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HomeMy WebLinkAboutSUS237o To provide mximum marketability of electricicy and reliabil- ity to the Railbelt system, Watana should be operated in the load following mode. o Recornended design ref inemenrs will reduce Watana constiruc- tioa costs by $396 million, and Devil Canyon by $25 nlillion. Potential, probable cost savings in addition would rediuce the Watana project by as mch as anotfier $171 million an.d Devil Canyon by $85 miltion. o Lowering the Watana reservoir to elevs~ion 2000 will reduce initial generating capacity to 475 W and average annual energy output: to 2500 The accompanying reduction in esansdtructiiaa coa is $795 million, Cost reductis~ws from design refinpments and lowering the Wataaa reservoir are additive, o Forecast prices of oil vary significantly depending on the source. In this study, only forecasts ~epresentative of the lower range of oil prize trends were considered. It may be prudent to examine historical oil price trends for inrpact on economic evatuation of mjor hydroelectric projects which hilrre a useful Life of 50 years or more, o If the cost of electricity from Susitna in its initi,aZ year of operation is to be equivaleat ko the cost of electricity from the mst attrae~ive therrnal alterna~ive, State equity coneributicms will be required upf ront . Hmever , given the eeonomic attractiveness of the project, the Statc could chaose to recapture its investment at a future date hen the cost of fuel would have caused cost af po93er from the thermal alternative to exceed the cost of Susitn~, power. STATE EQUITY OPTIONS Forecast - o Decisions mde as a result of this study may have a sigoifi- cant impact an the PERC processing of the license app'lkcation ancl the dace the Lieease is issued* Beeauee criticr:aL FERC milestones are iouninent , the Pcrxer Authority should discuss khe results af thig study with the FERC at an early date to minimize changes which could result in a nsaterial delay in issuance of a FEBC license, This report ' s purpose is to sunonsrize an economic and f inanleiell update an the Sueitna Hydroelectric Project. The updaee has beeo prepared to reflect changes ia world oil price and resulting changes in foreeasts of Alaskan economic conditions. After decades of interagency investigations and several yearbs of Alaska Paraer Authority study, a license application was prepared fair a &so-dm project oo the Susitna qiver, It consisted of the Watanf~ and Devil Carayon devel~pments. Capital cast of the initial phase, thet Watana de- velopment, was estilnated at $3,828 million in 1983 dofiaro, excluding inrerest during coastruc~ion. The application was filedl on Febra- sry 28, 1983 with the Federal Energy Regulatory C ssi~n ([FEBC), A severe drop in oil prices, from a high of $34 per barrel ia 1981 to under $29 per barral today, reduced the outlook for the State's etooo- nny. Since 6he StateF s continued ourlook predicts depressed oil Flees fox several years, an update of power demand forecasts alad econmie analyses was requested by the Pmer Authority Baard of Directors, The same fact:ors generated a similar request from Ehe FEBG. The specific FEW inquiries resulted ir. sa update to the appficatian ohi July 12, 1983; FEIKC subsequently accepted the application on Juljr 20, 1953. This cpdnte incorporates that arork and exgends it to the Board of Director's qrstt.s~ians. The Jubp 1383 revision of the liceas@ application used a forecasting meth~dologp which related che future price of oil to State revenues and eleceriei~y deaand. Based anr curreat forecase9 of oil pricles, the July 1983 elecgrieity demnd foreeast is significaotlg ic~ger than the forecasrs cf the tieease application* The July 19133 revisioa continued ta show $:bat ~,$e prcjec6 would be econonisally feasible, but the ?liirgin af ecoaiclmis attrastiv2rsesrs wag seduced, Porerasting oil prices is .