10.0 NAM THEUN 2 ISSUES

Transcription

1 10.0 NAM THEUN 2 ISSUES 10.1 Scope of Nam Theun 2 Issues The Nam Theun 2 PPA and concession agreement have been executed and these documents contractually commit GOL, EGAT and NTPC to the key parameters of the present project layout and design. The Nam Theun 2 issues explored under the PSDP are based on the NTPC concept design, with some comparisons being made to the earlier 681 MW project configuration. The TOR defines specific tasks in relation to the Nam Theun 2 Hydroelectric Project; they are to: (i) (ii) Evaluate alternative reservoir Full Supply Levels (FSLs) Compare Nam Theun 2 with alternative power projects and determine: whether the power EdL receives from Nam Theun 2 as domestic offtake will be at lower cost than the power from alternative projects; and whether the revenues paid by NTPC to GOL and EdL as taxes, royalties and dividends will be greater than corresponding revenues from alternative projects. (iii) Determine how long it will take for the domestic off-take allocation from Nam Theun 2 of 300 GWh per annum to be fully absorbed by the Lao power system Comparison of Full Supply Levels Effect of FSL on Economic Performance The economic performance of the Nam Theun 2 project was simulated across a range of FSLs and the trade-off between economic and environmental attributes was examined. The NTPC concept design configuration (FSL = 538 masl) is the reference case and the effect of reducing the size of the reservoir was simulated using EVALS. The relationship between economic performance and FSL is reported in Table 10.1 in terms of annual energy production and generation cost as a percentage of the NTPC reference case. Final Report Vol A: Main Report 224

2 Table 10.1: Nam Theun 2 Comparison of FSLs FSL (m asl) Reservoir Area (km 2 ) Volume (mcm) Installed Capacity (MW) Energy Generation (GWh pa) Relative Project Cost (%) Relative Generation Cost (%) 1/ ,898 (100%) ,218 (88%) ,674 (79%) ,544 (77%) ,357 (74%) NOTES: 1/ Based on weighted average generation cost. 2/ Energy outputs are adjusted for reduced generation at Theun Hinboun (210 MW) It can be seen that the cost of generation increases sharply as FSL is lowered. The generation cost at RL 532 masl is 36% higher than the reference case and FSLs below this level were not considered further in the analysis of trade-offs between economic and environmental attributes. Three project alternatives were shortlisted for further study from some 80 variants examined initially under the Nam Theun 2 Study of Alternatives (Lahmeyer/Worley, 1998). The shortlisted project layouts are: 1. Reference case as proposed by NTPC (FSL = 538 masl) 2. Run-of-river case (FSL = 532 masl) 3. Ban Signo case with the dam moved upstream (FSL = 538 masl) The PSDP analysis of these three cases draws on the work conducted initially under the Nam Theun 2 Study of Alternatives, and updates it to incorporate additional information now available and reflect changes to the installed capacity of the project Run-of-River Case The run-of-river layout involves a significantly smaller reservoir (FSL of 532 masl). This would have a number of social and environmental benefits: The area inundated at a FSL of 532 masl would be substantially reduced, with the reservoir covering only 40 km 2 or less than 10% of the NTPC case); The length of river inundated would be about 25% of the NTPC case; The regulation effect on the Nam Theun would be less and more water would spill downstream, slightly reducing biodiversity impacts in that reach; Flood levels in the Nam Theun would be higher than the natural condition due to the diversion weir and communities living adjacent to the river would still be affected. About 1000 people would need to be resettled, compared with 6,000 for the NTPC case; Final Report Vol A: Main Report 225

