Approximately 15 km of access roads as well as a bridge over the river must be constructed. Several canals linking the lakes and a nearby river system would also need to be built.

Financial information

The financial figures for the analysis, as provided by the local partnership that would own and operate the development, are: income tax rate of 43.6%, inflation at 2%, debt ratio of 80%, debt interest rate of 8%, discount rate of 8%, and a debt term of 25 years. The small hydro system capital cost would be depreciated over the 40 years of system use using a straight-line method. The current price of diesel fuel in the town is $0.40/L; the diesel generators produce 3 kWh of electricity per litre of diesel. On top of fuel costs, the current cost of electricity includes maintenance, overhead, etc. The price paid for the output of the hydro development would increase at 2% annually. Operation & maintenance costs for the hydro project would be about 0.5% of capital costs and property taxes would be 1% of the constructed cost. Water rent is expected to be approximately $23,000/year. The land lease would cost $2,000/year.

Prepare a RETScreen study, documenting any assumptions that you are required to make, and report on the significant conclusions from the analysis.

Solution

The worked-out solution is the data file selected from within the RETScreen Project Database. The user automatically downloads the Project Database file while downloading the RETScreen software.

Teacher's notes

• While tree clearing, earth excavation, and rock excavation were all part of this project, their costs have not been included under these headings, but rather lumped in with other construction costs.
• It is likely that the generator used in this project will need to be rebuilt every five to ten years. Estimating the cost of this rebuild is difficult, however. RETScreen can be used to investigate the effect of this periodic cost on the project's financial viability. For example, a $700,000 generator rebuild (i.e., a rebuild costing over one-half as much as the total initial renewable energy equipment bill) every 7 years would reduce the pre-tax internal rate of return.
• The electricity rate of $0.20/kWh reflects avoided diesel fuel costs of roughly $0.13/kWh and further avoided costs for maintenance, overhead, etc.
• The costs for the "canal" include costs for several canals built as part of the project. The cost for the intake has been given as a lump sum of $60,000, rather than specified as a cost per m3 of concrete used.
• The project is capable of generating a large amount of energy in excess of what is used by the community. This will permit future demand growth and sales of power to nearby communities. It also lends credibility to the developer's claim that the hydro plant can fully supplant the diesel genset and therefore avoids costs in excess of the avoided fuel cost.

Real project

Results

In 1990, BC Hydro, a government-owned electricity utility, called for proposals for independent power producers to provide alternative electricity supplies to several remote communities in northwest British Columbia, Canada. These communities, including Dease Lake, Telegraph Creek and Eddontenajon (Iskut), were off the North American electric grid and consequently providing all the power for their local grid using diesel generators. Fuel and maintenance costs for the generators were high. A small hydro plant, with output up to 3 MW, was built near Dease Lake to supplant the diesel generators. It came online in 1998.

System description

The Hluey Lakes project consists of 2 earthfill dams. One dam, located at the far end of the Hluey Lakes chain, raises the lake by approximately 3.6 m. A second dam, which lies adjacent to and forms part of the intake, raises the lake level by another 3.0 m. A 250 m by 20 m wide canal diverts a portion of the flow from Tsenaglode Creek into Hluey Lakes. The penstock consists of 2 separate pipes. A 1.5 m diameter low-pressure conduit transports the flow 4.7 km, from the lake to the surge chamber. A second, 0.9 m diameter buried steel penstock then conveys the water 2 km down to the powerhouse. The powerhouse equipment consists of a single twin jet Pelton turbine and generator unit producing up to 3,000 kW of power and ancillary equipment, including a governor, control panel and switch gear. The power generated is fed from the powerhouse to a 23 km, 25 kV overhead transmission line to the town of Dease Lake.

Lessons learned

• Following the feasibility study there may be a requirement for baseline environmental monitoring and various impact management studies. During construction, there is often a requirement for an environmental monitor on a part-time basis to report on problems, provide general advice and ensure that various emergency plans are in place.
• Typically, lenders will charge a fee of about 1% of the loan amount to cover the procurement of the loan. In addition, the borrower will have to pay their own legal costs, the legal costs of the borrower regarding loan documentation and the cost of a review engineer acting for the lender.
• Training, though a small cost, is an important part of such a project. A local operator needs to be hired and the skills needed for hydroelectric plant operation can only be gained by experience. The costs of commissioning the plant, which involves engineers, manufacturer's representatives and local utility personnel, must also be included in the budget. Note that the utility may charge for interconnection and for the use of their system for load testing.
• While a contractor's overhead as low as 10% may be reasonable for a site with easy access to the services of a town, at a remote site like Hluey Lakes higher overhead costs will be typical.

The big picture

The Hluey Lakes project is unique among small hydro projects in British Columbia. It was sponsored by a local Aboriginal group but most of the management and engineering was provided by an engineering company based in Vancouver, British Columbia. Most of the construction work was contracted to the Aboriginal-owned Construction Company. The financial structure of the project was conventional: there was equity admitted to the project by way of feasibility studies, then two loans were secured for the balance of the estimated cost.

The Hluey Lakes Project was submitted as part of a utility request for proposals for small diesel displacement projects. Prior to this project, the utility considered avoided fuel costs to be the only determinant of the price paid for power sold to isolated grids: the utility argued that it still needed to provide backup power due to the unreliable nature of what were normally run-of-river projects. The Hluey Lakes project, with its large reservoir and high installed capacity, meant that there would be little need for backup power and the developer could demand higher prices. In addition, social considerations that were less quantifiable but still important in a small town included:

• Reduction in operator attendance at the diesel plant;
• Reduced diesel maintenance and replacement costs due to wear and capacity increase;
• Less noise and air pollution in the town;
• Development of local expertise in construction;
• Employment benefits during construction;
• Provision of a viable long-term power supply for the community, with sufficient capacity for load growth and the possibility of providing surplus power at attractive rates;
• Provision of local jobs for maintenance; and
• Enhancement of the local tax base as opposed to seeing the taxes on fuel leave the region.

One of the other motivations for the project was that it provided good potential for expansion. Two nearby communities with diesel power plants could be connected once the initial small hydro power plant had proven itself over a couple of years. This, it was believed, would lower the cost of energy. A second turbine could be installed to supply future growth, if desired.

Photo

Hluey Lakes, British Columbia, Canada

References

• McDonnell, Glenn, "Personal communication," Sigma Engineering Ltd., 2000.
• Sigma Engineering Ltd., Hluey Lakes Hydroelectric Project - Engineering Review E5841, July 1996.
• Sigma Engineering Ltd., Hluey Lakes Hydroelectric Project - Inspection E5841, October 1996.
• Weyell, Chris, "Personal communication," Sigma Engineering Ltd., 2000.