Review of the vesting contract parameters for 2013 and 2014 – Draft report      LONG RUN MARGINAL COST (LRMC)      PARAMET...
Review of vesting contract parameters   for 2013 and 2014 – Draft report   LONG RUN MARGINAL COST (LRMC) PARAMETERSVer. 6 ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportContents1.      Executive summary                       ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report8.      Review of Scale Factor Indices                  ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report1.           Executive summary     1.1. IntroductionSinc...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportAlternatives to reduce volatility that the EMA may be co...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report2.            Introduction       2.1. GeneralThe Energy ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 2 Finance parameters applied (pending EMA recalcul...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportFigure 2 Fx data Dec 2011 to Feb 2012              2.0  ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportFigure 3 Foreign exchange rate trends 3                 ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report3.            Performance parameters       3.1. Introduc...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe technical performance parameters for the notional ne...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe Vesting Contract procedures published by EMA 7 indic...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report                       •    The plants are assumed to sh...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe market for supply of such plants is competitive and ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportNo further allowances need to be made for these factors ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportFigure 4 Form of CCGT recoverable and non-recoverable de...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 6 Variation in net power output with ambient tempe...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThree of the CCGT configurations noted use natural gas a...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportFigure 7 Gas pressures in TUAS area, 2011 to May 2012   ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportOn this basis the calculated average gas compressor auxi...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportVariations in ambient temperature affect the heat rates ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe use of fuel by the plant will reflect average operat...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe apparent part load factor for the plants performance...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report4.            Capital cost     4.1. IntroductionCapital ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report       •   Models are then established within PEACE for ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 13 Local construction cost parameters for Singapor...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report       4.3. Initial capital costModifications are applie...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 14 EPC capital cost summary (per unit) for 2012-13...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportIf the plant were not phased then consideration would be...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe land cost is based on 12.5 Ha of land and 200m of wa...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportBased on the standard Power Grid connection charge, the ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 17 Owners costs allowances (after financial closur...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report     4.8. Owners costs prior to Financial ClosureAt the ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report5.             Operating costs       5.1. Fixed annual r...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportManning costs have been estimated based on 42 personnel ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportHead office costs would be highly variable and depend on...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportWorking capital costs are the annual costs of the financ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 20 Fixed annual operating cost allowance compariso...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 21 Variable non fuel costsArea                    ...
Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report6.           Other parameters     6.1. Build durationCur...
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
4fc89288c1399 skm draft-report_-_review_of_lrmc_parameters_for_2013-14
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  1. 1. Review of the vesting contract parameters for 2013 and 2014 – Draft report LONG RUN MARGINAL COST (LRMC) PARAMETERSVer. 6 (Draft)31 May 2012
  2. 2. Review of vesting contract parameters for 2013 and 2014 – Draft report LONG RUN MARGINAL COST (LRMC) PARAMETERSVer. 6 (Draft)31 May 2012 SKM (Singapore) Pte. Ltd. UEN 198 905 658K A subsidiary of Sinclair Knight Merz 80 Marine Parade Road #18-01/04 Parkway Parade, Singapore 449269 Tel: +65 6345 3055 Fax: +65 6344 8441 Web: www.globalskm.com COPYRIGHT: The concepts and information contained in this document are the property of SKM (Singapore) Pte. Ltd., a subsidiary of Sinclair Knight Merz. Use or copying of this document in whole or in part without the written permission of SKM (Singapore) Pte. Ltd., a subsidiary of Sinclair Knight Merz constitutes an infringement of copyright. LIMITATION: This report has been prepared on behalf of and for the exclusive use of SKM (Singapore) Pte. Ltd., a subsidiary of Sinclair Knight Merz’s Client, and is subject to and issued in connection with the provisions of the agreement between SKM (Singapore) Pte. Ltd., a subsidiary of Sinclair Knight Merz and its Client. SKM (Singapore) Pte. Ltd., a subsidiary of Sinclair Knight Merz accepts no liability or responsibility whatsoever for or in respect of any use of or reliance upon this report by any third party. The SKM logo trade mark is a registered trade mark of Sinclair Knight Merz Pty Ltd.
