Business News of Wednesday, 2 August 2017
When compared to seven (7) comparable plants in Ghana the composite generation tariff for the AMERI project of about USc14.59kWh is lower than the average approved composite tariff for the seven plants at USc14.94kWh The levelised tariff for AMERI is the lowest (USc11.46kWh) compared to the tariffs for seven (7) comparable plants.
‘Levelised tariff’ is the approved tariff adjusted over the concession/contract period. In other words, when comparing the AMERI project (contract period of 5 years) to the other plants that have a concession or contract period of twenty (20) years, you either have to spread AMERI’s cost over a twenty-year period or compact the other plants’ cost into a five-year period, to be able to make an acceptable comparison.
When compared to similar power plants that have been contracted or constructed over the last two (2) years (i.e. Amandi, Cenpower and Jacobsen) AMERI has lower installed cost per kW
AMERI 1,723 US$/kW Jacobsen Jelco Ghana Ltd. 1,769 Cenpower Generation Co Ltd. 1,923 Amandi Energy Limited 2,322 When levelised over a twenty-year period, AMERI’s capacity charge is the lowest compared with that of nine (9) comparable plants AMERI levelised 2,377 USc/kWh Tema Thermal 2 Power Plant (TT2PP) 3,088 Takoradi International Power Co (TICO) 3,640 Jacobsen Jelco Ghana Ltd. 3,788 Trojan Power Ltd 3,950 Cenit Energy Ltd. 4,051 Sunon Asogli Power Plant 2 (SAPP2) 4,439 Cenpower Generation Co. Ltd. 5,200 Sunon Asogli Power Plant 1 (SAPP1) 5,22 Amandi 5,450
5. There are three options – outright purchase, rental and BOOT. Nominal costs for the three are US$438.9m, US$477.3m and US$516.3m respectively.
The cheapest option is the outright purchase option. GoG could not choose this option because GoG did not have the funds to purchase.
The rental option is cheaper than the BOOT option but at the end of the rental option, GoG will not own the plant.
The outright purchase and rental options are relatively cheaper than the BOOT option, but choosing the BOOT option meant that GoG could spread payments over a period and would own the plant at the end of five years.
This would help develop the capacity of the country’s power generation company, Volta River Authority (VRA), and increase the portfolio of generating plants in the country.
Furthermore, the lead-time for the BOOT option is three (3) months as against 9-12 months for outright purchase. Compared with the cost of load shedding to the economy, GoG could be saving between US$80m and US$159m once the AMERI plant came on stream within the estimated 3-month period.
The Internal Rate of Return (IRR) to AMERI is about 17.3% which is close to the lower end of PURC’s allowable returns on power project i.e. between 17.0% and 19%.
The returns to the developer is also slightly below the range of industry returns for IPPs which is 18-23% based on interviews conducted in Ghana by Cambridge Economic Policy Associates (CEPA) in August 2015.
The security arrangement for AMERI is a standby LC in the amount of US$51m over a coverage period of six (6) months. Reviewed comparable power plant agreements show the value of their security ranged from nil to US$25m over a coverage period of zero to three (3) months.
However, most of the other projects are backed by Government Consent and Support Agreements (GCSA) and, in some instances, the investor has no obligation to hand over the equipment to the GoG after the contract period of twenty (20) years.
AMERI has no GCSA backing. After the five-year contract period, the plant will be handed over to GoG/VRA.
The Agreement shares responsibilities or allocates risk between GoG and AMERI. Certain risks sometimes associated with IPPs were allocated to GoG, but there were good reasons for this.
Fuel Supply Risk
VRA will be responsible for the fuel (gas) supply to the gas turbines. This is a reasonable risk for GoG to take because VRA has an existing gas supply agreement with Ghana National Gas Company. AMERI could not have put in place similar fuel supply logistics within the period the plant was required.
Water Supply Risk
Treated water is needed to cool the plant and also for water injection to reduce emission from the plant. Such plants can take months to build and AMERI could not have built one within the time frame required for the project.
VRA has a water treatment plant that can supply the requirements of the AMERI turbines. It was therefore reasonable for GoG to take this risk.
Construction Delay Risk
Civil works were to be done by GoG. Asking AMERI to be responsible for ground preparation would have entailed investigations by AMERI to familiarize themselves with the territory, among other things. This could have caused delay. Given the emergency nature and the site selected, this risk was reasonable for GoG to bear. Furthermore, liquidated damages were put in place to ensure that contractors and subcontractors would complete their work on time.
GRID Access Risk
The GRID is operated by GRICO which is a GoG owned entity. Any issue with the GRID will, therefore, have to be handled by GRIDCO. No IPP will accept the risk for something it does not have control over. This was therefore a reasonable risk for GoG to take.
Construction Cost Risk
AMERI is responsible for providing ten (10) GE TM 2500 + aero derivative fuel gas turbine generating sets. GoG is responsible for providing a cleared level site acceptable to AMERI free and clear from encumbrances, encroachments, loans, mortgages, claims, interests, debt, dues, duties, charges, liens, burdens, taxes, cases, arrears, disputes and litigation.
This risk was minimal as GoG had an existing site owned by VRA, which was free from all encumbrances, obligations or liabilities.
Inflation & Foreign Exchange Risk
GoG bears this risk. This is normal in all Power Purchase Agreements (PPAs) because the charges are quoted in US dollars. No IPP charges are quoted in Cedis and no IPP is prepared to bear the Cedi depreciation risk.