~azy diEficult, The pticgs are reflvared to the world supply and demgad Ear oil, w39ich is aecedned by ithe vurSdf s econGay snd OPEC's ohij@ity to errnEraL oil praduc~ioa, Nighe~r vosld ail price& provide. higher Stage reven~res , more abundect funds aaid inrproved borraroing capacity, resulting ia greater reaourtes eo buif d ~bhe Sugitaa Project. Canverseiy, lower oil ptices reduce State tuiVenuqis @ad mke tile project artnsctkve. Section 3 describes the pr~][ae tions of world oil prices that have been l~siid la this update. Tbese iprojeetiatis are significantly lower than Ehe prices projected ea~Lier hry ehe U.S. Department of Energy The update is specisllp desimed to respaad to concerns expressed, by the Alaska ?over Authority Baard of Directors, the Gevernalr, add ii2e Legislature. Moreover, tbe Gr~veraa~r's Office has rc-ques teld tkat the Pmes Autbori~y reassess the cruriit2 assunrptians affec~ing project feasibilit:y. MeanvhiPs, parailel engineering studres are conrinuing and further refinements in the projec~ concept oaay reduce projeer cases;. Envi-roareental studies are axso rcntinuiag, and wi.1 f prowide Pnfarmtiao for nitigation planning. Furure world oil price is the most imparranr fac~or ia projeict fils~i- bility becau~e of its impact on: 3 general economic ccnditions o growth iaelectricitydemanl Q State revenues (85 perceat are dependeat on oil price) a cost of thermal energy generatian Oil prices affect the cost of power gea-erztion ia the Rai tberi, 9iit.ncr much of the electrical consumption is suppZied by f assil-f uekled (gse 1 generiltioo, There will b~ no imaaediate adverse effec; in thdk Bailbelt fr~m risinai oil prices, because exiseing cartracts for naturail gas are iatitependent of oil price escalatiaa. These f;avorabie eontracts will zxpire by 1995, hawever, and increased fael eo~ts can be ~xpect~d thereafter This ~i-ejected rise in tfierlnal generation cosrs is substaatiated by re- cently r,fgstiated cantracts hick tie thp cost of gas to world oil prices. Otber effects of increased ail price may include suibs titugioa cf oeber fuels far generaring eleccricitg , iocreased canaervacion, and s~iarulaeion of expla~arion for North Slope gas. The Alaaka T ~artment of Revenue IDOR) has developed proj~kc tisns of State revenues by forecasting 311 prices. Their forecasts extend Eor a 17-year cine pzrierl, focusing on che near tern, Th? LzOR 4~~aeiops oil a vieh v~xyizg degrees of confidence; hoeever, the 30Q price forecast- :i;ei;n has 'sea use6 is efris seudy, and is representative of the oil price tha~ ehe nt3B expecrs ta prevail in rhe sfiert Eerm. The DelE 50 percent case, sihich is forecast go hsve a 5D percent prohabi.lity of occurrence, was also cansidered, Tha latesl: forecase (June 13183, see graph) is erpressed in 1983 dolxars. 9 983 ZQQ"3 YEAR The SHTts-PFSD forecase was developed in kay 1983 by Shermn M. Clark ~\s~v"~iatr~, c". f ira specializing in pro jscting world energy sulpply sgld demod and resraltin~ 4 ail prices. That forecasg was used as (th~e refer- 16; -.;,ce casa fur the July i98S revlsxo:! of che FERC license application. Tt ia developed nn a ratioaal basis and recagoiaes the locg term sx~pply aud $~aanC. ~~it~~ii~n that m8ust be used in rhe FERC eewaluatioo process, price that the DOR expects ro prevail in the short term. The DOR 50 percent case, which is forecast to have a 50 percene probability of occurreace, was &ISO considered, The latest forecast (3une 1983, see grapi, ,s expressed in 1933 dcrllars. The SEICA-BSD forecast: was developed in May 1983 by Shernan E. Clark ~ssociates, a f irar specializing in projecting world energy supply and demand and resul~ing oil prices. TRar forecast wgs used as the refer- ence case far tbe July 1383 revision of the FERG license application. Ie is deva2oped on a rational basis and recag~irea the long term supply and demfad sitirstiaa thal: =%st be used in the FERC evahtlation process, Except for the DOR forecast, it was -on$ the lowest published long tern oil price forecasts. A sunenary of recently published forecast oil prices in 1995 and 2010 >:#9 is provided for comparison. 2010 $ Departmeng of Energy (DOE) Sumer 1983 46.50 813.60 Data Resakarims fnc, (DBP) Samer 1983 39.58 Nh SEGA-MSD Map 1983 32,34 510 U 39 40 June 1983 22 e 47 2tfe71 Clearly, the range of oil prices predicted by SHCA-NSD and the! DOR pro- vides a eoaservarive approach to predicting the State' rs ecomomy, the Rail bel~ elec tricitg demand, and the eeonornie soundness and financial viability of the Susitna Bydroelectric Project. The Departmeat of Revenue uses these oil! price projectioas in a corn- prrter model called PETREV eo forecast State petrclbelrm revenues,. PETREV considers the uzacertainties of prcjeeted future oil prices, petroleilk? produetion, and other factorcr. Giveni oil price projeceion:s, PETmld also forecasts Stace revenues from royalties and severance taxes to- gether with s range of probability distributions. For the puoiaeoe of fcrecasring electricity iremaad, the Railbelt is de- fined as the knrerssnnected Bystern serving the Aanachorage-Gaak Inlet and Fairbanks-Tanaua Valley areas, and portions