  3. 3. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportContents1.  Executive summary 1  1.1.  Introduction 1  1.2.  LRMC technical parameters 1  1.3.  Review of scale factor indices 1 2.  Introduction 3  2.1.  General 3  2.2.  Financial parameters 3  2.3.  Disclaimer 6 3.  Performance parameters 7  3.1.  Introduction 7  3.2.  Generating technology 8  3.3.  Capacity per generating unit 11  3.4.  Impact of Gas Compression and Resulting Net Capacity 14  3.5.  Heat Rate 17 4.  Capital cost 21  4.1.  Introduction 21  4.2.  Method 21  4.3.  Initial capital cost 24  4.4.  Through-life capital costs 26  4.5.  Land and Site Preparation Cost 26  4.6.  Connection Cost 27  4.7.  Owners costs after financial closure 28  4.8.  Owners costs prior to Financial Closure 30 5.  Operating costs 31  5.1.  Fixed annual running cost 31  5.2.  Variable non-fuel cost 35 6.  Other parameters 37  6.1.  Build duration 37  6.2.  Economic life 37  6.3.  Average expected utilisation factor 37 7.  Results – vesting contract parameters 38  7.1.  Introduction 38  7.2.  Summary of technical parameters 38  7.3.  Calculated LRMC 39 SKM (Singapore) Pte. Ltd. PAGE i
  4. 4. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report8.  Review of Scale Factor Indices 40  8.1.  Introduction 40  8.2.  SKM Consideration 41  8.3.  Other alternatives 43 Appendix A Prescribed procedures 46 Appendix B Market modelling 51 Appendix C Technical performance data 53  Thermodynamic analysis 53 SKM (Singapore) Pte. Ltd. PAGE ii
  5. 5. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report1. Executive summary 1.1. IntroductionSinclair Knight Merz (SKM) has been engaged by the Energy Market Authority (EMA) to providerecommended values for the technical parameters of the Vesting Contracts for electricitygeneration in Singapore for the period 2013 and 2014, and to review the Scale Indices methodwithin the Vesting Contract Procedures. 1.2. LRMC technical parametersThe following values are recommended by SKM for use in the Vesting Contract parameters for2013-14.Table 1 Summary of recommended technical parameters Item Parameter 2013-14 Value 6 Economic capacity of the most economic technology in 383.47 MW net at 32oC operation in Singapore (MW) 7 Capital cost of the plant identified in item 6 ($US/kW) 1004.21 USD/kW 8 Land, infrastructure and development cost of the plant SGD 147.81M identified in item 6 ($Sing million) 11 HHV Heat Rate of the plant identified in item 6 (Btu/kWh) 6886 btu/kWh net HHV 12 Build duration of the plant identified in item 6 (years) 2.5 years 13 Economic lifetime of the plant identified in item 6 (years) 20 years 14 Average expected utilisation factor of the plant identified 72.8% in item 6, i.e. average generation level as a percentage of capacity (%) 15 Fixed annual running cost of the plant identified in item 6 18.297M SGD ($Sing) 16 Variable non-fuel cost of the plant identified in item 6 5.21 SGD/MWh ($Sing/Mwh) 1.3. Review of scale factor indicesThe formulation of the index forecast for quarter D+1 using the trend from quarter D-2 to D doespotentially introduce volatility to the calculation of the cost indices. Where the index growth oftwo consecutive quarters exhibit either high positive or high negative numbers, the forecast forD+1 quarter will exacerbate the trend. Also the use of quarterly data that constantly moves whilethe base quarter is fixed means that the trend since the base quarter is not necessarily reflected.Using a longer period between quarters however is likely to reduce volatility. Fixing the index atthe base quarter plus using the trend going forward from the base quarter is likely to both reducevolatility as well as reflect the trend in cost movements since the base quarter.SKM (Singapore) Pte. Ltd. PAGE 1
  6. 6. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportAlternatives to reduce volatility that the EMA may be considered include: • removing indexation or reducing the frequency of the adjustments (eg. Annual adjustments rather than quarterly adjustments) • using a less volatile index (eg the MAS core inflation index) instead of the CPI/DSPI • undertaking an annual review of capital costGiven the dissatisfaction expressed by various parties regarding the volatility of vesting prices dueto the indexation process, SKM recommends that changes be made to the method of determiningthe LRMC Scale Factor Indices within the two year price period. We recommend that for theoverhead cost component, quarterly indexation be removed and replaced with an annual adjustmentto reflect forecast inflation over the year.For capital costs, if the EMA is of the opinion that the cost of undertaking an annual review isjustified by the likely savings due to the use of an unsuitable index, SKM recommends that anannual review be made of the capital cost components.SKM (Singapore) Pte. Ltd. PAGE 2
  7. 7. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report2. Introduction 2.1. GeneralThe Energy Market Authority (EMA) has implemented Vesting Contracts to control market powerof generation companies in the National Electricity Market of Singapore. The parameters forsetting the Vesting Price associated with these contracts are to be reviewed every two years. Thecurrent review relates to the setting of these parameters for 1 January 2013 through to 31 December2014.EMA has engaged Sinclair Knight Merz (SKM) to: • Conduct a comprehensive review and recommend the value of each vesting contract parameter (items 6 through 8 and 11 through 16 in section 2.3 of the Vesting Contract Procedures) for the setting of the vesting price for the period 1 January 2013 to 31 December 2014; and • Review and recommend improvements to the method for calculating the LRMC Scale Factor Indices (set out in Section 3.8 of the Vesting Contract Procedures), taking into consideration the objective to reduce the quarterly volatility of the vesting price.This review of the vesting contract parameters follows the method adopted by SKM (as sub-consultant to PA Consulting) in the review of parameters for the period 1 January 2011 to 31December 2012 (the “2011-12” review) 1 .The parameters of the Vesting Contract determine the Vesting Price associated with these contractsand are reviewed every two years, covering the subsequent two-year period. The fifth of these twoyearly reviews is the subject of this project, covering the period 1 January 2013 to 31 December2014. 2.2. Financial parametersFinancial parameters are to be provided by EMA and will be updated prior to the final report.For the purposes of the Draft report, financial parameters have been provided by EMA and recentmarket observations by SKM.1 PA Consulting Group “Review of the Parameters for Setting the Vesting Contract Price for 2011 and 2012 – Final Report”, 27 September 2010.SKM (Singapore) Pte. Ltd. PAGE 3
