Value of Wartsila 18V50sg IN ALBERTA ELECTRICITY · PDF file1 Day Month Year Presentation name...

© Wärtsilä © W ÄRTSILÄ

Value of Flexible gas generation in Alberta Electricity Market

Smart Power Generation webinar

Matti Rautkivi

Day Month Year Presentation name / Author1


Wärtsilä OyBasic facts

• Founded in 1834

• Corporate Headquarters in Helsinki,

Finland

• US Headquarters in Houston, TX

• ~ 18,700 people worldwide

• > $5 billion in net sales

• > 58 GW installed

• 4758 plants

• 10866 engines

• 176 countries


Market share, <500 MW market

General Electric

57%

Siemens11%

Mitsubishi17%

Wärtsilä9%

Ansaldo4%

Alstom1%

Others1%

2014

General Electric

38%

Siemens19%

Ansaldo10%

Mitsubishi15%

Others10%

Wärtsilä8%

2015

Source: McCoy Power Report Includes GT-based gas and liquid-fuelled power plants with prime movers above 5 MW

Includes estimated output of steam turbines for combined cycles (factor 0.5 for industrial turbines, 0.33 for aeros)

Oil & Gas projects not included. Other combustion engines not included – data not available

Total 23.4 GW Total 29.5 GW

<500MW market

+26% y-o-y


Ohio-11 MW

Miami University, Oxford

Hawaii - 32 MW

Kauai Utility 32 MW

HECO – 50 MW

New Mexico – 54 MW

ARPA (City of Raton) 7 MW

LCEC 47 MW

Alaska- 247 MW

Eklutna GS (MEA) 171 MW *

City of Ketchikan 10 MW

Red Dog Mine 40 MW

Westward Seafoods 6 MW

Dutch Harbor 10 MW

Nome 10 MW

Minnesota-23 MW

Northern States Power, 14MW

Hutchinson, 9 MW

Kansas- 143 MW

Midwest Energy 76 MW

Midwest Energy 28 MW

City of Iola 11 MW

Coffeyville 56 MW

Louisiana-77 MW

City of Alexandria 65 MW*

El Paso 16,000 Hp

Compression

Arkansas-18 MW

City of Paragould

Mississippi-12 MW

El Paso 16,000 Hp

Compression

Alabama-41 MW

Mobile Bay

Missouri-12 MW

City of Kennett

Tennessee-12 MW

El Paso 16,000 Hp

Compression

Pennsylvania-23 MW

Borough of Chambersburg

Maryland-31 MW

Sweetheart Cup 11 MW

BG&E 14 MW

Calvert Cliffs (BGE) 6 MW

New Jersey -9 MW

Mannington

Illinois-25 MW

University of Illinois

Michigan- 17 MW

Detroit Airport

Washington- 39 MW

Boulder Park (Avista)32 MW

Olympic View (MCPUD3) 7 MW

Oregon- 236 MW

Port Westward 2 (PGE), 220 MW*

Wah Chang 16 MW

California- 270 MW

Modesto (MID) 50 MW

Humboldt (PG&E)163 MW

Red Bluff (S&S) 57 MW

Colorado-229 MW

Plains End I (EIF)113 MW

Plains End II (EIF)116 MW

Nevada -118 MW

Barrick Gold Western 102 (BG)

Indiana-8 MW

City of Rensselaer

+2,600 MW Total Capacity* Plants Under Construction

Texas- 629 MW

Antelope (Golden Spread) 170 MW

Greenville (GEUS) 25 MW

Pearsall (STEC) 203 MW

Red Gate (STEC) 225 MW *

Moss Bluff 8,000 Hp – 6 MW Compression

Power Plants greater than 100 MW

USA REV 5 MAY 14, 2015

Oklahoma - 56 MW

Stillwater – 56 MW

North Dakota - 112 MW

Williston – 112 MW

Wärtsilä – USA plant references


Wärtsilä Gas Engines

20V34SG-D 18V50SG-B

Output 9.34 MWe 18.76 MWe

Heat Rate*7.87 GJ/MWh 7.74 GJ/MWh

Speed 720 rpm 514 rpm

Dimensions

(L/W/H)

42’ x 11’ x 15’

143 US tons

63’ x 18’ x 21’

391 US tons

•At generator terminals (pf 0.8, 0% tolerance)

18V50SG engine

© Wärtsilä © W ÄRTSILÄ Day Month Year Presentation name / Author6

Analysis approach

•An Independent Power Producer (IPP) investing in Wartsila 4x18V50SG power plant (74 MW net output)

•Buys gas from SPOT market and sells capacity to electricity and ancillary service market

• Bid capacity to the market with variable operating cost (fuel + VOM)

•Evaluate investment feasibility based on historical back-cast analysis as well as on conservative future price forecast

• Historical analysis over 2005-2014

• Future market analysis based on Urica’s 20 year price forecast


Modeling approach

Technical input• Heat rates (GTPro)

• Part load heat rates

• Variable O&M cost

• Capacity derating

• Start-up times

• Start-up costs

Market input• Energy prices (pool price)

