Division 2.1.4 Feasibility of the project with demand and option analysis

Feasibility studies, which normally cover the following aspects: demand analysis; option analysis; available technology; the production plan (including the utilisation rate of the infrastructure); personnel requirements; the scale of the project, location, physical inputs, timing and implementation, phases of expansion and financial planning; environmental aspects, climate change mitigation aspects (GHG emissions), resource efficiency and resilience to climate change impacts and natural disasters, shall be considered in the cost benefit analysis (where applicable).

It shall be taken into account that:

1. (1)

   Feasibility analysis identifies the potential constraints and related solutions with respect to technical, economic, environmental and climate change mitigation and adaptation, regulatory and institutional aspects. A project is feasible when its design satisfies the technical, legal, financial and other constraints relevant to the nation, region or specific site. Several project options may be feasible.

   A summary of results of feasibility studies must be presented in the CBA. CBA must be consistent with the information presented in feasibility studies.

2. (2)

   Demand analysis identifies and quantifies the social need for an investment and considers as a minimum:

   • the current demand, by the use of models and actual data;

   • the forecast demand, from macroeconomic and sector forecasts and elasticity estimates of demand to relevant prices, income, and other core determinants;

   • supply side aspects including the analysis of existing supply and expected (infrastructure) developments;

   • network effect (if any).

3. (3)

   Option analysis is performed to assess and compare different alternative options which are found generally feasible to meet the existing and future demand for the project and to find the best solution. Options should be compared against different criteria, including for example technical, institutional, economic, environmental and climate change aspects.

   The option analysis should be carried out in two steps; the first step looks at basic strategic options (i.e. type of infrastructure and location for the project) and the second step at specific solutions at the technological level. If the project is implemented as a Public Private Partnership this second step of the analysis should focus on the range of output specifications that may or may not be included in the output specifications of the Public Private Partnership project. The first step is usually based on (mainly qualitative) multi-criteria analyses while the second step normally uses mainly quantitative methods.

   Key aspects of selecting the best option:

   • to properly justify the solution sought, evidence is provided that the selected option is the optimal one of the various options considered during the technical feasibility study;

   • if different alternatives have the same, unique objective and the same or very similar externalities, it is recommended that the selection should be based on the least cost solution per unit of output produced taking into account the long term operating and maintenance costs associated with the option;

   • if the output and externalities are different in different options (assuming all share the same objective), the Member State is encouraged to undertake a simplified CBA for all main options to select the best option by determining which option is more favourable from a socio-economic point of view and the selection should be based on economic parameters of a project, including its Economic Net Present Value (ENPV). The simplified CBA shall be carried out based on approximate estimates of key financial and economic data, including demand, investment cost and operating costs, revenues, direct benefits and externalities, where relevant.