  8. 8. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 2 Finance parameters applied (pending EMA recalculation)Parameter Value NotesWACC 5.26% post-tax, nominal Nominal rate advised by EMA 3.20% pre-tax, realCPI 3.03% Average year-on-year core inflation, Dec 2011, Jan 2012, Feb 2012. Refer Figure 1.Gas price $22.100 SGD/GJ (PNG) Advised by EMA. For the PNG price, EMA have used the average quarterly forward HSFO prices and USD/SGD exchange rates for the period Dec 11 to Feb 12Exchange rates 1.2764 SGD/USD Average bid and ask, daily, 1.6716 SGD/EUR 1/12/2011 to 29/2/2012. Refer Figure 2 and Figure 3.Figure 1 Singapore CPI data 2 6.0    5.0    4.0    Year on year % 3.0    2.0    CPI (Y‐o‐Y) 1.0    MAS core CPI (Y‐o‐Y) ‐2 Monthly data Department of Statistics, Singapore, http://www.singstat.gov.sg/news/news/cpimar2012.pdf and earlier editionsSKM (Singapore) Pte. Ltd. PAGE 4
  9. 9. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportFigure 2 Fx data Dec 2011 to Feb 2012 2.0 1.8 1.6 1.4 1.2 fx reate 1.0 SGD/USD 0.8 SGD/EUR 0.6 0.4 0.2 0.0 1/12/2011 1/01/2012 1/02/2012 1/03/2012SKM (Singapore) Pte. Ltd. PAGE 5
  10. 10. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportFigure 3 Foreign exchange rate trends 3 2.50 2.00 1.50 fx rates, daily 1.00 USD/SGD EUR/SGD 0.50 0.00 Jan 2007 Jul 2007 Jan 2008 Jul 2008 Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Jan 2012 2.3. DisclaimerThis report has been prepared for the benefit of EMA for the purposes of setting the vestingcontract price for the 2013 to 2014 period. This report may not be relied upon by any other entityand may not be relied upon for any other purpose.3 Data based on Reserve Bank of Australia implied cross ratesSKM (Singapore) Pte. Ltd. PAGE 6
  11. 11. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report3. Performance parameters 3.1. IntroductionParameters for the existing generation fleet in Singapore 4 are shown in Table 3.Table 3 Registered capacity, large CCGT units Large CCGT units  Reg Cap,  Date  Licence  MW Tuaspring Pte Ltd HFLXCC‐1  411  2H 2014  EMA/GE/015 SNK CCP 1 (Senoko)  425  1996  EMA/GE/012 SNK CCP 2 (Senoko)  425  1996  EMA/GE/012 SNK CCP 3 (Senoko)  365  2002  EMA/GE/012 SNK CCP 4 (Senoko)  365  2004  EMA/GE/012 SNK CCP 5 (Senoko)  365  2004  EMA/GE/012 SNK CCP 6 (Senoko)  431  2H 2012  EMA/GE/012 SNK CCP 7 (Senoko)  431  2H 2012  EMA/GE/012 SembCorp Cogen SKACCP1  392.5  2001  EMA/GE/004 SembCorp Cogen SKACCP2  392.5  2001  EMA/GE/004 SembCorp Cogen SKACCP3  400  1Q 2014  EMA/GE/004 SembCorp Cogen SKACCP4  500  TBA  EMA/GE/004 TUAS Stage 2 CCP1  367.5  2001  EMA/GE/009 TUAS Stage 2 CCP2  367.5  2002  EMA/GE/009 TUAS Stage 2 CCP3  367.5  2005  EMA/GE/009 TUACCP4  367.5  2005  EMA/GE/009 Power Seraya CCP1  368  2002  EMA/GE/016 Power Seraya CCP2  364  2002  EMA/GE/016 Power Seraya CCP3  370  2010  EMA/GE/016 Power Seraya CCP4  370  2010  EMA/GE/016 Keppel Merlimau Cogen GRF 3  420  1Q 2013  EMA/GE/006 Keppel Merlimau Cogen GRF 4  420  3Q 2013  EMA/GE/006 GMR Unit 1  400  Nov‐13  EMA/GE/005 GMR Unit 2  400  Jan‐14  EMA/GE/005 4 http://www.ema.gov.sg/page/115/id:129/SKM (Singapore) Pte. Ltd. PAGE 7
  12. 12. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe technical performance parameters for the notional new entrant plant are estimated in thisSection. 3.2. Generating technologyThe parameters for the existing relevant power stations in Singapore, extracted from the 2010report for 2011-12, and updated with the selected gas turbines for plants recently committed, aregiven in Table 4:Table 4 Existing Singapore station parameters (large CCGT units) 5Power station Train Number of Total station CCGT GT type Original capacity trains Frame F technology Equipment MWe capacity MWe Manufacturer (OEM)Senoko Converted 365 3 1095 Type F GT26 AlstomCCGTSenoko repower 431 2 862 Type F M701F Mitsubishi(CCP6&7)TUAS CCGT 367.5 4 1470 Type F M701F MitsubishiSeraya CCGT 368 4 1472 Type F V94.3A Siemens 364 (SGT5- 370 4000F) 370Sembcorp Cogen 6 392.5 2 785 Type F 9FA General ElectricSembcorp cogen 400 1 400 Type F GT26 Alstom (committed)Keppel Merlimau 420 2 840 Type F GT26 AlstomGMR 400 2 800 Type F SGT5- Siemens 4000F5. KEMA 2009 op cit. Adjustments based on licensed capacity (EMA) as per Table 3 and as updated by SKM6 Evaluations have been made based on CCGT performance onlySKM (Singapore) Pte. Ltd. PAGE 8
  13. 13. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe Vesting Contract procedures published by EMA 7 indicate that: The EMA implemented Vesting contracts on 1 January 2004 as a regulatory instrument to mitigate the exercise of market power by the generation companies (“Gencos”). Vesting Contracts commit the Gencos to sell a specified amount of electricity (viz the Vesting Contract level) at a specified price (viz the Vesting Contract price). This removed the incentive for Gencos to exercise their market power by withholding their generation capacity to push up spot prices in the wholesale electricity market. Vesting Contracts are only allocated to the Gencos that had made their planting decisions before the decision was made in 2001 to implement Vesting Contracts.And: The Allocated Vesting Price approximates the Long Run Marginal Cost (LRMC) of a theoretical new entrant that uses the most economic generation technology in operation in Singapore and contributes to more than 25% of the total demand. The underlying concept of LRMC is to find the average price at which the most efficiently configured generation facility with the most economic generation technology in operation in Singapore will cover its variable and fixed costs and provide reasonable return to investors. The plant to be used for this purpose is to be based on a theoretical generation station with the most economic plant portfolio (for existing CCGT technology, this consists of 2 to 4 units of 370MW plants). The profile of the most economic power plants is as follows: • Utilises the most economic technology available and operational within Singapore at the time. This most economic technology would have contributed to more than 25% of demand at that time. • The generation company is assumed to operate as many of the units of the technology necessary to achieve the normal economies of scale for that technology. • The plants are assumed to be built adjacent to one another to gain infrastructure economies of scale.7 Energy Market Authority, "EMAs procedures for calculating the components of the vesting contracts", March 2011, Version 1.7SKM (Singapore) Pte. Ltd. PAGE 9
