Upload
omerfata
View
217
Download
0
Embed Size (px)
Citation preview
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
1/18
HydroFiTs
&
ROCs
Industryevidencefor2012FiTs&ROCs
12th January2012
1
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
2/18
Noteonrevisions Theoriginaldraftversionofthispresentation(dated 1st Jan2012)was
presentedtoDECCatameetingonthe5th Jan2012.
Thisanalysishasbeenrevisedasrequestedandisnowbaseduponthe
wholesaleenergypricesandotherassumptionsdefinedintheDECCImpact
: Levyexemptioncertificates:assumedtohaveavalueof4.72in2010/11,andforthisvaluetoremain
constantinrealterms;
o esa ee ec r c ypr ces:anou pu o e yry mo e ng. nves orsareassume o ave veyears
offoresightofwholesalepricechanges,thenassumethepricestaysconstantinrealtermsfortherestof
theprojectlife;
,
whentheheadroomcalculationsetstheleveloftheObligation,i.e.36.99x1.1=40.69/MWh.=in
2010/11prices;
woulduse
internally
and
higher
than
banks
would
be
willing
to
use
in
project
financing
However,wehaveusedtheprecisefigurestoeliminateanydisagreementon
energyprices theanalysisstillsuggeststhat0.5ROCsistoolow
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
3/18
BHAcapitalcostdatabase(basedon171actualhydroprojects)
Dotsare
real
projects data
Redline
is
a
theoretical
curve
fittedtodatatogiveasingle
projectscollected
for2009FiTs
consultation
capacityinkWwithspecific
capitalcostin/kW
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
4/18
Howevercostsareinflatin forh drodueto:
Bestschemeshavealread beencherr icked
Remainingschemeshavehighercapitalcosts:
oeconom es
o
sca e
or
earn ng
curves
or
y ro
eac
sc eme
sbespokewithlittlestandardization(asinwindandsolar)
Increasedgridconnectioncosts(furtherdistances/lessdeveloped
territory)
Increasedpermitting,planningandenvironmentalcosts(fishpassesand
othermitigationmeasures)
Higher
material
costs:
concrete,
steel,
copper,
plastic Andincreasedo eratin costs
Stepincreaseinbusinessratesin2010
Everincreasing
rentals
from
landowners
and
communities
Everincreasingenvironmentalmitigation(highercompensationflows)
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
5/18
Somerecentexampleprojects
Capacity
vs
Capex
(latest
2011/2012
projects)12,000 Greendotsaremostrecent15sub2MWprojectsbeingdeveloped
in2011/2012.Allaresignificantlymoreexpensivethanthe
historicalcurvepredicts
CHAPECO2CO13GQ1
GQ2
10,000
Redlineistheoreticalcurve
basedonhistoricaldata
APH
ARDCO1
,
(
/kW)
GE1
GE2 GE4
,
Capex/k
GE3
2 000
,
00 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
Capacity(kW)
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
6/18
Somerecentexampleprojects
14,000
CapacityvsCapex latest2011 2012projects
12,000Bluelineistheoreticalcurvewhich
GQ2
10,000
)
mos
c ose y
approx ma es
curren
truecostofhydro(=historicalaverage
plus20%)
BLCH
APH
APE
ARDCO1
CO2CO4CO13GQ1
8,000
x/kW
(/kW
GE1
GE2 GE4
4,000
6,000
Cape
GE3
2,000
0
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
Capacity(kW)
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
7/18
Additionaldatapointsabove2MW
14,000 Capacity
vs
Capex
12,000
FiTsZone(upto5MW)ROCsonlyabove5MW(Canbeuseddownto50kW)
10,000
) CurveDatapointsofan
additional162MW+
8,000
/kW
(/k
extrapolated
outto10MWprojects(2011/2012
prices)addedshowing
majorityabove
the
4,000
6,000
Cape curve
2,000
0
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
InstalledCapacity(kW)
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
8/18
Detailed20
year
financial
model
was
run
for
every
project
size
from
5kW
to
10MW
Assumptions:
Loa
Factoro
35
typica
Capitalcostfromtheoreticalcurve
FeedinTariffsassumed2MW(FiTsassumedtobe
existing(2011)
values
&
ROC
values
as
per
DECC
Impact
Assessment)
Operatingcosts=22.5%ofGrossRevenue(realitynormallybetween20%and
25%includinganallowanceforrentalpaymenttolandowners)
IRRsshown
are
Project
IRRs
assuming
no
debt
(in
reality
cost
of
debt
will
be
close
toprojectIRR~7%soleveragewillnotmateriallyimprovetheEquityIRR)
Modestinflation(1%)appliedtopowerpriceandoperatingcosts
1yearallowanceforconstructionperiod
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
9/18
ProjectIRRvs InstalledCapacity
10.00%
BasedoncurrentFiT/ROClevelsandtheoreticalcostcurve
DECCOnshore
Wind
proposed
Hurdle
Rate
(9.6%)
9.00%
DECCHydroproposedHurdleRate
arge re urn
forFiTs(58%)
7.00%
. .