of the demand at mili- tary bases that migh~ be supplied by the Susitna Project. Two coxnputer models, the Man-in-theArctic Program (MAP) and Bail belt Eleetrieity Demr,d (RED), were used to prepare the demand forecast* Developed by the Institute of Social and Econornic Research (ISER), the NAP cornputer model is used to simulate the behavior of the ecobnomy and populsr~icn of the Staee of Alaska and to develop economic projections for each oil price scenario. The RED Madeit was developed for the 1982 Railbelt Electric Power Alterna~ivea Study by Battelle Pacific lorth- west Laboratories. I",fr -ecastz> electricity deaand based on the MAP economic prcjectioos. Also factored into the forecast are price- adjuseed eonservarion and fuel substitution effects. Railbelt electricity dentand has been forecas~ for each o:il price scenario and is displayed on the next page. The variation in forecasts (SRCA-NSD and DOR 50) is co inore than 10 percent up tc 1995; tt~e actual forecasts aa:e 4189 and 4588 for DOR and SIICA-NSD, respcke tivelg . Beyond 1995, departure is more pronounced, and by 2010 the corresponding forecasts are 5672 and 6444 GWh. Tbese demand projeeeions are subsesnticlly lower than the previous forecasts used in the feasibilitj~ study. Xu 1380, electricity demand for the Bailbelt was forecaslt ~o be 9670 fsr the year 2010, Subsequently, tke feaexbility report reduced this projecrian to 5800 Gk%, which is still about 20 percent greater thaw $ha SBGh-HSD case, The electrkcirg denund forecasts developed far this update are also substantially Lower than the forecasts of the Railbelt utilities (see graph). The latest (1983) forecast is 9335 GW% for the pear 2000, %$hick is more than 60% greater than '-,he forece~e under the SE4:A-WSD scenario, Consequent:ly, the use of :he SHCA-NSD scenario as aa upper range of power deaaad could be extremely conservaeive (too Low) from eke standpoint of &be Railbelt utilities, r 983 2m~ YEAR -.a rne electricity. d mad for 1993 using the WR Mean case is 4170 WPl compared to 7100 Gm in the feasibility report. This reduction in energy forecasts actwithstanding, the Railbelt system can still absorb 6he entire energy output of the Watana developmenl: (3500 per year) in 1893 by displacing most of the fossil fuel generation. 'With the addition of the. Devil Canyon project, the Susitna Project output will be increased from 3500 to 7P00 Wh per pear, The Sutritna Mydroaleetric Project is located cn the Susitna XLiver l_g . rniles north of Anchorage. Now being reviewed by the Federsil Energp Regulatory C ission (FERC) , the Susitna license application proposes a project composed of two mjor devefopments. In the first f?higse, con- s traction of the 1020-W W~tana develaprnent is planned, with arssociated access, transmission facilities iand appurtenances. me secor~d phase, scheduled for cons tructioo following Wetana , includes similar corn- polments for the 600-W Devil Canyon developeat. T12a Harza-Ebasco Susitna Joint Ve'k3sture has made a detailed re vie^ 08 the concept and cost estimates for the project as defined in the FERC license application. That review ideneified a amber of cost effective design ref irtements . The design ref ineinenks re fleet more detailed geo- techrtisal data now available from the 1983 Winter GeotechnicaL Program, and a detailed hpCrclogical study of the Probable Maxim- Flood (PHF) a& r floods. *-- - refinemenes reg nded by Barge-Eblgsco have beeo reviewed and accepted by the Pmer Authoriep's in.dependent Exeex-aal Review PaaeP* The following list identifies the wjor desip features where sipifi- eaet east saviags are involved. By incorporating the reconanended cosl: savings, ehe revised Susitna Project colastruetion coats are reduced from $5,405 millicra ta $4,984. millioa in 1983 dollars. mese savings are sumariaad an the follaving page ;e. Project dams izing would be E ter match current forecasted power require- ments. This can be achieved bg a: o reduction in initial installed capacity a reduction in the height sf the Watana Darn The inetalled Wataaana capacity of 1020 B$ was provided in six generating aaits, each rated at 170 Ganit 5 &and 6 provide peakix~g use and spinning reserve but no addieional enePra;y generation. Additional initial cost avoidance of $94 rnillioa can be achieved by postpolving the iastallatil~a of these two =its, The most significant cost reduetion can be achieve3 by reducing the height of the Wataaa dm. Such a change would reault in a e:crrespoad- ing reduction io generating capability