  14. 14. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report • The plants are assumed to share common facilities such as land, buildings, fuel supply connections and transmission access. The cost of any common facilities should be prorated evenly to each of the plants. • The plants are assumed to have a common corporate overhead structure to minimise costs. Any common overhead costs should be prorated evenly to each of the plants.SKM believes that the technology that should be selected according to these criteria would beCCGT units based on "F" class gas turbines. The existing large CCGT/Cogen plants in Singaporeare based on "F" class gas turbine technology (refer Table 4).SKM expects that any new plant in Singapore would be optimised for performance at the siteReference Conditions. For this review it is taken that the site Reference Conditions are the all-hours average conditions of: • 29.5ºC dry bulb air temperature, • 85% Relative Humidity (RH); • Sea-level; • 28ºC cooling water inlet temperature.Operation at other ambient or sea water conditions represents off-design operation. This includesoperation at the ambient conditions specified in the Singapore Market Manuals for the MaximumGeneration Capacity, which includes an ambient temperature of 32ºC. Consistent with thetreatment in 2010 for the 2011-12 review, a correction factor for the plants capacity to 32ºC hasbeen applied.As shown in Table 4, the Singapore market includes "F" class units from each of the followingOEMs 8 : • Alstom; • Siemens; • General Electric (GE); and • Mitsubishi.8 Original Equipment ManufacturersSKM (Singapore) Pte. Ltd. PAGE 10
  15. 15. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe market for supply of such plants is competitive and it generally cannot be determined, withoutcompetitive bidding for a specific local project, which design is the most economic generationtechnology on an LRMC basis for new built plant. It is often the case for example that theconfiguration offered with the lowest heat rate is the bid with a higher capital cost. In order tomodel the performance of the most economic generator it is therefore considered appropriate toconsider the performance of all these OEMs appropriate "F" class CCGT configurations and to usean arithmetic average of the performance parameters of each of these OEMs plants in CCGTconfiguration 9 .In order to estimate these performance parameters, the GTPro/GTMaster 10 (Version 22 Releasedated 16 March 2012) thermodynamic analysis software suite was applied. Representativeschematics of the resulting configurations are shown in Appendix C. 3.3. Capacity per generating unitThe generation capacities of new entrant CCGT configurations, on a clean-as-new condition, and atthe Reference Conditions of 29.5ºC are given in Table 5. Note that upgrades of gas turbinetechnologies occur frequently and judgement must be applied as to whether a new entrantdeveloper would choose the very latest announced version for a project in Singapore or not. In thisreview SKM has decided not to apply the very latest announced models of the Mitsubishi gasturbine (the 701F5) and the Alstom GT26 2011 upgrade but to instead select the variants that havebeen available in the market for longer (considering commercial operating experience).Table 5 Generation capacity of new entrant CCGT units (clean-as-new at Reference Conditions, excluding gas compression impacts)Configuration Gross MW Net MWFrame 9FB 406.0 397.5M701F 432.4 423.7GT26 416.1 407.6SGT5-4000F 389.5 381.7Average 411.0 402.6This thermodynamic modelling includes all corrections necessary for: • Ambient conditions of 29.5ºC; • Boiler blow-down; and • Step-up transformer losses.9 It is noted that the Sembcorp plant is a cogeneration plant. In evaluating the parameters for this review the performance of plants in CCGT configuration only has been applied.10 TM, Thermoflow, incSKM (Singapore) Pte. Ltd. PAGE 11
  16. 16. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportNo further allowances need to be made for these factors except as discussed below regardingambient temperature.The impact of gas compression requirements is discussed separately below (Section 3.4).The capacities and heat rates of operating gas turbine and CCGT power plants degrade from thetime the plant is clean-as-new 11 . The primary drivers for performance degradation are fouling,erosion and roughening of the gas turbine compressor and material losses in the turbine section. ACCGT plant has a slightly reduced degradation profile than a simple cycle gas turbine installationdue to partial recovery of this effect in the steam cycle, and that the gas turbine only comprisesapproximately 2/3 of the plant output. This degradation effect is typically described as having twocomponents: • "Recoverable" degradation is degradation of performance that occurs to the plant that can be recovered within the overhaul cycle. Recoverable degradation can be substantially remediated by cleaning of air inlet filters, water washing of the gas turbine, ball-cleaning of condensers and the like. These cleaning activities are typically undertaken several or many times within a year depending on the site characteristics and the economic value of performance changes; and • "Non-recoverable" degradation is caused by the impacts of temperature, erosion and corrosion of parts within the plant. This type of degradation is typically substantially remediated over the overhaul cycle of the plant as damaged parts are replaced with new parts. Because the typical industry repair philosophy uses an economic mix of new and refurbished parts within overhauls, it is typically the case that not all of the original clean- as-new performance is recovered at the overhauls.The average capacity reduction due to recoverable degradation is estimated at 1%. That is, thedegradation amount varies from approximately zero to approximately 2% over the cleaning cycle.Additional to this, an allowance for the non-recoverable degradation of capacity should be made.These typically have the form similar to that shown in Figure 4.11 Refer GE publication “Degradation curves for Heavy Duty Product Line Gas Turbines” for exampleSKM (Singapore) Pte. Ltd. PAGE 12
