As this is a remote site, a construction camp for about 30 people would be required. A 2.2 km tote road would be necessary; borrow pits are located 20 km away. The nearest connection to the utility's grid is an existing 69 kV line approximately 1.8 km away.

Financial information

Typical financial figures for the analysis are provided by the firm (income tax rate of 43.6%, inflation at 2.5%, debt ratio of 75%, debt interest rate of 8%, discount rate of 10%, and a debt term of 20 years). Assume that the price paid by the utility would increase by 3% annually. The capital cost of the project would be depreciated using a straight-line method over the life of the Electricity Purchase Agreement. The project is assumed to have a design life of 20 years. Operation & maintenance (O&M) costs would be significant and include a full-time live-in operator. Water rent is expected to be approximately $130,000/year and property taxes on the $200,000 property would be 1% of the constructed cost. The project would require leasing government-owned land at an annual cost of $5,500; an annual royalty of $41,000 would also have to be paid.

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

• Although the nearest grid connection was a 69 kV line, the developer chose to run a 13.8 kV line to the grid and then raise the voltage at the point of interconnection. The low estimate of substation and transformer costs using the "Formula Costing Method" is due in part to this. The cost of the transmission line is high because a 1.5 km submarine cable was used. This, in turn, affects the annual transmission line maintenance expenditure.
• In the formula costing method, RETScreen suggests that this project be classified as a "mini" project but "small" has been used instead as the "small" classification was more appropriate.
• It is likely that the generator used in this project will need to be rebuilt every 5 to 10 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 $1,500,000 generator rebuild (i.e., a rebuild costing fully one-half as much as the total initial renewable energy equipment bill) every 7 years would diminish the internal rate of return.
• The estimate of the initial costs produced by the RETScreen formula costing method has been adjusted to more accurately reflect the real costs for this particular project. While the formula's estimate of costs broken down by item are less accurate, in the aggregate the estimate is quite reasonable: the overall costs are estimated by the formula method to within a few percentage points of the adjusted estimate of $13,928,401, which reflect the real costs of the project.

Real project

Results

In 1989, Synex Energy Resources Ltd. prepared a preliminary feasibility analysis for a hydro power plant at Brown Lake in northwest British Columbia (BC), Canada. The project was initially conceived in response to a request by the provincial utility, BC Hydro, for proposals for electricity supplies under 5 MW. After protracted negotiations, a 7 MW hydro plant was built in 1996. It sells electricity to the central grid and is operated by an independent power producer.

System description

Brown Lake, 5.5 km² in area, drains into a tidal river via a short, steep series of waterfalls dropping approximately 110 m. A low concrete dam on the lake acts as an overflow weir to pass flood flow; most of the time the lake level is kept below the crest. A submerged lake tap intake, constructed on the lakeshore to the northwest of the dam, leads into a 2m x 3m unlined rock tunnel 600 m long. A 1.5 m diameter steel penstock conveys water to the powerhouse. The powerhouse is located adjacent to the Brown's Mill Pond, which lies between the foot of the waterfall and the Ecstall River. The powerhouse consists of a reinforced concrete foundation supporting a steel frame building complete with overhead crane for machine servicing. The powerhouse contains a Francis turbine/generator unit producing up to 7,200 kW of power as well as ancillary equipment including a governor, control panel and switchgear. The power generated is fed from the powerhouse to a 0.3 km, 13.8 kV overhead transmission line. The power then crosses the Ecstall River via a 1.5 km submarine cable. The power is passed through a substation, where the voltage is increased to 69 KV and delivered to the BC Hydro electricity grid.

Lessons learned

• Regulatory Approval: In many ways the site was ideal, with head, hydrology and history combining to make the project attractive, but there was a great deal of work required in the development phase to overcome regulatory hurdles. The history of the site as a water-powered sawmill meant that there was previous occupation of the land and the use of the lake had formerly been regulated. This illustrated the necessity of tailoring the project to physical and historical conditions to ensure better acceptance by regulators.
• Land Tenure: Land ownership and control can be an important part of early project development. A family (the descendants of the sawmill owner) owned the land required for the project. It was too expensive to buy outright at the early stage of development, when the developer was not yet certain that the project would be built. A series of options were negotiated which allowed the developer to control the land until such a time as the development was assured of proceeding.
• Lake Storage: Lake storage allowed the optimisation of energy delivery. With more control over energy delivery, higher levels of investment, in improved turbine performance and reduced hydraulic losses, were justified by a long-term payoff in higher energy revenues.
• Site Location: The remote site and high rainfall warranted investments that would reduce future maintenance costs. These included a powerhouse crane, a large powerhouse floor area, and the purchase of the trailers and shop facilities used during construction, such that they would be on-site for future projects and maintenance tasks.
• Automation: The plant is automated and can be operated remotely. However, it was decided that a full time live-in operator would be employed, mainly for security reasons. This proved to be a good decision because the operator has been able to fix some problems himself, perform maintenance and improvements at the site that would otherwise not get done easily, and attend to outages, restoring generation sooner that would otherwise occur.
• Intake: The riskiest aspect of construction was the lake tap intake. It was drilled and blasted from the bottom of the gate shaft below lake level. In general, the operation went well, but the blast debris had to be removed by divers before the intake gate could be opened. The other problem, which showed up later, was the trashrack: one corner did not rest on rock and was suspended above over-blasted void. The divers who helped install the trashrack neglected to tell anyone that there was no support provided, which would have been easily addressed at that time.

The big picture

The Brown Lake Project was submitted as part of a utility all-source request for proposals for small projects. Although the opportunity was open to any technology, only small hydro projects made submissions.

It was soon realised that the utility was not prepared to adjust the price it would pay for electricity from any of the projects. This situation continued even after protracted negotiations about a simple, standard contract; the resulting time delay increased the costs of all projects. The developers of the Brown Lake project believed that their project had better attributes than most of the other projects and they also believed that they could not finance the project under the pricing terms of the standard contract.

When evaluation of projects takes place, there are numerous variables in the financial analysis. If the project cannot be built for a return that would support the long-term financing of the project, the developer has but a few options:

• Adjust the design to lower costs;
• Find more attractive financing;
• Ensure that the construction price is competitive;
• Utilise an optimistic hydrology assessment;
• Examine the financial analysis to see if any of the development or operating assumptions are overly conservative; and
• Determine what electricity price rate will make the project financially feasible.

In most projects, the developer continually refines all of the above variables (other than the electricity price rate). Lowering prices in the estimating phase, without firm contracts to rely on, carries a risk that cost overruns may occur. The developer of the Brown Lake project optimised all of the variables to within its level of risk tolerance and still found that the price offered by the utility was too low. When this is the case, the project may become financially viable in the future if the utility's cost of generation is rising, such that the electricity price escalation rate exceeds the inflation rate. In most situations, however, the price offered by the utility needs to be adjusted at the outset, as it was for the Brown Lake project.

Photo

Hydro Power Plant, Brown Lake, British Columbia, Canada

References

• McDonnell, Glenn, "Personal communication," Synex Energy Resources Ltd., 2000.
• Synex Energy Resources Ltd, Brown Lake Project - Request for Debt Financing, December 1994.
• Synex Energy Resources Ltd, Brown Lake Project - Turbine and Generation Equipment Supply, SERL Y3024-H1, May 1995.
• Weyell, Chris, "Personal communication," Sigma Engineering, 2000.