and energy productioa. For pur- poses of analysis, alterngtive reservoir elevations cf 2185, 2100, 2000 ad 1900 have ken used. C~astr~~eion cost for a faar-wt~ installation could be reduced frora $3,338 million Eor rbe tliatarna elevatian 21185 to $2,637 million for the Watane zlrvation 20QO. That savings of $701 million, in January 1983 dollars, is sham in the graph be law, Also iadicated are considerable savings ia zoos traction mars~ial 7voPmgs. Da~a for VBT~QMS- reserv~ir alevat ions with %OUP generating units are presented an the following page. gataaa ILai~iab UPtimaee Reservoir lastalled Insralled Average Caas teructqiaa t dil 2185 680 f 020 3500 3338 2100 585 88Q 3050 2996 2800 475 710 2580 2637 1900 386 570 ^* 1958 2434 v2%", . Sarsitna Project cac me& aost of the Railkb~ etaergy da,&nd fog many yease after %atan& enters service. POX msb. effeceive operatiaa, Susitna weald folrow the load. me license lgppriclntiartr proposed a base load upera t ion tc -in ta in unif om 6iowns treaar discharge, it mode compatible with the higher demands then fosacast, It should be recognized tha h the now reduced load f orecase sad leingthening of Ehe irrterrsal between commissioning d Wataaane. and Devil Cmgon can aaterially affect: the eeonomie aspects of Watane's aode of oparation ia the early gears. With the reduced load foreeast, it appears ehat a load- folloving operation wuld 'tPe more efficient. J2 To allow the Susitna Project to follow load, some relaxation of the ,- domstream flaw re~trictians ~auld be seeded, Withoat saf%i,@igr?at re- laxation, thema1 pcrwer planta fo~hemise on teservef mufd have to be operated ta provi6e cycling, peaking and regulation service. Al@]lteraa- tively, a reregularion dam dormstream of Devil Caagon eorrfd k introduced to allow for load follawing. Such s dm would cost reughly $200 aillion bue could enhance the overall cconoraics of the pvraject. For purpag@s of this analysis, attiekpated impacts on terrestrial and aquaeie reaautces are related to the firat phase, Warana 2185 dm a;ld reservoir. Loweria@ the Wartana reservoir elevation brould resirlt in: Q less area inaadaeed o less b~xrow mtcrial aceded Q shorter conseructbaa peeiiod o eiimination af aeggezney release to Tsusena Creek a tesa eapsciey for fPoad ecntrol o less regrplatioer of domgereara flaws Lwdering the reservair cllevat ion ~igni Eieant f y rrduces &hie LealgtA, oridttr, snrP area csf the reservair. Wi~h less area inundaked, ee3 %haw% below, there wouid be leas iap~~t on Che resources of Che reg,iila, Reduced inundatiaa will reduce the ruasgt.itude sf inpacts 3% big gaae species and, along Werane Creek, nap be partieuiarly betle:ELclal for gaate habigor mainteni~nce. Lass of cLftar water iributarie~s, ps grayling habigat, would he reduced as well, Prcjee t aperatiqg criteria rail1 produce everam winter f lo~as rangilrg from 9800 cfs for the Watana 2185 develokment to 6300 cr"s for the fd&;4tana L$OO develament. Average Elova unlieir natural ccrsditinos far this Eiae period arc 1600 cfs, nuriag Aums'i, average flows wPPI range from 12,100 rrfs for t'n Wticasa 2185 developaen to 15,630 cfs Ear etie Waeana 1SOQ develop~at, as coropared to 22,000 cfs under aaLturaF can- ditbaa s, Evea the Tawegt elevation da ~sa~ld hawe s#=~ saqriroz~%ea$sl impai: t , resul~iag ia pone long-tern changes to ' h. '~rms tream fishery and aasae kxabitat, The primary socioeconomic iapacrs relate tu Ehe preseace af the con- srgueriun work feree ia the area. Prcjecc-related papulatioai, 41~ploy- menc, income, hausiag, services, slrpport facibities, and giscbtl :spar%& ui ll. be educed l~rasorcionsllg as the construc~ion sehedult i+ share - eneb Lower eleva~iaa deveiopeaes will alscp pr >g.rersi.yrelg reduce ilhe total wgnitude nf iraptncts aa land use, recreation, aesthetics, and archeoiogieal rescurcas ia che brca, ry, rtmrl,ds based an moTe detailed ioformation have 1.ed ta d+- siga rrfitiemeots dglch resul~ in cos: saving of $395 million for the Watarro 2185 prl~jce~ a12d $25 rnillioa for Devil Canyon. Ilhc;dtiatral s~mdiea ia proqress have identified ather premising design rjrf ineaents which could yield Zu~ther savings of $171. .sillion md $85 mj.Ilion far :$araoa and Devil Canpra, respectively. By reduekag the ini r Lax insf al- lagion at Vataaa 2185 ro four wits, initial casts cauld hie redtrced n~rbcsr $94. aiLlianx Vitb ghe Wa-nw rasergair a& 20QQ, the dm voh would be cut to about 50Z of Wataca 2285, with an atttzndani cost -3uctica af abcrtlt $700 elZion for the dm poqger