  17. 17. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportFigure 4 Form of CCGT recoverable and non-recoverable degradation 4.5% 4.0% 3.5% Degradation from clean‐as‐‐new 3.0% 2.5% 2.0% 1.5% Power degr 1.0% HR degr 0.5% 0.0% 0 5 10 15 20 25 YearsBased on plants operating up to 93.2% of hours in the year 12 , the degradation allowance amountsfor average capacity degradation rate over the plants life of 3.05% is suggested (calculated as aweighted average using the pre-tax real discount rate to weight each year in the plant’s life). Notethat the average capacity degradation is not materially affected by the OEMs nomenclature fordescribing major outages for the gas turbine units. Degradation rates are dominated by compressorfouling rates and the timing of major compressor refurbishments and scouring, similar betweenOEMs.Variations in ambient temperature affect the capacity of the generating units. The modelledimpacts of variations in ambient temperature on the new entrant configurations and the averageimpact across the four modelled configurations are shown in Table 6 and Figure 5.12 Which is the estimated Available Capacity Factor for the plant, from the review for the 2012-13 periodSKM (Singapore) Pte. Ltd. PAGE 13
  18. 18. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 6 Variation in net power output with ambient temperature (relative to Reference Conditions) Config. Ambient temperature (dry bulb), ºC 0 5 10 15 20 25 30 35 40GT26 108% 107% 106% 104% 103% 102% 99% 97% 94%Frame 9FB 110% 110% 109% 108% 105% 103% 100% 95% 89%701F 112% 110% 108% 106% 104% 102% 100% 98% 95%SGT5- 110% 110% 109% 108% 105% 103% 100% 97% 94%4000FAverage 110% 109% 108% 107% 104% 102% 100% 97% 93%Figure 5 Effect of ambient temperature on power output 120% GT26 9FB 115% 701F 4000F Power, % of Power at Reference Conditions 110% Average 105% 100% 95% 90% 85% 80% 0 5 10 15 20 25 30 35 40 Ambient dry bulb temperatureThe correction factor for operation at 32ºC relative to the Reference Conditions of 29.5ºC is areduction in capacity of 1.48% (averaged over the four models), or 5.98MW. Note that forvariations of ambient relative humidity between 75% and 95% there is negligible difference in theperformance of CCGT plants with once-through cooling. 3.4. Impact of Gas Compression and Resulting Net CapacityGas compression is now required for new entrant “F” class CCGT plants in Singapore.SKM (Singapore) Pte. Ltd. PAGE 14
  19. 19. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThree of the CCGT configurations noted use natural gas at approximately 35 Barg and oneconfiguration (the GT26) uses natural gas at approximately 50 Barg at the site boundary. The gascompressor power requirements calculated for the relevant gas turbines at varying site boundarygas pressures are shown in Figure 6. Allowances are made for pressure losses between the siteboundary and the gas turbine unit.Figure 6 Gas compressor power requirements for relevant gas turbines 4,000  3,500  3,000  Gas compressor powr, per unit, kW 2,500  2,000  1,500  1,000  GE, Mitsubishi, Siemens Alstom 500  ‐ 20 21 22 23 24 25 26 27 28 29 30 Gas pressure at site boundary,  BargData for gas pressures in the TUAS area of Singapore is shown in Figure 7, for the months ofJanuary 2011 to May 2012. The Network 1 pressure may be downstream of a regulator in whichcase the upstream pressure will be higher.SKM (Singapore) Pte. Ltd. PAGE 15
  20. 20. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportFigure 7 Gas pressures in TUAS area, 2011 to May 2012 45 40 35 30 System pressures, Barg 25 Network 1 Tuas Power Inlet Pressure (Barg) 20 Network 2 Tuas Gatepost Pressure (Barg) 15 10 5 0 May  May  Mar  Nov  Mar  Aug  2012 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2012 2012 2012 2012 Feb  Apr  Sep  Oct  Dec  Feb  Apr  Jan  Jan  Jun  Jul The data indicates that gas compression is sometimes required under current conditions. Shouldthe system pressures reduce further (e.g. because of load growth) then gas compression would berequired more often 13 .For the purposes of this review it is assumed: • Gas compressors would be incorporated in a new plant in the TUAS vicinity; • The specification of the compressors would allow for further reductions in local gas pressures from those presently seen. It is assumed they would be capable of operating from a site boundary gas pressure of 20 Barg; and • The average pressure at the site boundary during operation is 31.7 Barg in the relevant period, being the average pressure in the Network 2 from Jan 2010 to date.13 The introduction of LNG should support local gas pressures. LNG re-gasification plants necessarily incorporate gas compression.SKM (Singapore) Pte. Ltd. PAGE 16
  21. 21. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportOn this basis the calculated average gas compressor auxiliary/parasitic load impact is 0.909 MWper unit based on the averaged pressure requirements of the four gas turbine models underconsideration.The resulting net capacity calculation after considering the above is shown in Table 7.Table 7 Generation capacity of new entrant CCGT unitsParameter/factor MWGross capacity (clean-as-new, reference conditions) 411.0Less parasitics = net capacity at Reference Conditions (clean-as-new) -8.4 = 402.6Less allowance for gas compression -0.909Adjust for 32ºC maximum registered capacity (-1.48%) -5.978Adjust for average degradation (-3.05%) -12.278Net capacity 383.47 3.5. Heat RateThe heat rates of new entrant CCGT configurations, on a clean-as-new condition, and at theReference Conditions of 29.5ºC are given in Table 8.Table 8 Heat rate of new entrant CCGT units (clean-as-new at Reference Conditions excluding gas compression) Configuration Net HR, LHV, Net HR, HHV, Net HR, LHV, Net HR, HHV, GJ/MWh GJ/MWh Btu/kWh Btu/kWhFrame 9FB 6.295 6.981 5.967 6.617M701F 6.344 7.035 6.013 6.669GT26 6.263 6.946 5.936 6.584SGT5-4000F 6.274 6.958 5.947 6.595Average 6.294 6.980 5.966 6.616This thermodynamic modelling includes all corrections necessary for: • Ambient conditions of 29.5ºC; • Boiler blow-down; and • Step-up transformer losses.No further allowances need to be made for these factors except as discussed below regardingambient temperature and gas compression impacts.As noted in Section 3.3 above, heat rates for CCGT plants are also subject to degradation. Aweighted average heat rate degradation over the plants life of 1.89% is estimated (weighted by thepre-tax real discount factor for each year).SKM (Singapore) Pte. Ltd. PAGE 17