3 Fisheries yields from the smaller reservoir would be less than those expected from the NTPC reservoir but downstream fisheries might benefit slightly from the increased spill in the downstream reach; Project impacts on terrestrial biodiversity would be reduced due to the smaller area of inundation; Two thirds of the Nakai wetlands would be preserved; With less water diverted through the turbines, effects in the Xe Bang Fai would be reduced slightly. Although the social and environmental advantages of the smaller reservoir are significant, they are associated with a 36% increase in the cost of generation. Such a change would fundamentally affect the viability of the project under current market conditions. It is difficult to see how the project with a reservoir FSL of RL 532 masl could simultaneously meet the EGAT avoided cost tariff ceiling and investors minimum rate of return criteria Ban Signo Case The Ban Signo variant has the same FSL as the NTPC reference case but moving the dam to a site about 10 km upstream reduces impacts. Two variants of the Ban Signo case were investigated one with the same installed capacity as the NTPC proposal and one with the same ICF (equivalent to an installed capacity of 945 MW). The principal social benefit of moving the dam upstream to Ban Signo is a reduction of 413 (or 9%) in the number of people resettled. 63 From an environmental perspective, the reservoir area would reduce by 137 km 2 (30%). Of this area, about 100 km 2 is degraded by logging but 20 km 2 of pristine forest would be saved, i.e. about 2% of this forest type in the NBCA and about 10% of that found at low elevations. With a smaller reservoir, the Ban Signo dam would also be associated with a marginal increase in downstream flows and the aquatic ecology might benefit from this. The corollary is that fisheries in the smaller reservoir would be reduced marginally. There are no wetlands in the reach between the NTPC dam site and Ban Signo and therefore the move will not alleviate wetlands impacts. A comparison of the economic benefits of the NTPC and Ban Signo cases is presented in Table It indicates that the trade-off for the social and environmental gains would be a 20% higher cost of generation, an increase that could undermine the viability of the project under current market conditions. Further concessions in taxes and royalties could be made to help early cash flow and debt service but this would cut into GOL s revenue stream and bring into question the whole basis for pursuing the project. 63 Provided WCD standards are adhered to, people resettled should be better off than before and it could be argued that the reduction in resettlement is also a reduction in non-monetary project benefits. Final Report Vol A: Main Report 226

4 Table 10.2: Nam Theun 2 - Comparison of NTPC and Ban Signo Cases Alternative Installed Capacity (MW) Annual Energy (GWh) Basic Cost (mus$) Generation Costs Average ( /kwh) Weighted ( /kwh) NTPC dam site Ban Signo dam site same ICF (-12%) (-15%) (0%) (+17%) (+17%) Ban Signo dam site same capacity (MW) (0%) (-12%) (+8%) (+22%) (+21%) Again, the Ban Signo case is associated with social and environmental gains but they are not as extensive as would appear on first inspection. The downside is an increase in the cost of generation of about 20% and such an increase would be difficult to reconcile with EGAT s avoided cost tariff ceiling and investors minimum rate of return criteria Comparison of Benefits from Nam Theun Scope of Benefits Review The PSDP TOR seeks confirmation that: (i) the power EdL receives from Nam Theun 2 as domestic off-take will cost less than the power from alternative projects; and (ii) the revenues paid by NTPC to GOL and EdL as taxes, royalties and dividends will be greater than corresponding revenues from alternative projects. These issues were investigated using project simulations as necessary and the conclusions are reported in the following sections Least Cost Domestic Supply In relation to the matter of the price of domestic off-take from Nam Theun 2, the price paid by EdL for power from an export IPP project such as Nam Theun 2 is tied to the opportunity cost of that power to the project company, i.e. the revenue foregone by the project company for each unit of output sold to EdL rather than the foreign offtaker. In general terms, the revenue foregone will be equal to the export tariff as adjusted to take account of transmission loss differentials and wheeling costs. The export tariff is determined, in turn, by negotiation based on avoided cost within the foreign off-taker s system at the time the tariff was negotiated (refer Section 5.8). This general proposition assumes that the quality of the traded energy is the same for the domestic and foreign purchasers and, more particularly, that the terms governing the contractual commitment to supply are the same, i.e. firm / non-firm, liquidated damages, etc. In the specific case of Nam Theun 2, the level of supply commitment is different in detail and this is reflected in differences in the value and structure of the EGAT and EdL tariffs. Final Report Vol A: Main Report 227

