Included in the power industry is any power project producing electric power as its main product. Possible fuel sources include natural gas, fuel oil and coal on conventional power and uranium on a nuclear power plant. Power plants based on renewable energy such as wind, solar, tidal, geothermal and hydroelectricity have no fuel. Such projects:
- Are technically complex when large, but simple if small
- Contain significant equipment and material which may need to be imported
- May be base load or swing.
- Produce power sold in a closed market
- Produce power that cannot usually be exported so as to generate foreign exchange
- Generate revenues which are either (a) governed by negotiated tariffs with escalation and indexation clauses and tariffs split into capacity (fixed) and fuel (variable) elements or (b) from a power supply which the operator bids for on an hourly or other basis in the case of a merchant power plant
- Have a large variation in fuel price. Some such as wind, hydro, tidal, geothermal, wave and solar have no fuel cost. Wind turbines may be onshore or offshore (more expensive to install but may be subject to more reliable wind). Solar power may be produced directly from photovoltaic (PV) cells or by a thermal process. PV cells are limited to producing power during daylight hours. A thermal process heats a fluid such as an oil or molten salt which in turn produces steam to drive a turbine and alternator. The fluid may be stored and used during part or all of the night. There are two main generic types, with either fixed or moveable mirrors. A parabolic trough is typical of the former and a power tower with tracking mirrors typical of the latter. Moveable mirrors are more expensive to install but are more efficient because they produce a higher fluid temperature. Thermal processes are more expensive to install than PV cells but are more efficient.
- Are subject to an annual maintenance shutdown on conventional power plants which will reduce revenues and variable operating costs for about a month per year.
- Produces by-products such as low pressure steam and desalinated water where there is a suitable local market
- May have pay for a large decommissioning cost as in the case of a nuclear power plant
- Are subject to straightforward taxation calculations but may have to pay environmental taxes (eg carbon tax and cap-and-trade) or receive subsidies (in the case of renewable energy)
How Promoter handles Power Projects
Promoter reproduces the cash flows for any power station using a hydrocarbon or related fuel and for geothermal and solar power, but not hydroelectric, wave, tidal or wind (all future).
Typical Project Cash Flows
The revenues for a base load power plant with a power purchase agreement (as shown above) will typically have a capital cost recovery element and an operating and maintenance element. The capital cost element may be repaid over the life of the project or over a shorter period.
The cash flows for a merchant power plant are similar to the cash flows for a downstream project.