  22. 22. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportVariations in ambient temperature affect the heat rates of the generating units. The modelledimpacts of variations in ambient temperature on the new entrant configurations and the averageimpact across the four modelled configurations are shown in Table 9 and Figure 8.Table 9 Variation in net heat rate with ambient temperature (relative to Reference Conditions) Ambient temperature (dry bulb), ºCConfig. 0 5 10 15 20 25 30 35 40 GT26 100.6% 100.4% 100.2% 100.1% 100.0% 100.0% 100.0% 100.0% 100.3% Frame 9FB 101.1% 100.7% 100.3% 100.0% 99.9% 99.9% 100.0% 100.4% 101.4% 701F 100.5% 100.4% 100.3% 100.3% 100.2% 100.1% 100.0% 100.1% 100.2% SGT5-4000F 101.8% 101.3% 100.8% 100.3% 100.2% 100.1% 100.0% 100.0% 100.2% Average 101.0% 100.7% 100.4% 100.2% 100.1% 100.0% 100.0% 100.1% 100.5%Figure 8 Impact of ambient temperature on heat rate 105% GT26 9FB 701F 4000F Average HR, % of HR at Reference Conditions 100% 95% 0 10 20 30 40 Ambient dry bulb temperatureNote that for variations of ambient relative humidity between 75% and 95% there is negligibledifference in the performance of CCGT plants with once-through cooling.SKM (Singapore) Pte. Ltd. PAGE 18
  23. 23. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe use of fuel by the plant will reflect average operating conditions and hence the heat rate at theReference Conditions has been applied. It is not appropriate to consider the Standing CapabilityData criterion for capacity (i.e. at 32ºC) to also apply for the plants heat rate except in as much as itimpacts on the average part load factor as discussed below.Whenever the power plant is operated at less than the Maximum Continuous Rating (MCR) of theplant at the relevant site conditions, the heat rate is affected. The modelled variation in heat ratewith the part load factor of the plant is shown in Table 10 and Figure 9Table 10 Variation of heat rate with part load (%) Power 55 % 60% 65% 70% 75% 80% 85% 90% 95% 100% Average 110.1% 108.3% 106.7% 105.2% 104.0% 102.9% 101.9% 101.2% 100.6% 100%HR relativeto full loadFigure 9 Variation of heat rate at part load 112% 110% 108% 9FB Heat rate, % of full load HR 701F GT26 106% 4000F Average 104% 102% 100% 60% 70% 80% 90% 100% Part loadAn average load when operating at 86.9% of registered capacity has been applied. This reflects theshared obligations for providing frequency control ancillary services and is consistent with themarket modelling in Appendix B.SKM (Singapore) Pte. Ltd. PAGE 19
  24. 24. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe apparent part load factor for the plants performance is slightly reduced since the registeredcapacity would only be 98.5% of the nominal capacity. The resulting overall part load factor is85.6% for which the part-load factor for heat rate would be 1.85%.An additional adjustment is made to reflect the natural gas used in starts through the year 14 . Thegas usage for starts is estimated at 10 hours of full-load operating equivalent, or 0.1%.In reviews prior to 2010, an additional allowance on account of regulation service is added(+0.5%). It is not considered that the AGC requirement in Singapore is materially different fromother jurisdictions where minor perturbations of output on account of AGC (for those units in thesystem providing AGC service) or on droop-control are part of normal operations for which nospecific extra allowance is considered appropriate. Note that the impact of operating the plant atpart-load on account of the need for regulation and contingency reserve ancillary services is alreadyaccounted for within the load factor correction.An adjustment is applied for to account for the gas compressor auxiliary load. As noted in Section3.4, the auxiliary load of the gas compression has an impact on net output and also on net heat rate.The resulting overall heat rate calculated is shown in Table 11.Table 11 Heat rate of new entrant CCGT unitsParameter/factor Heat rateNet HR (clean-as-new, reference conditions) - after 6.980 GJ/MWh HHVrecognition of parasitic loadsAdjust for overall part load factor (+1.85%) +0.129Adjust for average degradation (+1.89%) +0.132Adjust for starts gas usage (+0.1%) +0.007Adjust for gas compressor impact +0.017Adjusted heat rate 7.265 GJ/MWh HHVNet HR 6,886 Btu/kWh HHV14 Based on 16 hot starts, 3 warm starts and 0.5 cold starts in an average year. These exclude starts due to economic shutdowns, the cost of which should be factored into the operators decision to shut-down.SKM (Singapore) Pte. Ltd. PAGE 20
  25. 25. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report4. Capital cost 4.1. IntroductionCapital cost includes: (i) facility costs (ancillary buildings, demineralisation plant, sea water intake/outfall structures, constructing the jetty for emergency fuel unloading facility and gas receiving facilities) classified under land and site preparation cost in previous reviews, (ii) emergency fuel facilities classified under land and site preparation cost in previous reviews, (iii) civil works for the plans, erection and assembly, detailed engineering and start-up costs, and contractor soft costs classified under connection cost in previous reviews and (iv) discounted through life capital cost classified under miscellaneous cost in previous reviews. 4.2. MethodThe capital cost of a new entrant CCGT plant using current costs is assessed using the followingmethod. • SKM has made enquiries to the four OEMs requesting advice on the current specific capital costs (on a greenfields EPC basis) for a specific generic CCGT configuration that SKM use to compare costs between projects and times on a consistent basis. This is based on a “1+1” single shaft “F” class unit with mechanical draft evaporative cooling tower and gas-only fuel. This enquiry was specific for the Singapore region; • SKM modelled this configuration within the latest version of the PEACE software included with the GTPro software suite noted in Section 3 above and using the current regional cost factors in-built into PEACE for Singapore and other relevant countries; • SKM are also assisting with other large “F” class project developments in the region and are in discussions (including regarding costs) with OEMs for turnkey supply; • SKM have considered the latest version of Gas Turbine World Handbook; • Considering this information SKM assesses that the current EPC cost (excluding connections and on an “overnight basis”) of a "standard" single-unit "F" class CCGT unit for the Singapore location is USD760/kW (based on net ISO output); • SKM then evaluates whether the regional cost indices within PEACE require adjusting to produce the assessed market EPC specific cost. In the case of the current review no modification was considered to be necessary;SKM (Singapore) Pte. Ltd. PAGE 21
