saving, superior quality energy supplies, extra
output) and the difficulties.
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5.2 Financing
▪ Borrowing money on the open market is expensive and so both client and
contractor should attempt to keep these costs to a minimum.
▪ Sources of finance for a project may be internal to the client and taken out
of investment capital provisions or reserves held in the accounts. Client
support for the project may also arise from tax incentives or local currency
loans.
▪ External sources of funds include:

 Export credits from the contractor’s or major transmission and distribution plant
manufacturer’s countries.
 Commercial loans, often linked to export credits.
 Development aid in the case of developing countries (African Development Bank,
European Development Bank, World Bank, etc.).
▪ Since a contractor starved of cash cannot function, the following factors

are important:
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1. Sufficient advance payments to the contractor should be
considered. The purpose of such payments is to cover contract
‘front end’ expenditure such as mobilization, early engineering
work, payments to subcontractors, commission and insurances.
Typically, such advances will be of the order of 10% of the
contract value.
2. Progress payments to the main contractor on a regular basis

related to the value of work actually achieved. These should not
normally be related to payments made by the main contractor to
the subcontractors. An independent valuation by respectable,
professional and independent quantity surveyors or consulting
engineers on behalf of the client assists in reducing
client/contractor disputes. Milkias B. 8/11/2020 14
...
3. Progress payments linked to the timely completion of
specific defined parts of the works or milestones. These
must be capable of easy definition and measurement.
4. Retentions kept by the client from interim progress

payments during the course of the contract. The purpose
of these is to act as an incentive for the contractor to finish
the works.
5. Insurance bonds or bank guarantees to be provided by the

contractor and held by an independent bank as surely that
the contractor will complete the works.
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5.3 Project Phases
▪ A project is the process of creating a specific result. Infrastructure
transmission and distribution development projects all tend to follow the
same general phases as shown in figure below.
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...
▪ The concept and planning stages will require the type of
financial and economic evaluation together with finance
resourcing as detailed in previous section.
▪ In a ‘fast track’ project, where the client requires very fast
completion times, considerable overlapping of the different
project phases occurs. This is not to be recommended unless
the particular project work is well understood and has been
completed before.
▪ Although the different project phases cannot usually be
compartmentalized into clearly defined boxes with rigid start
and end dates, rules should be set up such that sufficient
definition is available before commencing each project phase.
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 It is also important to understand the relative magnitudes of the financial
commitments involved during the different life cycle project phases.
 Expenditure will increase as the engineering design phase gets underway and
continue to increase very steeply during the construction period. Such
expenditure and progress through a project tends to follow an ‘S-curve’ shape
as shown in the previous figure.
Milkias B. 8/11/2020 18
 Typical project cash flows
resulting from a substation
construction project might be as
shown in figure below. Such
projections are used in the initial
financial assessment of the
project and should be regularly
updated as the project proceeds.
 There is always the necessity to

appreciate the relative
uncertainty of the ultimate time
duration and cost during the
different project life cycle
phases.
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▪ 5.4 Key Points
▪ Bond: The contractor may be required to provide bank bonds as part of a

construction contract. The bonds are paid for by the contractor as a small
percentage of their full value. Such bonds are usually held by the banks
and may be called upon by the client to be converted into cash payments if
the contractor fails to perform in accordance with the contract. The bank
and the contractor arrange a back-to-back agreement such that if such
bonds are called for payment by the client then the contractor either
directly, or using insurances, pays the bank the money owing.
▪ Contract: is an agreement between two or more parties such that if one

party fails to do what he has promised another party will have legal
remedy. The contract therefore embraces both statute and common law. A
variety of standard conditions of contract are available for transmission and
distribution construction works.
Milkias B. 8/11/2020 20
▪ These may be broadly classified into whether the works consist of:
Supply only of materials, Supply of materials and supervision of
erection/installation, Supply and installation.
▪ Resident Engineer: It is quite normal for the client to employ an

‘engineer’ to act as an impartial and technically competent adjudicator
between client and contractor for the administration and perhaps the
design of the contract works. The client sets up a contract between
client and contractor and a separate contract between client and
engineer.
▪ There is no privity of contract between contractor and engineer.

However, the consulting engineer has specific duties and powers under
the terms and conditions of the client/contractor contract and is able to
instruct the contractor to perform during the course of the works. The
arrangement is shown in figure below. Milkias B. 8/11/2020 21
▪ The consulting engineer is often brought in by the client at an early
stage in the project life cycle to carry out the technical system studies.
▪ The engineer may advise the client on the best form of contract for the
particular work to be performed.
▪ The engineer may also assist or complete the financial and economic
project evaluation and prepare the project outline design. This work is
then converted into a tender document. The engineer will then
supervise the issue of tenders and produce an independent tender
adjudication from which the most appropriate contractor is selected to
carry out the works.
▪ Typically, the engineer will check
the contractor’s detailed designs during
the contract period and also supervise
the installation on site. Milkias B. 8/11/2020 22

▪ Tender evaluation: Different countries and organizations have different
methods of evaluating tenders. Usually very strict guidelines are
enforced in order to avoid any favoritism for one contractor or another.
▪ It is not necessary always to accept the lowest bid price since the bid
may not be technically compliant and may not have met the commercial
conditions required.
▪ Therefore it must be made clear at the tender stage what tender

evaluation method is to be employed so that there can be no
complaints.
▪ For a typical transmission and distribution contract, considerable

emphasis will be placed upon technical compliance as well as cost.
Therefore the technical merits of the different tenders have to be
evaluated by a fair method of comparison.
Milkias B. 8/11/2020 23
▪ One such method is to apply a ‘points system’ score for each major part
of the tender under such sections as: technical, management,
financial, manufacturing and quality control.
▪ Each section is then broken down into criteria which are considered
significant and a relative weighting as to the importance of each of
these factors allocated. Such an approach might be as shown in the
table below.
Milkias B. 8/11/2020 24
▪ Construction: requires the management of supplies, materials, labour
and expertise necessary to complete the project and bring it on line.
▪ The process proceeds from ordering supplies and materials through

construction, initial testing and final testing. Typically, a utility does not
use its own personnel for actual construction work; instead, utilities
contract a specialized construction company along with many
subcontractors.
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Any Question??
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JIMMA UNIVERSITY

Department of Electrical And Computer

Power System Planning and Management:

By: Dr. Milkias B. (Ph.D.)

Asssistant Professor, Adama

 Indeed, even compliance with the specification may be of secondary

▪ In order to achieve these goals, investment in generating, transmission

▪ Money on capital projects is spent now in the hope or expectation of

▪ Investment may be for:

▪ The economic appraisal of electrical transmission

▪ Secondly, an estimation of the financial and economic benefits as

▪ Thirdly, a comparison between the discounted benefits and costs is

▪ The economic assessment basically includes cost benefit analysis

▪ External sources of funds include:

▪ Since a contractor starved of cash cannot function, the following factors

2. Progress payments to the main contractor on a regular basis

4. Retentions kept by the client from interim progress

5. Insurance bonds or bank guarantees to be provided by the

 There is always the necessity to

▪ Bond: The contractor may be required to provide bank bonds as part of a

▪ Contract: is an agreement between two or more parties such that if one

▪ Resident Engineer: It is quite normal for the client to employ an

▪ There is no privity of contract between contractor and engineer.

▪ Typically, the engineer will check

the contractor’s detailed designs during

the contract period and also supervise

the installation on site. Milkias B. 8/11/2020 22

▪ Therefore it must be made clear at the tender stage what tender

▪ For a typical transmission and distribution contract, considerable

▪ The process proceeds from ordering supplies and materials through

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