• Ancillary service prices

• Daily gas price

Site input• Elevation

• Hourly temperature data

Modeling platform

• Excel tool for backcast

and future analysis

• 1 hour granularity to

analyze the operational

profile and costs based

on the operational profile

• Optimize the operation of

asset against the market

prices and offer capacity

optimally between energy

and A/S

• Assumes that capacity

fits into the merit if it is

feasible to operate the

plant

• Takes into account

temperature derating on

hourly level

Market model

outputs

• Running hours and

number of starts

• Revenue per market

• Operating costs (fuel,

VOM, start-up costs)

• Gross margin from the

market operations

Investment inputs

• Investment cost

• Fixed Operation &

Maintenance costs

• Capital structure

Financial model

• Project feasibility

• Project IRR

• Equity IRR

• Cash flows

+


Main input assumptions

Technical assumptions – 4 x Wärtsilä 18V50SG

Net capacity

per unit (MW)18.4

Heat rate at full

load (GJ/MWh)7.9

Minimum stable

load10%

Plant net

capacity (MW)73.6

Variable O&M

(CAD/MWh)4.0

Heat rate at min

load (GJ/MWh)16.0

Financial assumptions – 4 x Wärtsilä 18V50SG

Capacity

(MW)73.6

Overnight EPC

cost (CAD/KW)1200 Equity share 50%

Project

lifetime

(years)

20Owner’s cost

(CAD/KW)180 Debt share 50%

Tax rate 27%Construction

period (months)14 Loan term (years) 20

Interest rate 6%Total investment

cost (CAD Mn)103

Fixed O&M

(CAD/KW)30.0


HISTORICAL BACKCAST ANALYSIS



Historical daily gas price and average electricity price

AECO-C daily gas prices

was used for the basis.

Daily average pool

prices shown in the

graph, but modelling is

done on hourly

granularity.

0

2

4

6

8

10

12

14

16

0

100

200

300

400

500

600

700

800

Ga

s P

rice

[C

AD

/GJ]

Po

ol P

rice

[C

AD

/MW

h]

Pool Price Gas Price


Modelling the ancillary services market

• Assume price

taker approach

• Bid capacity to

market with

cost

• First regulation,

second

spinning and

third

supplemental

1• Assume 25%

success rate to

clear in the A/S

market

• Even when the

capacity is ‘in

the money’,

there is only a

25% chance to

get the

commitment

2• Run the

dispatch model

1,000 times,

randomly

selecting the

successful A/S

hours

• Use the

median

dispatch

outcome in the

financial model

3


Results – Historical back-cast with ancillary services

3 720

4 265

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

Energyonly

Energy +AS

Op

era

tin

g H

ou

rs

34

26

5

2

3

-

5

10

15

20

25

30

35

40

Energy only Energy + AS

Re

ve

nu

es [

Mn

CA

D]

Energy Regulation

Spinning Supplemental

18%

33%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Energy only Energy +AS

Equity I

RR

Operating Hours Revenues Equity IRR


WHAT ABOUT THE FUTURE?



Conservative price forecast for the future


How conservative the future price curve is?

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

Op

era

tin

g h

ou

rs

Historical average Future forecast

0

5

10

15

20

25

30

35

40

Mn

CA

D

Historical average Future forecast

Operating Hours Gross Revenues


0,00

0,01

0,02

0,03

0,04

0,05

0,06

0,07

0,08

Fre

qu

en

cy


Return on equity – Future modeling

Based on the monte

carlo simulation runs

the average Equity IRR

is 17.7 %. The 95%

confidence level is

15.5% - 19.9%.

Average project IRR is

12.9%

Median = 17.7 %

95% conf = 15.5%

95 % conf = 19.9%


GAS TURBINE COMPETITION?



Technical inputs

W18V50SG LM6000PF

Output (ISO) 18.4 MW 42.2 MW

Output (Site, ISO temp) 18.4 x 4= 74 MW 37.0 x 2 = 74 MW

Heat rate 7.9 GJ/MWh 8.9 GJ/MWh

Minimum stable load 10% 40%

VOM 4.0 CAD/MWh 3.0 CAD/MWh

EPC cost (ISO) 1,200 CAD/KW 1,200 CAD/KW

EPC cost (Site) 1,200 CAD/KW 1,396 CAD/KW

* Performance based on GT pro and SOAPP softwares


Return on equity – LM6000 comparison

Based on the future

analysis, Wärtsilä

18V50SG provides

significantly higher

expected internal

rate of return than

LM6000.

0

0,01

0,02

0,03

0,04

0,05

0,06

0,07

0,08

Fre

qu

en

cy

LM6000 Wartsila

Median = 17.7 %Median = 11.3 %


Summary

• Wärtsilä 18V50SG engine provide attractive project economics in the Alberta market

• 17.7 % Equity IRR with conservative future price forecast

• Historical back-cast provides over 30% IRR

• Compared to simple cycle gas turbines, Wartsila 18V50SG provides a way better business case

• Price volatility and ancillary service market are the market elements for flexible gas plants in Alberta

• Important to model the volatility correctly, and not just use average pricing

• Fuel flexibility – ability to use propone or ethane

Matti Rautkivi

[email protected]

Value of Wartsila 18V50sg IN ALBERTA ELECTRICITY · PDF file1 Day Month Year Presentation name...

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