5 The domestic off-take tariffs from other candidate export projects are not yet fixed and therefore firm comparisons with Nam Theun 2 cannot be made. However, one can speculate that the same tariff setting imperatives will apply and that, regardless of the project, the wholesale tariff paid by EdL will reflect the avoided cost in the foreign purchaser s system, be it EGAT or EVN. Thus, comparisons between the domestic off-take tariffs of Nam Theun 2 and other projects are not particularly relevant. The characteristics of a project determine whether it will proceed, not the value of the tariff it receives. The value of tariff depends more on the characteristics of the buyer s system and the skills of the negotiating teams. To determine whether Nam Theun 2 will provide least-cost domestic power, it then remains to be seen whether domestic off-take is cheaper than power generated by projects built exclusively for supply to EdL. This will depend on the characteristics of the competing domestic project and its financing terms. Table 10.3 presents a comparison between the Nam Theun 2 tariff and the calculated costs of production from shortlisted domestic projects. The Nam Theun 2 and Theun Hinboun off-take tariffs are based on the rates specified in their respective PPAs. For the other projects, the lowest tariff that would achieve a return on equity of 17% (nominal) is used (refer Table 9.3). The tariffs in Table 9.3 and the Nam Theun 2 and Theun Hinboun PPA rates are not comparable as the Table 9.3 rates quote only the primary energy tariff and do not account for the portion of output paid at the lower secondary energy rate (modelled at 56% of the primary energy tariff). To give greater meaning to the Table 10.3 comparison, the non-ppa tariffs are presented as weighted combined tariffs, calculated according to the proportion of primary and secondary energy produced by a project in an average year. The comparison of tariffs confirm the intuitive position that Nam Theun 2 domestic offtake is competitive when compared with Lao-based generation, whether it is sourced as domestic allocations from primarily export projects or as output from domestic projects developed under commercial terms. However, domestic projects developed with concessional finance might well produce cheaper output if projects are carefully selected, and proper procurement standards apply GOL Revenues from Nam Theun 2 Export Sales The TOR asks whether the GOL receipts over the lifetime of the project will be greater than those generated by other projects. GOL receipts from IPP projects come in the form of taxes, royalties and dividends. Dividends deriving from GOL s equity in the project are paid to the agency nominated by GOL to hold the shares EdL in the case of Theun Hinboun and Houay Ho. The strength of the GOL revenue stream depends on a number of factors including average annual generation, tariff, GOL equity share and concession terms (taxes and royalties). The earnings potential of Nam Theun 2 has been demonstrated by a number of consultants including Louis Berger, Credit Agricole Indosuez and Lahmeyer/Worley. The Lahmeyer/Worley studies 64 used financial modeling of Nam Theun 2 and competing candidates based on actual and assumed tariffs and concession terms to quantify and compare the respective GOL revenue streams. 64 Nam Theun 2 Study of Alternatives (Lahmeyer/Worley, 1998) and Hydropower Development Strategy Study (Worley/Lahmeyer, 2000) Final Report Vol A: Main Report 228

6 Table 10.3: Nam Theun 2 EdL Tariff - Comparison with Domestic Generation Project MW Financial Weighted Tariff 1/ ( /kwh) Comments Nam Theun Tariff in EdL PPA, levelized in 2003 dollars Theun Hinboun Exp Current EdL off-take tariff from THB Thakho Mainstream Mekong, counter-seasonal 2/ Nam Sane Large resettlement problem Nam Ngiep Includes generation from reg. dam H. Lamphan Gnai Nam Sim Large proportion of secondary energy Nam Pot Xe Katam Run-of-river mainly secondary energy Nam Ngum Nam Long Nam Bak 2B Modeled as a storage project 1/ Unless otherwise specified in the Comments column, the quoted tariff is the weighted combined tariff for primary and secondary energy tariff calculated in financial terms to equate to the levelized tariff specified in the Nam Theun 2 EdL PPA. The primary and secondary tariffs were those required to achieve a 17% nominal return on equity and minimum debt service coverage of around / Thakho is run-of-river and produces predominantly secondary energy but it is counter-seasonal, producing most of its energy in the dry season and its output is therefore valued at primary energy rates. Also, although attractive in a financial sense, the potential economic impacts are difficult to assess and it is penalized heavily in an economic / SESAMEE evaluation. In the time since these studies were done, many of the frontline candidates have been overtaken by events. Some have not progressed since the onset of the Asian Economic Crisis seven years ago. Nam Theun 2, Nam Mo and Xe Kaman 3, though, have formal standing in the power development plans of EGAT or EVN and it is understood that the prospects for Theun Hinboun Expansion are bright. The status of the developer groups, tariff agreements and concession terms of other projects are in doubt and the revenue comparisons are therefore based on a standardized set of assumptions rather than on lapsed or neglected agreements (refer Annex 4.3). The comparison of benefits of Nam Theun 2 with other candidates has been approached from both economic and financial perspectives: (i) Economic Comparison Using EVALS and SESAMEE, an economic study of all shortlisted projects, including Nam Theun 2, was carried out. The economic benefits of projects, as represented by the average and weighted cost of generation, are compared in Tables 6.12 and 6.13 and these establish Nam Theun 2 as the most beneficial candidate by a comfortable margin. Final Report Vol A: Main Report 229