fiacilities. Generally, ~hc enuirsasentnl impaces would aica be reduce& wfi~h lower reservoir nLeva&iuns st Warana, Specifically, the reservoir nree waul& be amaffer and the inuadatioa of the Sasi~na mainst= and tsributaries redacec!. Dwsstre2m dis'nerges: would show irsbs departure frcam natural flcw co~di~iona under baae Ioed operation, bur uoder load FoLfowing operatian, ehe attsndane ilaw~nrrem fluztustion could be si~igs~ed by a reregulating ban, - "P- i 1 The rnos t cornperi give non-Sasitns eneration alternstives are mtura1. +. gas-fired combined cycle and siaple cycle canbustion turbinte plants, coal-Eired stearn plants, and the Chakachama RgdroeZeetric: Project. These have been established as the =st attractive alternimtives far servicing the future electric energy demand of the Railbelt:, Alter- native systems are used ts detewine the ntost favorable cost: of power in coqarison with the cost af power frm Susitna . -* Alternative sysgem expansion would be provided by gas-fired, or coal- fired plaats in various combinations, depending on world oil price and Esilbelt electric demad, Each alternative syseea has been tailored to nee t expansion a based an a specific sii price fore~~ast. The various systerqs considered in this slalysis are: g%. Natural gas-fired cambiaed cycle and simple cycle pllants o Goaf-fired steam plants o 'me Chakacham Hydroelesttic Projer t In addition, mall cornbined cycle units; sirople cj~cle conrbustlon turbines; or ca-generagion puTaes plants could also be used. Bowever, for long-tew power supply, the tsosi: likely and cost-efEective generation sources as alternatives to the Susitna Project are bhose listed above* Natural ga8-fired ctrmbiaed cycle combust ion turbine grants lwauld be a favorable al teraat x?ae, provided Cook %nSe r pas coat inlnes to be avail- able &ad relatively irnexpensive. Si@pie-cycle combusticln turbine plaats have ?ow capital case aod high Tuel coasuargeicn. Bey are used er.tensively whes the price of uatural gas or light fuef oil is Low. As the prices increase, the: coabustion turbine& are stif l useful and are ofren adopted for peaking and reserve capacity purposes. Incu:emc!ntal unit sizes sf: 84 W have been aalecged far the Railbelt a A pleneiful supply of natural giaa in the Cook Inlet: region, together with favorable sales contracts, has Led to the use of lgae for most of the electrical generation in the Anchorage area si+nce the 1950' 8, Mar contracts negotiated in 1982 contemplated inereasefi in the price of gas to $2.32 WIMBtu, which is subjece to adjustment biased oa the price of fuel oil, plug severance taxes and denrand charges. Proven ressrves of natural gas in Cook Inlet are estiaated to be depil.eted by 1997 and undiscovered reserves by 2001. Beyond that date, Norkh !$lope gas could be lnade available to the Railbelt via the proposedl Alaska Natural Gas Transportatian System (ANGTS) or Trans-Alaske Gas SysEern (TAGS). Construction of either MGTS or TAGS depends on favorable world oil prices. In the absence of either ANGTS or TAGS, &file North Slope gas can be brought ta Fairbanks with a small dianneter pipcelirae at a cosr exceeding $7.00 per WBtu. Natural gas should cootinue to be svai lable for elecbrical generation for lnany years, but the price of cew gas will fltrctuate with the wcrld price of oil. Tnze floor gas price will be set first by the m~~~unt of rewining urnc itted reserve, then the eco~ornically recoverable an- discovered reserve, and finally by transmission cost sf aatuiztel gas from the Morth Slope to Fairbanks. 'Ehe floor price has been elskimated tct be $4,00 TNBtu afeer 2007, Coal-fired steam plsuts could be built at the Beluga mine $Field or sear Nenana, Xnsreaental unit sizes of 200 M4 are appropriate for the Railbel t system for favorable cost oE construction and thennal efficiency . Nenana field coal is the primary fuel for electrical energy g;enelration in the Erairbanks-Tanana Valley area. The Nenana mine could be expanded to szpply fuel for up ta 400 W of coal-fired steam generation needed ro serve the Bailbelt. Beyond 400 W of coal-fired thehmal capacity, the Railbel~ would probably tura to the Beluga field far coal. The Beluga field is oar currently producing coal and totally lacks infra- structure; thug it can only be developed as a large mining operation. Oa this basis the coal price would be $1.80 per MBtu frtm either Nenana or Beluga. a Project would include a dim with fish passage at the Chakachmaa Lake outlet, iao intake, a PO-mile power tunnel, ax~kd a posaer