  26. 26. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report • Models are then established within PEACE for the configurations being evaluated. These include once through cooling, dual fuel burners, gas compression, savings in infrastructure when shared between multiple units and considering the site reference ambient conditions. This produces a capital cost estimate for the basic plant; • Further calculations are made to estimate costs for the site specific costs not able to be modelled in PEACE by direct calculation or by escalating from the previous review.This method is consistent with the 2011-12 review.SKM assesses that the capital costs of large CCGT plants for current procurement have reducedfurther between the 2011-12 review and this review.This is notwithstanding that the latest release of the Gas Turbine World Handbook (2012) indicatedthat it expected prices to rise 5% to 7% relative to 2011 due to the Handbook’s expected firming upof gas turbine orders. SKM considers that the Handbooks are not as directly useful as marketsoundings and information from other projects are as the Handbook information has a time-delayfrom the time it was written, it is not geographically specific and scope differences occur betweeneditions of the Handbook.A comparison of data presented in recent editions of the Gas Turbine World Handbook for relevantgas turbines is shown in Table 12. The various qualifications given in the Handbook should beconsidered when evaluating this data. 15Table 12 Gas Turbine World Handbook budget plant prices for CCGT units, USD/kWISOGas turbine unit for Volume 26 Volume 27 Volume 28 Volume 29a single shaft CCGT 2007-08 2009 2010 2012 block Equipment only, Equipment only, FOB Turnkey Turnkey FOBFrame 9FB 520 551 494 536M701F 529 539 491 533GT26 521 549 497 539SGT5-4000F 521 550 497 Not listedSKM has also considered the trends in local construction cost parameters for Singapore as shownin Table 13 and Figure 10.15 These are “bare bones” standard plant designs and exclude design options such as dual fuel and project specific requirements, are for sites with minimal transportation costs, site preparation and with non-union labour, and there can be a wide-range of prices for combined cycle plants depending on geographic location, site conditions, labour costs, OEM marketing strategies, currency valuations, order backlog and competitive situation.SKM (Singapore) Pte. Ltd. PAGE 22
  27. 27. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 13 Local construction cost parameters for Singapore 16 2006 2007 2008 2009 2010 2011 2012CPI (SingStats) 2009=100 91.3 93.2 99.4 100 102.8 108.2 114.1Tradesman SGD/h 10 10.5 11.5 12 12 12.5 12.5Labourer SGD/h 7 7 7.5 8 8 8 8.5Building Price Index (re previous year) 3% 15% 9% -8% -1% -1% -1%Industrial factories/wharehouses, owner occ., 900 1025 1200 1950 1700 1750 1600SGD/m2Concrete (foundations) SGD/m3 88 92 160 160 150 127 137Structural steel, UB, UC etc erected SGD/t 2700 3100 4500 6000 5200 5280 5230Figure 10 Trends in Singapore local construction cost parameters, 2010 = 100 140% 120% 100% Index relative to 2010 80% CPI (SingStats) 2010=100 Tradesman SGD/h 60% Labourer SGD/h Building Price Index 40% Industrial factories/wharehouses, owner occ.,  SGD/m2 Concrete (foundations) SGD/m3 20% Structural steel, UB, UC etc erected GD/t 0% 2006 2007 2008 2009 2010 2011 2012The apparent local construction costs are slightly below those of 2010 for the 2011-12 review.16 Successive issues of Rawlinson’s “Australian Construction Cost Handbook”, International Construction Costs tableSKM (Singapore) Pte. Ltd. PAGE 23
  28. 28. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report 4.3. Initial capital costModifications are applied to make the unit cost applicable to this study reflect different designfeatures for the Singapore plant, and to consider that the plant required for this review is based onshared infrastructure within a multi-unit plant. A two-unit plant is assumed. The modificationsapplied are: • Allowances are made for the capital cost of gas compression plant (2 train per unit); • Civil costs are calculated on a two-unit station basis and then halved; • Building and structures costs are calculated for a two unit station and then halved; • The plant is based on a once-through cooling system with the civil costs added separately on a shared (two-unit) basis; • Allowance for dual fuel systems for the gas turbines and fuel forwarding from the tanks; • Allowance for a jetty and fuel unloading facilities is added separately on a shared (two- unit) basis; and • Allowances for fuel tanks are added on a shared (two-unit) basis.The resulting EPC cost for the plant (excluding external connections) is SGD479.2M per unit asshown in Table 14. This cost is on an "overnight" basis 17 .17 That is, excluding Interest during Construction (IDC).SKM (Singapore) Pte. Ltd. PAGE 24
  29. 29. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 14 EPC capital cost summary (per unit) for 2012-13, with comparison against the 2009- 2010 review and the 2011-12 review 18 Project Cost Summary 2009- 2011-12 Current Comments 2010 review review review SGD k SGD k SGD kI Specialized Equipment 345,000 292,400 245,345II Other Equipment 47,100 9,668 13,334III Civil 29,106 28,572 SharedIV Mechanical 41,306 32,955V Electrical Assembly & Wiring 9,546 5,703VI Buildings & Structures 13,217 11,966 Shared, except turbine hallVII Contractors Engineering & 7,000 19,866 20,679commissioningVIII Contractors Soft & 20,000 91,099 78,681Miscellaneous Costs (includingContractors contingencies, marginsand preliminaries)Transport 6,900 Included IncludedGas compressors 11,070 9,062Adjust for OT C/W system 6,700 6,676 6,544 SharedJetty & unloading 10,000 7,972 7,813 SharedFuel tanks 19,000 18,933 18,556 SharedEPC equivalent capital cost 461,700 550,859 479,212excluding connectionsNote that there may be additional savings if both units of a two unit plant were procured at thesame time. A small reduction in the costs of the second (and subsequent units if more than two areprocured) which is expected to be of the order of 5% would result due to the sharing of transactionand engineering costs at both the contractor and owner level. Where the plant procurement isphased by more than (say) two years, these savings are less likely to result.Average load growth is projected to be less than 200MW/year through 2016, and peak demandgrowth to be 240-254MW/y, and hence it would be expected that additions of base-load plant innominally 400MW blocks would be spaced 1.5 years apart or more, unless there are retirementsfrom the market.18 2009 values have been allocated to equivalent categories on an estimated basisSKM (Singapore) Pte. Ltd. PAGE 25