5.00%
6.00%
IR
R(%)
1ROCassumedfor
schemes
above
2MW
4.00%Projec
2.00%
3.00%
CurrentFiTrates
1.00%
below2MW(blueline)
.
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
Installed
Capacity
(kW)
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
10/18
ProjectIRRvs InstalledCapacity
10.00%
BasedoncurrentFiT/ROClevelsandtheoreticalcostcurve
DECCOnshore
Wind
proposed
Hurdle
Rate
(9.6%)
9.00%
DECCHydroproposedHurdleRate
arge re urn
forFiTs(58%)
7.00%
. .
1ROCsufficienton
5.00%
6.00%
IR
R(%) .
4.00%Projec
thanhurdlerateof7.5%
IRR)between2and5MW
2.00%
3.00%
1.00%
.
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
Installed
Capacity
(kW)
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
11/18
EffectofdifferentROCmultiples
0.5
ROC 1
ROC
1.5
ROC
2
ROC
12.00%
14.00%2ROCstoogenerousIRRs>10%possible
onlargerschemes
10.00%
)
8.00%
ct
IRR(
Optimum
4.00%
.
Proj
=
range .
ROCS
2.00%
.
below
6%
on
all
but
largest
of
schemes
0.00%
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
Installed
Capacity
(kW)
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
12/18
ProposedoptimumsolutionOnshoreWindproposedHurdleRate(9.6%)
DECCtarget
returnfor
FiTs
(5
8%)
9.00%
.
HydroproposedHurdleRate(7.5%)
7.00%
8.00%
5.00%
6.00%
IR
R(%)
1 ROC re uired
4.00%
Projec
1.5ROCsrequired
between2 5MW(for
above5MW
2.00%
.
FiTsassumed
mostofrangetoexceed
hydrohurdle
rate
of
7.5%
=stilllessthanthatof
0.00%
1.00%
2MWons orewin =9.6
,
,
,
,
,
,
,
,
,
,
InstalledCapacity (kW)
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
13/18
. The
Capex assumption
presented
by
ARUP
broadly
agree
with
the
BHA
database
However3otherareasoftheArupreportappeartobeeitherincorrectorunfair:
o LoadFactor(P142ofConsultationPaper)isassumedtobe45.8%.Therealityonmostrunofriver
sc emes t emajorityo newsc emes isint erange3335%
o Operationalexpenses(P134ofConsultationPaper)seemlow.20%25%ofGrossRevenueat
150/MWh isusuallyanaccurateassumptionasaguidelineforallopex includinglandrentals,
, , , .
o HurdleRate(P142).Hydro(alongwithPV)isassignedahurdlerateof7.5%,OnshoreWindis9.6%,
Wave13.8%etc.ThisissubjectivebutthereisastrongargumentthatthehurdlerateforHydro
shouldbe
at
least
the
same
as
Onshore
Wind
(ie 9.6%)
as
both
technologies
have
similar
maturities,
developmentprocesses,typesofinvestoretc.