plant on the HcArthur River. The installed capacity would ble 330 W~J; average annual energy generation wuld be 1,590 ; and thle project would coat $1,438 million in 1983 dollars, The mjor enviroomental iapaets of the Chakachama Project would be ~wohold: a fluctua&iesn in lake level of 28 feet above aard 45 feet below natural be~~els, &ad diversiaa of flaw frolg the Chakacharcna River to the MeArthar River. This will have significant impac.t an the fishery habitat of both the lake aad the river downsere=. Tc summrize , the o~n-Sraa i tna al terrna tivrs provide models for campsring the e~~narnie~ of variolas system errpassion prrrgsanrs aad, mo~re inrpor- taritly, dage~miaing life cycle benefits of the least-cost alti~mative. Will the Susitua Hydroelectric Project provide the lowest coa~t elec- trical energy tto the Bailbelt in the long tern? An opthniaation geseration program (06P) with appropriate techaical and economic plan- aing crite~ia has been used to aid in that analysis. The Wstaoa Project is scheduled to enter service in 1993, followed by evil Canyon some years later. Varying mounts of capacity anld enerm will be provided &@?ending aa the ultimate height of the Wat~na dam. Cmbined, the ma projects will form the backbone of the RaiLblt sys- tenn geiaeration for any years. By the year 2020, all Susitna Project potential power autput would be abaorbed intc the system even under the lowest load growth scenario. In the absence of the Susitna Project, a combineeion of coal-fired and gas-fired thewal and possibly the Chakachamaa Bydroelectric Project would be built to serve long-tew requirements. Prior ec 1993, hay expao:ia~ of the Railbelt syszenn is co~sidered to be identical in any sceneria, mag expausion will be cosposed cf the existiplg racilities, eooairrting of simple cycle cambustion turbines aad small hydraelee~ric plants, less planes reeired from service. me Bradley Lake Hydroelec- tri~ Project (90 W and 347 ~A/pr) and the Grant Lake Hydroelectric Projee~ (7 bW aand 25 /prb are also assunied to be eoastructed. The inelusioa of tkeee hydroelectric prajects improves the eeonoaics of non-Susitna thema? al~ernzatives , since less electrical deaand would need to be met by the theas%-dmiaated geaeration system. No rnajor additional generetian is considered to be instal led. The 1993 generation sgstm, after btllovance for retiramcar: or additioos of new capacity io the iatervening period, is args~kmad as f 438 lows : Qibl-.-firesd cmbxas~i6~ turbi~es &ad diesels 181 Natursi gae corabusr ion turbines 234 W EJatural gas coggbined cyclc piants 317 F@l Goah-fire& etedm 59 %W Bydroelectric -wsa S43 rn Tstaf iasrafPa%ion bn 854 I generatian systess ia 2020, after alZovanre for additioes and retirements, are given in the table be'rcrr for the MIR Heea case. Sys~a geaeratian eixpansion varies with the naigairude of the forecast. used ; ccnsequently , for ather forerasts considered, -it sliae an& timing are related to the forecast, @cmbua con Turbine 672 588 504 CmSined Cycle CT 474 Q 474 Go&%-f ired Stem 800 Q -*isuI skgs ~aa k 209 885 Fre-1943 Hydroelectric Tot.aE 2089 :940 2006 Until 1993, vbea Watana is scheduled tc go into service, Railbelt agilities will have fa meet he electric energp growth requiriemen~a by expaasion of their respective systeas , probably wirh themal plants. hfrer 1993, tfiere will be a choice: the Susiena Sydroelectric Project: crr further expansion of the the 1 @y@tm. alternative thermal expan- sion schemes have been considered to dernonlatrgte life cycle benefits and provide a basis far selecticn of the least-cost alternative. The econmies of each alternative expansion progra are detemined by life cycle analysis: comparing the preseat worth of annual costs of oming znd ope?rating the respective elecCrie systeols for the period 1993-2050. The generation costs have been developed front the WP canputer progrm incorporating the following priacipal criteria and assunaptions : Q All costs ere expressed in real tews in Ja~uary 1983 d~ll,ars, o Preseot worth is computed by disccun~ing future costs using an aanual, iaflationless discount rate of 3.5%. 