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Home My WebLink AboutAEA Board HVDC Analysis 3.29.13Economics of HVDC Projects in Alaska Alaska Energy Authority Board of Directors March 29, 2013 HVDC for the Railbelt Examines North Slope power generation delivered to the Railbelt with HVDC Analysis based on existing proposal Recommendation made for future consideration of this project HVDC Opportunities in Alaska Explores other opportunities to use HVDC to supply power in Alaska Economics modeled based on costs provided by proponents of proposed project ǯ developing these opportunities 2 Economic Analysis of HVDC in Alaska: Two Approaches HVDC for the Railbelt High level analysis on the economics of a stand-‐alone project providing the Railbelt with North Slope power using HVDC This analysis is intended to provide a clear answer on the economic viability of the project Avoids disputing any assumptions Avoids complex modeling Analysis based information from existing project proposal Proposed by: Meera Kohler, AVEC Dr. Robert A Jacobsen February 2013 (AK House Energy Committee) 3 Economic Analysis for Railbelt HVDC Three step simple test Very conservative approach ǯ assumptions in existing proposal Step 1: Isolate annual HVDC transmission costs Step 2: Calculate annual gas used by new power plant Step 3: Calculate the break even Railbelt natural gas price This analysis provides a simple test to determine if the Railbelt HVDC proposal warrants further investigation The test can be thought of as a ǲǳ The test: Can a new power plant on the North Slope using HVDC transmission beat a new power plant on the Railbelt? ǡǯ Railbelt generation scenario Utilizing existing Railbelt generation capacity will only make the HVDC proposal less economic 4 Step 1: Isolate Annual HVDC Costs Capital costs include HVDC power lines Converter Stations Annual capital costs calculated as debt service on capital O&M calculated from proposal O&M cost per MWh multiplied by total MWh to get annual cost Total annual savings would need to exceed total annual HVDC costs to achieve a benefit 5 HVDC Power Lines $1,860 Converter Stations $575 Total Capital Costs $2,435 Term (years)30 Interest Rate 7% Annual Payment $196 O&M costs per MWh $9.81 Reported Annual GWh 6,203 Annual O&M Costs $61 Total Annual HVDC Cost $257 HVDC Annual Costs ($millions) Step 2: Annual Gas Used by New Plant Adjusted the current total Railbelt electric consumption Used current power demand Netted out current hydro and coal supply Heat rate for new power plant ǯ assumptions Measured in Btu per KWh Gas use will be lower with better heat rate 6 Railbelt Demand (GWh)4,294 Heat Rate 5,687 Annual Gas Use (Bcf)24.4 Annual Gas Demand Step 3: Calculate Break Even Gas Price To break even, annual gas savings must be greater than annual cost of HVDC The gas price delta is how much less expensive North Slope gas must be to break even Adding the assumed North Slope gas price to the gas price delta gives us the break even Railbelt gas price 7 Annual HVDC Cost ($mill)$257 Annual Gas Use (Bcf)24.4 Gas Price Delta ($/Mcf)$10.53 North Slope Price ($/Mcf)$3.00 Railbelt Gas Price ($/Mcf)$13.53 Break Even Gas Price What the Break Even Gas Price Means We calculated a break even Railbelt natural gas price of $13.53. Under this thought experiment, Railbelt gas would need to cost more than $13.53 to make the Railbelt HVDC proposal economic. That means, if our only two choices were building a massive new power plant on the North Slope or the Railbelt, we would build one on the Railbelt (assuming gas will cost less than $13.53). In reality, producing power with existing Railbelt power plants is much cheaper than replacing them all with one new plant. Therefore, if the Railbelt HVDC proposal is more costly than building a new plant on the Railbelt it must also be more costly than producing power with existing Railbelt power plants. 8 HVDC for the Railbelt A more extensive analysis of this proposal may not be necessary The project does not pass this simple and very conservative test The added costs of HVDC outweigh the benefit of low cost North Slope gas The break even gas price would actually be much higher than calculated here A whole new power plant would not be needed on the Railbelt Using more complex and realistic assumptions make the project even less economic 9 HVDC Opportunities in Alaska HVDC projects have been proposed to multiple Alaska markets The Alaska Railbelt Large mines in remote locations Rural Alaska communities This analysis identifies potential opportunities to utilize HVDC transmission Does not recommend particular projects or project designs 10 Economic Analysis of HVDC Opportunities in Alaska The economic benefit of HVDC projects is a function of three variables 1: Quantity of Electricity (GWhs) 2: Price differential between the ends of an HVDC line ($/kWh) 3: Total annual cost of HVDC (HVDC Cost) Annual economic benefit = GWhs x $/kWh Ȃ HVDC Cost This economic analysis uses cost data supplied by project proponents to model the economics of different HVDC projects The results of the modeling are not exact, but should be accurate enough to identify opportunities in Alaska We model each HVDC project as a stand alone project, providing power to only one market Increased benefits may occur from combining markets or projects 11 Quantity of Electricity (GWhs) Railbelt: includes all current power demand not met by hydro or coal Remote Mine: completely hypothetical very large mine Rural Alaska: total electricity demand for Northwest Arctic Borough Electricity only, no heat demand Does not include Red Dog Mine demand 12 Price Differential ($/kWh) This analysis uses very rough estimates of local power costs Fuel is the largest driver of price Natural gas for North Slope and Railbelt, diesel for mines and Rural Alaska communities Price differential is calculated as: Local power cost minus North Slope power cost Railbelt: $0.03 per kWh Remote mine: $0.40 per kWh Rural Alaska community: $0.47 per kWh 13 Factor 3: Total Annual Costs of HVDC Capital cost Increases with distance of transmission Increases with amount of power system is designed to carry Annual cost Debt service on capital costs Annual O&M Data supplied by proponents of existing proposal Does not use their existing system plans 14 Capital Cost $mill Annual Cost $mill Railbelt $2,428 $281 Remote Mine $680 $79 Rural Alaska $680 $79 Calculation of Annual Benefits Annual economic benefit = GWhs x $/kWh Ȃ HVDC Cost The potential savings are the GWhs multiplied by the price differential (GWhs x $/kWh) Annual savings are the potential savings minus the HVDC costs A positive annual savings indicates an economic project 15 GWhs $/kWh HVDC Costs Railbelt 4,294 $0.03 $281 Remote Mine 1,350 $0.40 $79 Rural Alaska 36 $0.47 $79 Potential Savings HVDC Costs Annual Savings Railbelt $132 $281 ($149) Remote Mine $535 $79 $457 Rural Alaska $17 $79 ($62) What the Annual Savings Mean Of the three stand alone HVDC projects analyzed, only the Remote Mine Scenario provided positive economic benefits Stand alone HVDC projects to Rural Alaska communities or the Railbelt from the North Slope are not economic May be possible to combine a remote mine project to Rural Alaska communities or the Railbelt Potential to provide economic benefits to rural communities or the Railbelt Dependent on a large remote mine pursuing HVDC power first 16 HVDC Opportunities in Alaska HVDC has the potential to provide significant economic benefit for remote mines Potential remote mining projects should engage AEA to explore an HVDC project AEA can help design and integrate the HVDC system AEA would ensure that the project supplies power nearby Alaska communities 17 AKEnergyAuthority.org 18