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Power plant would have ‘$15.4 billion impact’

A U.S. group is pushing for government approval to build a $700 million power plant in New Providence which would entirely replace any need for power generation by the Bahamas Electricity Corporation.

In the process, the group’s principal claims the project will stimulate a proposed $15.4 billion impact on the Bahamian economy over its 25-year life span, including 7,800 to 8,800 jobs annually as a spin-off effect of “more efficient and reliable power generation” at lower cost to the government and the consumer.

Yesterday, its principal suggested that while he understands the need for the “government to get this right”, given the long-term economic impact of any decision revolving around power generation in Nassau, there should be “some urgency” to its decision over who it decides to award the contract for alternative power generation to.

“Our calculations suggest that the savings to The Bahamas of going with our proposal would be $1.5 million a day. That’s $45 million a month,” said Taylor Cheek, head of Caribbean Power Partners, LLC, part of the Bahamas Power Corporation Limited group that is pursuing the contract.

Furthermore, interest rates are starting to rise, and with them, construction costs. “It will make the project more expensive,” he said.

Bahamas Power Corporation Limited (BPC) is the latest group to step forward to tout its proposed solution to the government’s request for proposals from companies who can provide a means of reducing electricity costs and increasing energy reliability in The Bahamas.

Consisting of Caribbean Power Partners, LLC., an engineering and construction firm, Fluor Corporation, and power plant operation and maintenance company ProEnergy Services, the BPC group is being represented by principal Taylor Cheek, a Texas resident who has extensive worldwide experience in power plant development.

Guardian Business understands that the government may at present be reviewing as many as 20 proposals for power generation solutions for New Providence, and the race to become the winner of the bid is becoming increasingly heated, with several firms coming out of the woodwork this week to highlight their bids.

Like FOCOL Holding’s joint venture proposal, BPC’s proposed build/own/operate solution would skirt around the issue of the privatization of BEC, by creating a power plant that would sell power back to the state-owned corporation for distribution.

If it lives up to projections provided in an economic impact assessment undertaken for Caribbean Power Partners by global forecasting and quantitative analysis firm Oxford Economics, the BPC development would have a major impact on the Bahamian economy.

These include raising income earned in the economy by $4.1 billion and increasing national GDP by 2.1 percent to 3.5 percent per year versus baseline forecasts. These projections include all “direct, indirect and induced impacts” in the economy as a result of the project going ahead, according to Oxford Economics. The company claims the project has the potential to reduce electricity costs to consumer by “over 50 percent”.

Highlighting the specifics of the proposal, Cheek told Guardian Business that BPC proposes to design, construct and operate, and eventually transfer to the government for the price of one dollar, a $700 million 300 megawatt aeroderivative gas turbine power plant.

The proposal is that the company would own and operate the power plant, selling the power produced to the Bahamas Electricity Corporation under a 25 year-power purchase agreement (PPA).

The plant would be located at Clifton Pier and would be capable of burning diesel fuel, natural gas or propane gas, depending on which is most cost effective at the time.

Other infrastructure would involve gas and diesel oil storage facilities, fuel berthing facilities and a distribution system.

Unlike the FOCOL Holdings proposal, which revolves around the construction of a 100 megawatt capacity power plant, the Bahamas Power Corporation group proposes to provide all of the generation required in New Providence and more, thereby cutting out any need for generation from BEC entirely.

This it also highlights as a benefit of its proposal, claiming that this is the “only way” to adequately solve New Providence’s generation problems, given the issues with inefficiency and unreliability at the state-owned power plant. “It’s a complete solution,” said Cheek. “If you go with the other proposal, that’s only half of the problem solved,” he added.

This capacity issue is particularly pertinent given that New Providence’s current demand ranges from around 240 megawatts daily to close to 250 while, looking ahead, the coming on stream of Baha Mar will increase this significantly, suggested Cheek.

Furthermore, the reduction in electricity prices that BPC has built into its offer can also be expected to have a stimulating impact on usage, he added.

Cheek highlighted the experience of those involved with his proposal as critical to why the government should favor his bid over others, such as the FOCOL Holdings/Emera/Wartsila joint venture recently highlighted in the media.

While stating that his team has “more experience by factors of five” than other bidders, he admitted to not being intimately acquainted with those involved with all bids before the government, and having primarily obtained information on a selection of competitor bidders from local media.