8 Project ecaomie lives are 50 years far hydroelectric, 30 years for coal-fired stem and combined-cycle plaats, ;and 20 years for combustion turbines. (The real ecoaaaic l.ife of hydrcelectric plants is considerably @eater than 50 ycrars.) o Escalation of fuel cost under different ail price scenarios is iaclt~ded, o Costs of ~tmiag the existisg (1993) system are cornLon and excluded frm the analysis. n-e net benefit sf %he Susifna schema is degined as the digfereace bct%~cea the cumulative present wrtb cast of Susi.tna and that of the asas &-cos t tlhema1 elgesna t ive . Each oil price scenario yields correspoadiag opt imm Sueitna &ad non-Suc3itna system expansions, which are compared to one another. The net benefirs for the variouc Watana alternatives are sumarized below and illustrated on tbe graph. With the more optimistic oil price scenario, the nee Senefit tiends so increase as the height aE the dam increases, and vice versa* RET BENEFITS, 1993-2050 (Million 1983 ~ollars) BOB Mesna Scsnaris SBCB-14SD Scenario DOR Mean Scenario SHCA-HSll Sc enar Thk threshold (or rate of regurn) analysis provides a means to identify the project that maximizes the return oa invesement. The thlreskcld value is the discount rate at whizh the cumlative present worth of the hydroelectric alternative becomes equal to :he optimum thermal expan- sion program, This differs from the net benefit approach, whic.h might maximize net benefit but require very high capital invescment!s. The threshold value of discount race for the D3R Mean case is s11ightly greaeer than 3.5 percent. The following graph shows the results for the CliCA-NSD srenario, and the table following lists each threshold value, DOB Mean - SBCA-NSD The threshold value is defined as the oil price (or oil price Era- * jectory) at $which the cumulative present worth of the Susitna Project iiod the thermal allrepnative are equal. The net benefits analyrris also ~kuras that the threshold price trajectory is very near the LQR Mean with base load operation. The critical estimacgd price in 1399 is $27.45 per barrel {in 1983 dollars). e Far any given oil price sceearic~, there is il capital cost, th~ceshold. It is defined as the capital cost at ~~hslzich the Suritna Projet:tr would show no eccrnomic bengf it when compared Co the lnost at~raetive thermal alternative. Using the DOR Mean ail priee scenario, the threshold is essenrially ehe sallre as thz capital cost for the Susitna Project. Using the SKCA-NSD case, the capital cost threshold increases. The percentage of increase: is shos~a below, Life cycle benefits are materially affected by the oil price forecast used and to a lesser degree by the proposed mode of cperatioa (load following or base loading) of the Susitna Project. Met ben~ifits and rate of retura are greatest and near the ecosomic optilaznn for Watana 2185 as defined in the PERC license application, Lowering tfie Watana reservoir elevation froaa 2185 to 2000 will not materially chiange the economic benefits for the DOR Mean forecast, and load Eollnving increases Che econmicl: benefit, Several important and interrelated issues must be resolved before a suitable fknsncing plan cao be rec These i-esues include: 6 Size of the Wataoa project o Size cf the State equity contribution o Financing terms, including interest rates, tax exempt ststus of the bonds, inflation rate o Target cost of power when Susitna comes on-line Capital costs of the Watana project range between $2.6 billioa and $3.3 billion (1983 dollars) for dam heig13ts betweela elecatirsn 2000 and elevation 2185, respectively. A smaller project would reduce the initial funding requirements, bile the larger lJatana project pro-aides slightly better long-term ecoumic benef ics . The financial confition of the State is a very important fiactor in detennnining the finaccial feasibility of the Susitna Project, Petro- leum revenues dete*mine Srate iacme, and may Limit the size of the equity contriblati~n which can be mde. 'The ability to finance the project. is iofllbenced by the financing terms available. n~e interest rate is the dominant facror in detemining the rnsg2itude of the debe service* Ef reventue bonds are used f0.r fioanc- ieg, the inferest rate will be Imes if tazs exempt; hence, deb-sctrvice %zil.I be lower, Znne $"late equity contribution should. pernit the initial cost of Susitna power to be competitive with alternative sources of generation. A higher interest rate my require a higher State equity contribution to maintain a cost of power competitive with other alternatives and vice versa, EFFEC"r OF INTEREST RATE OM WHOLESALE COST OF POBHER 'It has been previously thought that future electric power demand would [rave a rnajor influence on the financial briability of the Susitna Fro- ject. While this still holds eyue, it does oat appear crucial in the iaoge of the forecasts consideied. The effect of electricity power demand forecases on State