Decision Criteria from Estimated Financial Impacts IEP Provincial IEP Committee Meeting #4 May 31/June 1, 2005

Transcription

1 Decision Criteria from Estimated Financial Impacts 2005 IEP Provincial IEP Committee Meeting #4 May 31/June 1, 2005

2 Resource Option Workshops 1st meeting (Dec 7) Introduction / Process of input / feedback 2nd meeting (March 8 and 9) Sessions on: Financial Demand Side Management Environmental Attributes Planning Criteria 3rd meeting (May 27) Provide opportunity to ask clarifying questions on Draft ROR before providing comments Meetings have also been held with various Resource Proponents to review technologies May 31/June 1, 2005 Page 2

3 UEC/UCC & Portfolios May 31/June 1, 2005 Page 3

4 Objectives Ensure consistent representation of projects IPP projects vs. BC Hydro projects IPP #1 vs. IPP#2 IPP technology #1 vs. IPP technology #2 Compare resources based on their cost Simplify the economic analysis Use a simplified, transparent approach to greatest extent possible Avoid undue precision, recognizing degree of uncertainty in calculations May 31/June 1, 2005 Page 4

5 Issues and Where we landed Discount rate / Pre-tax vs. post-tax approaches Project vs. contract life Corporate overhead Provincial transfers Subsidies Gas and electricity price Real pre-tax discount rates of 6 & 8% Project life Excluded Included as costs Excluded Representative values used UEC/UCC s calculated for ROR; portfolio analysis will use range of current forecasts May 31/June 1, 2005 Page 5

6 ROR Summary for Small Hydro - Supply Curves UEC - Sigma Inventory UEC - RFEI and submitted by IPPs UEC - Knight Piesold database UEC - Bundles $115 $105 Unit Energy Cost ($/MWh in 2005$) $95 $85 $75 $65 $55 $45 $35 $ Average Annual Energy (GWh) May 31/June 1, 2005 Page 6

7 ROR Summary for Large Hydro Generic large hydro potential is represented by the only project currently under investigation, Peace River Site C: 900 MW with average annual energy of 4600 GWh Unit energy cost of $42.5/MW (based on 3 units operating after 9 years. Energy Resource Smart opportunities provide 300 GWh: Example projects include redevelopment of existing facilities and turbine upgrades. These projects generally do not proceed if the unit energy cost is above $55/MW. May 31/June 1, 2005 Page 7

8 ROR Summary for Biomass Biomass Supply Curve (for the three bundles) May 31/June 1, 2005 Page 8

9 ROR Summary for Geothermal Projects: Generic geothermal potential is represented by the South Meager Geothermal Project, as it is the only project currently verifying the resource potential: Initial phase is 100 MW with average annual energy of 800 GWh. The report calculates the unit energy cost at $47/MW, but Western Geopower Corp. indicates the UEC may be closer to $55/MW. Potential for a second phase of 100 MW for a total of 200 MW. May 31/June 1, 2005 Page 9

10 ROR Summary for Wind Supply curves: Wind Resource Option Energy Supply Curves by Region 175 Unit Energy Cost ($/MWh) North Coast - Offshore North Coast - Onshore Peace Region Vancouver Island Average Annual Energy (GWh) May 31/June 1, 2005 Page 10

11 ROR Summary for Natural Gas Projects Generic 47 MW SCGT Generic 500 MW CCGT Generic 250 MW CCGT Generic 60 MW CCGT Generic 10 MW gas cogen Capacity/Energy Average Unit Cost of Energy* ($/MWh) Primarily capacity $ 115 Both capacity and energy Both capacity and energy Both capacity and energy Both capacity and energy $ 56 $ 59 $ 71 $ 68 * Costs are at-site costs and before transmission, losses and environmental attributes are considered May 31/June 1, 2005 Page 11

12 ROR Summary for Coal Projects: 500MW supercritical single unit plant: $1.06B capital includes allowances for transmission interconnection, water supply, mitigation/compensation O&M: $11/kWh; Fuel: $11/MWh based on mine-mouth generation plant UEC: 8% 250MW IGCC single unit plant: gasify coal as fuel for combined cycle GT capital cost 15% over supercritical and variable O&M 50% higher UEC: $51/MWh@6%; $58/MWh@ 8% May 31/June 1, 2005 Page 12

13 ROR Summary for DSM Energy Efficiency Supply Curve May 31/June 1, 2005 Page 13

14 ROR Summary Conclusions Energy Supply Curves for Generic Bundles 175 Unit Energy Cost ($/MWh) Average Annual Energy (GWh) Small and Micro Hydro Medium Hydro Large Hydro Power Smart Natural Gas (Resource Smart) Natural Gas Coal Wind Geothermal Biomass Resource availability of coal and natural gas is not a constraint for generation within the province during the planning period. May 31/June 1, 2005 Page 14

15 ROR Summary Conclusions Energy Supply Curves for Capacity and Future Resource Options 175 Unit Energy Cost ($/MWh) Solar Unit Energy Cost is $697/MWh for the first 104 GWh and $1565/MWh for the next 280 GWh. Fuel Cell Supply Curve is not shown due to a very small average annual energy of 51 GWh and a unit energy cost up to $107/MW. Large Hydro: Future Coal: Future Geothermal: Future Wave: Future Tidal: Future Solar: Net Metering Average Annual Energy (GWh) Resource availability of coal is not a constraint for generation within the province during the planning period. May 31/June 1, 2005 Page 15

16 Accuracy of Estimates Commission suggested range of +/- 35% for specific projects Greater for generic resources Range captured in Cost Uncertainty Low = -10% to +20% Medium = -10% to +40% High = -10% to +60% Generally agreed to by project proponents Subject to further review with Commission May 31/June 1, 2005 Page 16

17 How to translate nominal post-tax discount rate to real pre-tax discount rate Assumptions: 18.73% effective tax rate (based on capital structure, debt cost, debt repayment schedule and CCA available and used) 2.0% annual inflation rate At 6.95% nominal post-tax discount rate 6.95%/( ) = 8.55% nominal pre-tax discount rate; and ( )/ = 6.42% real pre-tax discount rate May 31/June 1, 2005 Page 17

18 Comparison of Unit Energy Cost using pre-tax and post-tax calculation methods Example: small hydro project with capital cost of $40M Effective tax rate Nominal Post-tax discount rate Real Pretax discount rate Debt repayment year Energy Project life Capability year GWh/yr UEC $/MWh Post-tax after tax 12% ROE 18.73% 6.95% $56 Pre-tax simplified approach 6.42% $52 Post-tax tax 15% ROE 20.09% 7.48% $60 Pre-tax simplified approach 7.21% $56 6% pretax real = 50$/MWh 8% pretax real = 59$/MWh May 31/June 1, 2005 Page 18

19 Annualized capital cost calculation Mathematical formula = (A*i)/(1-1/(1+i)^n) where A is the capital cost including IDC in real $ i is the real pre-tax discount rate n is the project life Can use Payment Function in Excel: PMT( rate =i, number of periods = n, present value =A) May 31/June 1, 2005 Page 19