Power Purchase Agreements. Edward Kee

Transcription

1 Power Purchase Agreements Edward Kee Oct 2015 ANL/IAEA

2 The NECG slides that follow are not a complete record of this presentation and discussion. The views expressed in these slides and the discussion of these slides may not be comprehensive and may not reflect the views of NECG s clients or the views of my colleagues NECG 1

3 Overview & Context Electricity industry structure important My session earlier today covered this in more detail In some cases, a PPA may be possible PPA offers options Alternative to self-build/ownership Off balance sheet financing by buyer Attract outside investors Manage nuclear project risks 2

4 Overview & Context (cont.) PPA approach not without risks PPA may be more expensive than direct ownership PPA details reflect competing demands Requirements of lenders and investors Potential for delays and cost overruns Requirements of power buyer/user Grid and system operations over life of PPA 3

5 Government utility Ultimate credit source Investors Nuclear Plant Government Electricity Ministry government subsidies $ Nuclear Project System Dispatch TRANSMISSION PPA CONSUMERS MWh $ DISTRIBUTION RETAIL SERVICES 4

6 Regulated utility Ultimate credit source Investors Nuclear Plant Utility Regulator IRP & ratemaking process Investors Nuclear Project System Dispatch TRANSMISSION PPA CONSUMERS MWh $ DISTRIBUTION RETAIL SERVICES 5

7 Electricity markets Ultimate credit source Market oversight Utility regulator CONSUMERS $ MWh Investors Nuclear Project TRANSMISSION Electricity Market DISTRIBUTION RETAIL SERVICES Hedge contract 6

8 Cooperative model Ultimate credit source Member agreements + long-term projected demand Cooperative members MWh Costs TVO U.S. G&T Coops Nuclear Project Electricity market CONSUMERS 14 Oct 2015 Middle East Nuclear Power Briefing

9 PPA PPA = alternative to nuclear plant ownership Costs and benefits of ownership should be compared to PPA outcomes Nuclear project finance tightly linked to PPA Guarantees of payments/obligations may be needed PPA details must be crafted to meet lender/investor/sponsor requirements 8

10 Nuclear PPAs conventional PPAs Longer development/construction period Greater risk in development and construction Longer term/tenor (high capital + long asset life) Low-probability, high-impact nuclear events Externalities (Decom, SNF, TPL insurance) Nuclear regulatory cost issues Nuclear fixed/variable costs & dispatch 9

11 SRMC Short-run marginal cost - key power plant attribute Difference in total cost due to small change in output for a short period (e.g., 1 MW for 1 hour) For fossil fuel units, SRMC is fuel cost (maybe some variable O&M) For wind, solar, run-of-river hydro, SRMC = ZERO For most nuclear power plants, SRMC = ZERO 10

12 Nuclear SRMC = ZERO Batch refueled light water reactors (PWR/BWR) Plants operate as much as possible during 18 to 24 months between refueling outages Refueling outages involve maintenance activity in addition to fuel change not easily rescheduled Nuclear fuel cost incurred before fuel is loaded Only a very large/long outage might result in delay of refueling outage 11

13 Illustrative marginal cost comparison 100% 100% 70% Total cost Marginal cost 0% Nuclear Fossil fuel 12

14 Dispatch issues Utility meets time-varying demand by dispatch Fossil-fueled units Large part total generating cost = fuel (marginal cost) Change output levels significantly in short time Able to shut down overnight or in off-peak seasons Avoid large part of total costs by shutting down Nuclear plant costs all fixed no benefit to operator/owner from operating at less than 100% 13

15 SRMC Dispatch (unit 1 = nuclear) Demand Supply Short-run Marginal Cost (SRMC) X SRMC 14

16 Single Price PPA All payments for power on $/MWh basis Transforms PPA price into SRMC for buyer Buyer dispatch with PPA based on this SRMC May mean lower operation of unit in PPA Lower revenue for PPA seller Typically leads to PPA terms that require buyer must take power (i.e., no dispatch) Issues for all plants, not just nuclear 15

17 Single-price PPA turns fixed costs into marginal costs for power buyer Nuclear operator sees costs that are all fixed Utility power buyer sees costs that are all marginal PPA with one-part pricing; all revenue is obtained when power is sold at $/MWh Nuclear costs (all fixed) Nuclear costs (all marginal) 16

18 Two-Price PPA Approach used in more mature PPAs Fixed capacity payment ($/MWe/month) based on project fixed costs Variable payment ($/MWh) based on project variable/marginal costs Allows PPA dispatch similar to owned units Avoids need for must-run PPA provisions Typically includes availability tests to qualify for fixed capacity payments 17

19 Nuclear PPA capacity payments? A nuclear PPA with a pricing approach tied to project costs suggests a single fixed payment (the opposite of the single variable payment approach) PPA provisions related to operating effectiveness and incentives for performance Financial incentives/penalties Based on capacity factor over month or year Risk for owner/operator may be issue Exceptions for regulatory requirements? 18

20 High-level PPA approaches Ownership equivalents Cooperative arrangements Regulatory participation agreements Pass-through PPA between affiliates Other Stipulated price agreements conventional PPA Tolling agreement (power buyer pays for fuel) Hedge Agreement / Contract for Differences (CfD) in electricity markets 19

21 PPA Issues and Approaches Pricing and payment structure Performance incentives and risks Financial incentives and penalties Plant operating schedules & outages Contract timing & term/tenor Spent nuclear fuel & decommissioning fees Contract re-openers/contingencies 20

22 Nuclear PPA examples Participation agreements Buyer takes all available power and pays all costs on a pro rata basis) TVO, Palo Verde, SERI (Entergy), Vogtle 3&4 US merchant nuclear PPAs (part of sale) Exeltium & Blue Sky (European fwd power sales) UK EMR Hinkley Point C CfD 21

23 Edward Kee Nuclear Economics Consulting Group +1 (202) Copyright 2015 NECG All rights reserved. 22