equity congribu~ion varies rn a relatively narrow range. Other financing uptions could also itfliience pro Ject vbabil-ity . Sme inkesesta hall@ suggested alternative financing schemes thar would improve the fi~nncial marketability of the power from fusitna. This subjet:c is currectly under study and should be explored further, it has not been treated in chis update, The cosr of power analysis estimates the mouni: of State equity eoa- eribution thak will be needed to bring the bzholesale cast sf power to &he firs t-year cast of the most competitive alternative themal empan- sion program. The first-year (1993) @halesale cost of power under the alternative themal expansiora plan could range from 7.6 cents per Kbi (under the BOR Mean scenario with natural gas fired combined cycle plant) tc as much as 50 percent higkker under the SBCA-NSG scenario (ccal-firer2 stearn installation), me validity of either scenario muld certsialy depend en the actual tread of the oil price. If the State equity contribution is sized to bring first-year cost of power from Susitnz to the lowest level, it is likely that the pawer can be mrketed vrithout major problems, The required mounts are sham below. STATE EQUITY ZORTRHBUTZOH FSWSPmU EEECTRICXm COST EQUa TO Mud-SUS In4A UTEWATIVE (BilPioas af 1983 Dollars) The State equity requirement vlould $2 reduced by abaut 30 percene with the lower Watana dam height. Oo eke other hand, cllanges in oil price sceaarica do not have as great an impact. i The graph below shows the Railbelt wholesale cost of pQwer by years with a State equiry contribution of $1.79 billion (1983 dollars) for Watassa 2885 under the DOR Mean sce9aariol, hinder similiar eoaditi~na, the State equity contribution for Watana 2000 would be $1.27 billion. VVHOLESALE GOST OF BOWER (WAf ANA 2 d 8%) In the case of the thermal alternative: The ccrt of power rrkli rise aver time due %s inflatisa awd seal cost increases in fuel. Conversely, the cost of power for Susitna will he much less susceptible to increase because of its Longer Life and no fuel costs. As a result, in later years, Elze 'gholesale cost of power from Susltna will. be a frection of ehe best therml option, The Governor's Checklist is presenged on the following pages. It pro- vides a complete set of the key variables, principal aesurnptioas and economic planning criteria used in the study. Major findings are alsa listed. The exhibit alpo provides the e~rrespondirrg infomat ion used in the ecoaonic and financial analyses in the 1982 feasibility study and the mBC lieense application of July 1983, S~$embs 1983 Ypdats (January $985 price level 1 hang Tsra Load 6rowSh Rate - $ 19s- 9 993 1983- 0993 F 983-2020 Csak ln let Gas Price Fare~asf (a) - $,@&MBTu 3 993 5,2 1899 4,7 20i8 6-2 2020 6,2 2050 6,2 @mk I n la9 Gas Pr Fcs Grew? !? Cook !n&e? Gas AvaiEabi!l- Forecas? kr?h Slops Gas Price Forecast iei - 5p%97"48*~ 4 983 N,A, 4 999 M ,A, 201 0 N,A* 2020 N ,A, 2050 bi,A, NoskR Stops Gas Avrai lab! !Of$ Fot""8casP (8) f4 *A, 5,02 ;!,4 5 2,22 3,02 9,61 f?,BC -3 ,, $6 3,61 5,OO ;~,97ed) 2,15(c%l1 &,a3 ea: 6,352 --- we- 9,a5 hssumd Aua i fa$ ls TRrrsragh 2006 sl Abwe PP Ices Assumed Aka l lab Be %$*d 2007 Pegs 2 eQ 3 Bs! uga Coal Prica For 3983 1,s 3993 2*0 I999 2,4 2030 2,1" 20284 Bed tags 60a l Psr" l ce Gro%+h -. $i '9 985- 1999 1989-28 1 ;7 1984-2028 Assumed Ur! 1 i mi -$.ad Real DE scount Rab@ ($) Rsat InTgresP 2aTe ($1 General infdla~lan /Rate C$) Bensf i */Cost Rat la (Watsna 2O09C;BB Bass Laailhog Lmd Fsi lowing S~eemhr f9@3 UpdaPe (January 1983 price Isvsl) SPai r EquB ?y bn*r i but ion t 1985 $, bf B E 1 or-% 1 WsTana 2185 (hse Eaad 1 =em 1,s gt 1 3,8 nia Ti,& Watana 2800 I load +a i low l ng 1 3,9 (11 --- 1 J a 1,2 Whnlssals Cost of Pawar Equal $0 fTrsB ysar noaa-Susi-a ce? IRS Tax Exempt fan Probably yyes sB we@ % nteret PI@?@ dss&d.m@d TC b 10s (hl Based on 2,08 average annua i ycdh raPe unt : l 2000, 1.0% un* l l 2C40, and 0% PRsreaC ter or rqaed In February 1438% Exni $8 -k D p, D-4-22, 691 For~as-E" also 9-wrwan-Fs prices of 9s Pprm some aTh8r S~BU~W SUCR as 600k a~d rat leg? Incrsasd @sic- due 4-0 hfgh~r expiorat ion and dsvelwmn? ca?s and ~sscb atsd rl sks, (F 1 Assiggm~ Be1 uga f l s4 d dsvsSsged Cor @XW~ mrk@"$ bu$ prlglbs :a % d 3-0 Ioa 0 nseos I ndapendsn$ a9 qporPt~p% l $gp prm f se=so (g) Acrs Fsasiblll- Squdy up to 200 MW si cosl-fir& steam pian*. Revised FERc Llcsme and 1863 UpdaPa up ts bQO k4Vd r~$ cod i-.F. l rad s%eem p !en*. fh) January I982 cws.a".s sealat& $0 January 8983 using a 4&3 papan? i,4~r~a%~.