Energy Project Financing : Resources and Strategies for Success

242 Energy Project Financing: Resources and Strategies for Success

large as the number of potential projects increases. The mitigating

factor in this combinatorial growth problem is that in most practical

situations a high percentage of the possible decision alternatives are

infeasible and do not require evaluation.

Table A-10. The number of decision alternatives

as a function of the number of projects

Number of

Number of Projects Decision Alternatives

1 2

2 4

3 8

4 16

5 32

6 64

7 128

8 256

0 512

10 1,024

15 32,768

20 1,048,576

25 33,554,432

A.8.5 The Planning Horizon Issue

When comparing projects, it is important to compare the costs and

benefits over a common period of time. The intuitive sense of fairness

here is based upon the recognition that most consumers expect an in-

vestment that generates savings over a longer period of time to cost

more than an investment that generates savings over a shorter period

of time. To facilitate a fair, comparable evaluation, a common period of

time over which to conduct the evaluation is required. This period of

time is referred to as the planning horizon. The planning horizon issue

arises when at least one project has cash flows defined over a life which