Driving his point home, he said: “If you were going to get brain surgery, you may know that all of your doctors are qualified but there may be one who has done 20 operations, and one who’s done 1,000. I’m going with the guy who’s done 1,000. With what you’re looking at doing here, you can’t afford to mess it up.

“This is going to be a commitment for the next 25 years, so you better make sure you have the most competent team,” said Cheek.

Where Emera and Wartsila bring expertise given, that the latter is “the largest engine manufacturer in the Caribbean” for power plants, and the former – 80 per cent-plus majority owner and operator of Grand Bahama Power Company – has technical and administrative capacity to operate the power plant, Cheek suggested that his partners, Fluor Corporation and ProEnergy Services, have a wider breadth of experience.

Fluor Corporation, he noted, is a Fortune 500 engineering, procurement, construction, maintenance and project management company which develops around 1,000 projects annually in 66 different countries.

ProEnergy Services, he suggested, would bring world-class operation and maintenance expertise to the plant, which it would initially staff with “ex-pat” managers who would “back out” over time, to be replaced by senior Bahamian staff.

Breaking down the impact on current consumer prices and generation costs, the company suggests its “capacity” charge – made up of the base costs of energy production – will be 33 per cent less than current BEC charges, while its energy surcharge – based on the cost of fuel – will be as much as 75 per cent less than the BEC fuel surcharge. “Blended savings to BEC of greater than 60 percent less than current charges to consumers” should be obtained, according to the company’s projections.

A big part of the ability of the aeroderivative turbines to generate power more cheaply comes from a lower “heat rate”, Cheek explained. This rate refers to the number of BTUs (British thermal units) of fuel needed to make a kilowatt of energy.

“The very best BEC units use 8,200 BTUs per kilowatt hour, the worst have heat rates of 18,000 BTUs per kilowatt hour. The ones we’re putting in will have a heat rate of 7,000 BTUs. That’s 30 per cent less fuel being used.”

On top of this, the fuel is significantly cheaper than Bunker C, and would not have to be “heated” before use like the heavy fuel BEC currently uses, thereby reducing energy requirements as part of the generation process.

Meanwhile, the aeroderivative gas turbines allow for both “combined” and “simple cycle” generation, whereby you can both generate power directly from the burning of fuel, and also by capturing heat that is generated in the process of making the energy which can then be converted into energy, allowing for 50 percent extra generation from the same amount of fuel, said Cheek.

Environmental benefits should obtain, given the much lower emissions of natural gas and propane, compared with Bunker C fuel, and the elimination of fuel spillages that currently blight Clifton Pier and the BEC power station.

Cheek noted that at present, generators are available when needed at BEC around 60 per cent of the time, indicating a significant reliability problem that many Nassau residents would be well aware of. “We will target the 99 percent range,” he added.

Power generation, maintenance, and operations expenses related to the equipment BPC will install are included in the capacity charge to the government, which will be guaranteed and fixed at the signing of the contract, and therefore any increases in these costs will be absorbed by the company.

The project claims to have “firm financial commitments” sufficient to cover the entire cost of the project from “some of the largest United States-based banking institutions”, but has determined that it will seek to ensure that it has a 51 percent Bahamian investment input, said Cheek.

Cheek said ideally up to “60,000 citizens” will gain a stake, via pension funds and other institutional investors. “We don’t want one or two large companies taking a stake, we want a very broad participation,” said Cheek.

“We recognize the need to allow for maximum Bahamian ownership and participation. We will place as much debt and equity in the Bahamian market as we can,” added the Texan.

The company is working with Ken Kerr of Providence Advisors to seek out local investors.

The group’s proposal also suggests a government-owned power authority could take up to a 20 percent stake in the development company, and a portion may be sold via public offerings in the future.

Meanwhile, BPC also plans to ensure that “no BEC power generation staff” member will lose their job as a result of the project coming on stream.

Forty to sixty BEC employees will be needed to work as full time employees at the power plant and fuel supply facility, while others can be transferred to “new BEC infrastructure projects such as power transmission and distribution and technology enhancement projects” given the “substantial savings” BEC will experience as a result of BPC’s assumption of generation responsibilities, said Cheek.

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