CONCEPTS OF ANALYSIS MODELS

Define these concepts of Base-case analysis, what-if analysis, breakeven analysis, and optimization analysis models, and explain how are used in system modeling?

Define these concepts of Base-case analysis, what-if analysis, breakeven analysis, and optimization analysis models, and explain how are used in system modeling?

Base-case Analysis

The base-case Analysis necessary to estimate the levelized cost of plants that employ alternative technologies include the cost of building a plant as if it was built and paid for immediately (so-called overnight costs); the return that investors require to finance that construction and subsequent operations; and the cost of operating the plant (largely composed of fuel costs). As a first approximation, CBO relied on the Energy Information Administration's most recent projections for its base-case assumptions and compared those with assumptions adopted in two prominent studies of generation alternatives, one conducted by researchers at the Massachusetts Institute of Technology (MIT) and the other by analysts at the International Energy Agency.

CBO's base-case assumptions include overnight costs of about $2.4 million for each megawatt of capacity for new nuclear plants and innovative coal plants but lower costs for conventional coal, conventional natural gas, and innovative natural gas technologies. For nuclear and innovative coal and natural gas technologies, the assumptions are intended to represent plants built over the next decade but do not incorporate the first-of-a-kind costs that are assumed to be covered by federal research and development programs. The estimate for nuclear plants, taken from the EIA's most recent analysis, is roughly 10 percent above the estimate of overnight costs used in MIT's study, which was published in 2003, before construction costs for most types of power plants surged. CBO also calculated construction costs for each technology using alternative assumptions designed to capture plausible variations in those costs. For nuclear and innovative coal technologies, CBO considered construction costs ranging from about $1.2 million per megawatt of capacity to roughly $4.8 million per megawatt of capacity. The breadth of that range reflects the uncertainty associated with the cost of building new nuclear plants in the United States and is wide enough to capture plausible further increases in construction costs, which could affect conventional fossil-fuel plants as well.

What If" Analysis

In "What If" Analysis, a specific type of Scenario Analysis, you ask a series of "what if" questions to predict potential complications and the impact they'll have on company operations. Denise could ask questions like "What if another luxury clothing store opens on the same street?" and "What if my main supplier goes out of business?" Denise's questions could help her decide whether she has adequate safeguards in place to protect her, if the risks and complications she's thinking about actually happen.

If another luxury store opens in the same area, what impact can Denise expect on sales? How will these revised sales figures change the bottom line? Likewise, if her main supplier goes out of business, how will that affect sales and customer service? Are there other suppliers, and how long will it take to set up properly functioning relationships? And if ...