7 (ii) Financial Comparison The financial performances of shortlisted export alternatives were simulated and cash flow projections prepared as described in Section 9. Standard assumptions were used for all projects other than Nam Theun 2, for which the contractually binding tariff and concession conditions were used. A comparison of tax, royalty and dividend streams of the various projects produces a similar finding to the economic evaluation, with the benefits from Nam Theun 2 exceeding those of other candidates (refer Table 10.4). It is evident from the financial analyses that superior characteristics of the Nam Theun 2 site allow more favorable tax and royalty conditions to be negotiated without impairing the project s ability to clear return-on-equity and debt service hurdles. Thus, the benefits from Nam Theun 2 should be greater not only because of the project s larger energy production, but also because GOL is likely to receive more on a per GWh basis. Table 10.4: GOL Net Receipts (nominal) Common Construction Start (2003) Project 2/ Xe Kaman 3 Nam Theun 2 Nam Mo Base Cost 1/ Royalties 10% Taxes 10% Dividends 10% Total GOL Receipts 3/ 10% GOL Receipts (% Base Cost) % % % Xe Kaman % Xe Kong % Nam Ngum 3B % Nam Ngum 2B % 1/ Base cost including SESAMEE environmental and social impacts (positive and negative) 2/ All projects other than Nam Theun 2 modeled according to common set of assumptions as described in Section 9.2. All projects, including Nam Theun 2, modeled on a common COD. 3/ GOL receipts have been estimated using project costs and energy production figures calculated using EVALS. In the case of Nam Theun 2, the official GOL estimate of Nam Theun 2 receipts is based on a more conservative estimate of primary energy production (i.e. 4,406 GWh, versus 4,883 GWh as calculated using EVALS) Absorption of Domestic Off-take Nam Theun 2 is located strategically in the C2.1 supply area and will contribute 300 GWh p.a. to the grid which, by the time of commissioning, will be interconnected to the C1 and C2.2 grids. Demand growth within the central area of Lao PDR is very rapid and will remain so for a few years. Increasing economic activity is boosting demand generally but this is being further boosted by significant new point loads related to the Sepone mine, Nam Theun 2 construction, a cement factory, expanding irrigation and other industrial loads. This growth is currently being met by imports. The optimal power system expansion scenario identified by the SEXSI simulations would restore a balance by interconnecting the C1, C2.1 and C2.2 grids (2005) and by taking output from Theun Hinboun Expansion (from 2008) and Nam Theun 2 (from Final Report Vol A: Main Report 230

8 2010). The SEXSI power system simulations demonstrate that the commissioning of Theun Hinboun Expansion (105 MW) in 2008 would reduce imports to less than 10%. Demand growth from 2008 would see imports rise again but in 2010 the Nam Theun 2 domestic off-take would restore the situation by absorbing the demand growth for the two years between the CODs of the two projects. It therefore follows that the domestic allocation of Nam Theun 2 will be absorbed, if not immediately, then within a short time. Antecedent supply and demand conditions are fundamental to this outcome, with the timing of prior capacity increments and transmission interconnections largely determining the result. If capacity is added to the system before it goes into deficit, surplus power can be sold to Thailand while domestic demand catches up with the augmented system capacity. Such trade would, however, attract only a non-firm energy tariff. The more attractive option from economic and financial perspectives involves a strategy in which a deficit, balanced by imports from Thailand, is allowed to develop in advance of new capacity. In this way, new plant will be employed more fully upon entering commercial service, allowing the economic benefits of investments to be maximized from the outset. Final Report Vol A: Main Report 231