AlltheabovethreewillunderestimatetheROClevelrequiredtostimulate
investmentintoH dro
Also
fromconsultation
paper
Cost
evidence
for
small
scale
(
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
14/18
ComparisonwithARUPCapex assumptions
Capacity
vs
Capex
12,000
,
10,000
)
ARUP
"Median"
assumption
Asidefrominaccuraciesduetoindividualflat
8,000
/k
W
(/k stepstheARUPMedianassumptionsonCapex,
broadlyagreewiththeBHAdatabaseofcosts
4,000
,
Cape
2,000
0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
15/18
TheFeed
In
Tariff
for
Hydro
was
working:
stimulating
investment
across
investors.Currentlystalledpendingconsultationpublication.
with31
additional
projects
in
2011/2012)
it
can
be
demonstrated
that
returnsareintherange58%formostofrange02MW.Therefore:no
changesrequiredtosub2MWFiTlevels.
FiTsabove2MW(47/MWh)insufficientreturnstostimulateinvestment
epropose . or y roprov eseven owerreturns su
andwillthereforelikelyresultinzeroinvestmentinhydroprojects>2MW
CurrentFiT
rates
below
2MW
1ROCabove5MW
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
16/18
Hydro,although
modest
in
terms
of
available
resource,
should
be
part
of
, :
o Longevity hydrolastsconsiderablylongerthanothertechnologies(typically50+years
comparedwith~25forWind&PV).WhencalculatingIRR(andtheHurdleRate)the
value
of
the
cash
flows
in
later
years
are
so
discounted
they
have
a
negligible
effect
on
IRR.Hence,nowhereisthislongevityevaluatedorrewardedinthecalculations.In
theorythislongevitycouldbeusedtojustifyahigherHurdleRateandthereforea
g er mu t p et an n asawayo va u ngt e ongev tyan assoc ate ong
termcontributiontotargets,carbonsavingetc.
o Storageand
load
balancing
the
dispatchable nature
of
hydro
has
a
utility
to
the
grid/publicwhichisnotnecessarilycapturedinthesingleprojectIRR/Hurdlerate
calculation.
o HighproportionofsupplychainisUKbased circa7090%ofthesupplychainvalueis
UKbasedunlikemostothertechnologies.Theassertiononpage38oftheConsultation
thatThe
deployment
of
asmall
additional
amount
of
large
scale
hydro
is
not
expected
toleadtosignificantindustrialdevelopment.issimplyuntrue.GilbertGilkesand
or onmanu acturesmosto t e pac age omest ca yan nee sastrong
markettomaintainandgrowaninternationalreputation.Mostconstruction,
consultancy,financing,legalservicesetcareallprovidedlocallywithprofitsrecirculated
n
oca
econom es.
en a spa
o
commun es
an
arms
are
use
o
ensure
ong
erm
securityandareusuallyreinvestedsuperlocallyintotheland/farm/localcommunity
itself.
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
17/18
Interms
of
the
development
process
Hydro
is
very
different
from
other
Averagedurationofhydroprojectdevelopment=3years(seenextslide)
LongdurationmeansprojectinvestmentslowsorstopsasFiTsreviewdatesareapproached(preaccreditationwillhelpthis)
Significantinvestmentrequiredwithnocertaintyontariff(unlikePV)
Multipleprojects
now
stalled
awaiting
outcome
of
FiTs
&
ROC
reviews:
HydrounfairlypunishedonFiTsduetogreedofPVindustry
Unexpected(andunjustified)reductionofHydroROCs from1ROCto0.5ROC
ro osed
Strongcase
to
de
link
PV
from
other
technologies
as
part
of
FiTS/ROCs
review.
PVisverydifferentfromHydroshortconstructionduration,shortlife(sub25years)
littleplanningrequirement,goldrushmentality,rapidcostreduction,highlevelof
foreignownershipofsupplychain)
WouldallowtheringfencingoffundstoallownonPVtechnologiestoberolledoutat
asustainablerateandremainunaffectedbytheboomandbustnatureofPV
8/10/2019 ---- Hydro Industry Evidence - ROC Consultation - 12 Jan 2012 (1)
18/18
Totalduration
of
a
hydro
project
is
rarely
less
than
2.5
years
andnormallybetween2.5and4years,including:
PlanningandSEPA/EAconsentingprocess:1.5to2years
Construction:
1
2
years Significantlylongerthanothertechnologies:windandsolar
Year 1 Year 2 Year 4Year 3
Planning & CAR license
a lication: 1.5 2 ears
Construction: 1-
2 ears
(typical spend by this point =
60k-200k)
Total duration: between 2.5 and 4 years