Financial Feasibility and Risk-Adjusted Valuation of a Coal-Fired IPP Acquisition in an Emerging Market: A DCF and Monte Carlo Simulation Approach

Abstract

Abstract—This study evaluates the financial feasibility and risk-adjusted attractiveness of acquiring a distressed 2x100 MW coal-fired power plant of Independent Power Producer (IPP) in East Kalimantan from the perspective of an Indonesian state-owned electricity utility. The asset is strategically important to the Kalimantan electricity system but has experienced operational underperformance and financial distress, exposing the offtaker to supply reliability and cost risks. A sequential case-study framework is applied, consisting of problem structuring, Discounted Cash Flow (DCF), sensitivity analysis, scenario comparison, and Monte Carlo Simulation. The deterministic DCF results indicate that all alternatives considered are financially viable. Share purchase base case fs NPV of IDR 831.51 billion, IRR of 7.73%, BCR of 1.14 and discounted payback period of 16.54 years. However, after uncertainty is incorporated through 20,000 Monte Carlo iterations, the stochastic mean NPV declines to IDR 422.77 billion, with 76.02% probability of positive NPV and 23.98% probability of negative NPV. Availability factor contributes the largest share of NPV variance. The findings suggest that acquisition can create value, but only if pricing discipline and a post-acquisition reliability turnaround are secured.

 Keywords—DCF, Monte Carlo Simulation, IPP Acquisition, Feasibility, Risk-adjusted evaluation