個案總覽

The A case describes the decision the BurMills textile company will make regarding whether to change from producing their own steam to outsourcing their steam production to Intrinergy. BurMills can calculate the present value of cost flows for three alternatives: producing their own steam from burning natural gas, outsourcing to Intrinergy with either a fixed price contract, or with a price contract that floats with the natural gas price at Henry Hub. In addition to the standard costs associated with steam production the case adds depth by providing the possibility of revenue from carbon credits. These credits are earned because the energy in the Intrinergy plant is created from biomass. A proper analysis will include a Monte Carlo simulation based on an arithmetic random walk for carbon credit pricing, a mean-reverting arithmetic random walk for Henry Hub natural gas spot prices, and other distributions. (A student spreadsheet is available to accompany this case.)

The B case brings Intrinergy's point of view into play. Intrinergy has two options for obtaining the biomass to produce steam for the industrial plant. They can use wood chips or sawdust. The wood chips are available at woodlands, essentially for free, although a capital investment in trucks is needed to bring the chips to the plant, and there is variable cost to chip the waste wood and transporting it to the steam plant. Sawdust is delivered to the plant at a price that follows a random walk. Once again a Monte Carlo simulation is needed to compare the alternatives. How Intrinergy fuels the steam plant does not matter to BurMills and will not change BurMills decision. On the other hand, it will matter to Intrinergy which option BurMills takes, since it affects the level and risk of the revenue to Intrinergy from the project. (A student spreadsheet is available for use with the case.

Spreadsheet supplement to case UV4312.