Unlocking the Value of Flexible Generation

Transcription

1 Unlocking the Value of Flexible Generation PJM SUMMIT September 7 th 2016 Matti Rautkivi 1 Wärtsilä INTERNAL 9/8/2016

2 Project IRR Unleveraged project IRR in PJM with simple cycle machine! Project IRR PJM Market analysis 18% 16% 14% 12% 10% 8% 6% 4% 10.2% 13.5% 16.6% 2% 0% Day-Ahead Day-Ahead + Real-Time Day-Ahead + Real-Time + AS Project IRR -Wartsila 225 MW 2 Wärtsilä INTERNAL [Presentation name / Author]

3 MARKET Wärtsilä Doc.ID: Revision: Status:

4 The USA Volatility Map 4 The bubble size indicates the node volatility, the color average price Wärtsilä 08 September 2016 Energy Solutions 2015

5 Why volatility matters? Natural element of a well functioning market Will increase in future due to renewables and market design Flexible capacity able to extract value from volatility Value proposition Market players willing to hedge against volatility offtaker for flexiblity 5 Wärtsilä 08 September 2016 Energy Solutions 2015

6 Attractive market environment Affordable renewables Coal retirements Cheap gas FERC rule 825 Shorter settlement times Scarcity pricing New ramping products Renewables an attractive option Increasing volatility seen as an opportunity or risk? Renewables + Volatile market + Flexible Gas = The best investment case 6 Wärtsilä 08 September 2016 Energy Solutions 2015

7 BUILDING THE VALUE PROPOSITION Wärtsilä Doc.ID: Revision: Status:

8 $/MWh Gas price [$/Mbtu] Forward electricity and gas price curves Monthly average electricity and gas forward prices were provided to Wartsila by a third party developer Monthly average On-Peak price Monthly average off-peak price Natural Gas 8 Wärtsilä INTERNAL Day Month Year Presentation name / Author

9 Methodology to model hourly Real time and A/S prices Monthly forward curves Historical price patterns Future price curves Wartsila has generated hourly price patterns for day-ahead and realtime energy and ancillary services prices The hourly patterns are based on the historical prices from 2012, 2013, and 2014 The monthly average of modeled prices equals to monthly forward prices Gas prices were modeled on daily level by using the historical gas price volatility in Henry hub 9 Wärtsilä INTERNAL Day Month Year Presentation name / Author

10 Modeling approach Technical input Heat rates (GTPro) Variable O&M cost Capacity derating Start-up times Start-up costs Market input Future Day-ahead prices Future Real Time Market prices Future Ancillary service prices Future Daily gas price Modeling platform Dispatch tool for the future dispatch analysis 5 minute granularity to analyze the real time market Optimize the operation of asset against the LMP and offer capacity optimally between energy and A/S Assumes that capacity fits into the merit if it is feasible to operate the plant Takes into account temperature derating on hourly level Market model outputs Running hours and number of starts 5 minute dispatch profile Revenue per market Operating costs (fuel, VOM, start-up costs) Gross margin from the + market operations Investment inputs Investment cost Fixed Operation & Maintenance costs Financial model Project feasibility Project IRR Equity IRR Cash flows Capital structure Site input Elevation Price node information Hourly temperature data Cost of capital Capacity market income 10 Wärtsilä 08 September 2016 Energy Solutions 2015

11 THE SOLUTION Wärtsilä Doc.ID: Revision: Status:

12 WÄRTSILÄ STANDARD PLANT 225 MW SOLUTION 18V50SG-B Output Heat Rate* (HHV) Speed Dimensions (L/W/H) MWe 8,104 Btu/kWh 514 rpm 63 x 18 x US tons At generator terminals (pf 0.8, 0% tolerance) 12 Wärtsilä INTERNAL [Presentation name / Author]

13 FLEXIBILITY OF GAS ENGINES Load % Load % Min. up-time: 0 min min to full load 1 min full unloading ,5 min to synchronisation Min. down-time: 5 min Min. load per genset: 10 % / mins 10 0 Cycle #1 Cycle #2 Wärtsilä 34 gas power plant 13 Wärtsilä INTERNAL [Presentation name / Author]

14 THE BUSINESS CASE Wärtsilä Doc.ID: Revision: Status:

15 Operating hours OPERATING PROFILES 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Full Optimization Day-ahead only Day-ahead and Real time 15 Wärtsilä INTERNAL [Presentation name / Author]

16 PROJECT FEASIBILITY 460 MW WARTSILA DAY-AHEAD ONLY ASSUMPTIONS Capacity [MW] 460 Overnight EPC cost [$/KW] 750 Equity share 30% Project lifetime [years] 30 Owner's cost [% of the EPC cost] 15% Debt share 70% Tax rate 37.5% Construction period [months] 18 Loan term [years] 20 Interest rate 5% Total investment cost [$ Mn] 407 Fixed O&M [$/KW] 5.7 Financial Model Income Statement ($ Mn) Energy Revenue Ancillary services Revenue Capacity Revenue Total Revenue Fuel Cost Variable O&M Start-up O&M Start-up fuel Market procurement Gross Profit Fixed O&M EBITDA D&A EBIT Interest EBT Taxes Net Income Free cash flow to project (407) Project IRR 16.6% Free cash flow to equity (122) Equity IRR 33.0% DSCR min Wärtsilä INTERNAL [Presentation name / Author]

17 Project IRR Unleveraged project IRR in PJM with simple cycle machine! Project IRR PJM Market analysis 18% 16% 14% 12% 10% 8% 6% 4% 10.2% 13.5% 16.6% 2% 0% Day-Ahead Day-Ahead + Real-Time Day-Ahead + Real-Time + AS Project IRR -Wartsila 225 MW 17 Wärtsilä INTERNAL [Presentation name / Author]

18 A REAL BUSINESS CASE? Wärtsilä Doc.ID: Revision: Status:

19 Renewable Denton Plan Flexible gas generation 13% Market purchase 17% Renewables 70% 19 Wärtsilä 08 September 2016 Energy Solutions 2015

20 Portfolio highlights Renewables Main source of energy 52 % wind and 18 % Solar Affordable PPA contracts available Economic option Market Expose Expose procurement to market procurement prices to Extract market value prices from cheap Extract energy value Avoid from paying cheap risk premiums energy Avoid paying risk premiums Flexible gas Enable market procurement by hedging Optimal scheduling of capacity Extract value from volatility 20 Wärtsilä 08 September 2016 Energy Solutions 2015

21 $ Mn per annum Flexible gas capacity Does it make sense? Annual cost to serve load Savings over 20 years Flexible vs Status quo Flexible vs Market $ -750 Mn $ -975 Mn Status quo - Strategy Market Strategy Flexible gas Strategy 21 Wärtsilä 08 September 2016 Energy Solutions 2015

22 Wärtsilä Flexible Gas Plant The Best Investment Highest return on investment Favourable market conditions Real business case 22 Wärtsilä 08 September 2016 Energy Solutions 2015

23 Matti Rautkivi