Manufacturing

Fast risk analysis for Portuguese utility

25 March 2009

Portuguese utility company Águas do Douro e Paiva (AdDP) has estimated the potential financial success of an energy costs reduction project using @RISK, the risk analysis software tool from Palisade Corporation.

Palisade is a market leader in risk and decision analysis software for Microsoft Excel and Microsoft Project. AdDP’s engineering department used @RISK, Palisade’s Monte Carlo simulation tool, for a study to determine the impact of building a new power substation and the refurbishment of eight water pumping stations on its overall energy costs. The building of the new substation is crucial as it qualifies AdDP to receive the lowest power tariff and therefore helps reduce the company’s energy costs.

Energy costs form a substantial proportion of a water company’s operational costs and directly impact the tariffs it charges distribution companies. Minimising energy costs is a key business objective for AdDP, which operates under government supervision. Since 1996 it has been able to offer one of the lowest water tariffs in Portugal.

By undertaking this quantitative risk analysis, AdDP has determined ways to reduce the company’s energy costs. This has been carried out through establishing the most economical combination of power types, extent of usage of those power types and negotiating energy tariff discounts as a result of the construction of the new power sub-station.

Using @RISK and Excel, AdDP built a model that simulated the different scenarios of energy costs. This enabled it to determine the impact of variables such as future energy inflation rate, water consumption, new infrastructure and plant maintenance costs, and land and project licence costs.

Jaime Gabriel Silva, AdDP’s director of engineering, said: “The software clearly lists all the outputs for the different variables resulting from the simulations, but more importantly highlights the statistical errors that occur during the simulations. Because the tool is Excel-based, it is very easy to make changes to the model in order to eliminate these errors. This gave us tremendous confidence that our model was well prepared and realistic.”

Based on the conclusions of this study, AdDP’s management is currently finalising the project design and estimated costs of this project. Construction is expected to start during 2009.

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