  30. 30. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportIf the plant were not phased then consideration would be given to constructing the plant as a "2+1"block instead of two "1+1" blocks. Technical performance is very similar (including the amount ofoutput lost when one gas turbine trips). The specific capital cost (SGD/MW) is typically materiallylower with a "2+1" arrangement than for two "1+1" blocks. However, this depends on the loadgrowth being sufficiently high to justify the additional capacity being constructed immediately afterthe first unit. This is not included in this analysis. 4.4. Through-life capital costsCapital costs of plant maintenance through the overhaul cycle of the gas turbine and steam turbineare included in Sections 5.1 and 5.2.Additional capital costs are incurred through the projects life. Actual costs incurred varyconsiderably and are based on progressive assessments made of plant condition through the plantslife. Recommended estimates for this review are given in Table 15:Table 15 Through-life capital expenditure (per unit) Area Time within project Estimate, per unit Discounted equivalent, SGDM/unit (pre-tax real WACC=3.2%), per unitDistributed control system 15 years 7 SGDM real 4.4(DCS)Gas turbine rotor 15 years (100,000 to 12.7 SGDM real 8.0 150,000 operating hours) (USD10M)Total 12.3The cost of the DCS upgrade depends on the level of obsolescence of related items such as fieldinstrumentation and associated wiring.Towards the end of the notional technical life of the plant, if market studies indicated that the plantmay still be economic, studies would be undertaken to evaluate extending the plants life. Thestudies and the resulting costs and resulting life extensions are not included. 4.5. Land and Site Preparation CostThe land and site preparation cost excludes (i) facility costs (ancillary buildings, demineralisationplant, sea water intake/outfall structures, constructing the jetty for emergency fuel unloadingfacility and gas receiving facilities) and (ii) emergency fuel facilities. These costs have beenincluded under capital cost for the current review.SKM (Singapore) Pte. Ltd. PAGE 26
  31. 31. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportThe land cost is based on 12.5 Ha of land and 200m of water front for a 2 unit plant. Based on datapublished by the JTC Corporation’s Land Rents and Prices, for a 30 year lease, the land price atTuas View is between $245 and $306 per square metre 19 . This implies that the cost of a 12.5Haparcel of land is between $30.625 million and $38.25 million. Water frontage fees range from$1,226 to $1,839 per metre per year. For a 200 metre waterfront, the annual cost is between$245,200 and $367,800. Using the average annual cost at a discount rate of 3.2% over 20 years,this gives an equivalent capital cost of $4.48 million. Total capital cost for land assuming a mid-point land cost is thus $38.91 million.Site preparation cost is relatively minor. In 2010 for the 2011-12 review, this was assessed to be$1.5million. For the current review, we have assumed this to be $2 million. Total land and sitepreparation costs are thus $40.91million and a per unit cost of SGD$20.46 million.The land and preparation cost for the 2010-12 review was SGD13.65M/unit. 4.6. Connection CostConnection costs exclude civil works for the plant’s, erection and assembly, detailed engineeringand start-up costs. These costs have been included under the overall capital cost for the currentreview.The electrical connection cost has been estimated using a "bottom-up" approach as shown in Table16. SKM has taken into consideration in this assessment the cost of connecting two 400MWCCGT units using the configuration shown in Figure 11.Table 16 Electrical connection costs (2 units)Item Connection Cost Components Cost (SGDM) 1 Standard Connection Charge (to SPPG) SGD 38.4 50,000/MW 2 230kV Switchgear GIS GIS 6 off 17.8 Notes: breaker and a half configuration include switch house but exclude generator transformer 3 XLPE Underground Cable (based on 2x 4.51/km 2km 9.0 1000MVA circuits of 1 km length, direct burial) Total 65.119 JTCs Land Rents and Prices with effect from 1 January 2012, http://www.jtc.gov.sg/Pages/JtcIndustrialLand_Price.aspxSKM (Singapore) Pte. Ltd. PAGE 27
  32. 32. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportBased on the standard Power Grid connection charge, the cost of electrical connection includingthe cost of the typical 230kV switchgear and XLPE underground cable is estimated to beSGD32.6M per unit.The connection cost in the 2011-12 review was SGD31.6M/unit.Figure 11 Assumed electrical connection configuration (items per Table 16)The gas connection costs are escalated from the 2010 report to SGD13.3M or SGD6.65M per unit.Total connection cost is thus SGD78.4M, or SGD39.2M/unit. 4.7. Owners costs after financial closureThe Owners costs incurred from Financial Closure to the Commercial Operation Date of the plantare typically allowed as percentage extra costs on the EPC basis plant costs.SKM recommends the following allowances as shown in Table 17:SKM (Singapore) Pte. Ltd. PAGE 28
  33. 33. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 17 Owners costs allowances (after financial closure) Area Percentage Cost, per of EPC + unit connection (SGDM) costOwners Engineering 3% 15.6Owners "minor items" 3% 15.6Initial spares 2% 10.4Start-up costs 2% 10.4Construction related 1% 5.2insurance etc.Total 57.0Note that the capital cost estimates are made at the 50th percentile of expected outcomes as isconsidered appropriate for this application. The EPC estimate includes the contingency and riskallowances, along with profit margins, normally included in the Contractors EPC cost estimates.The extra contingency allowances normally included by the owner within investment decisionmaking processes to reduce the risk of a cost over-run below 50% are not included.Owners engineering costs are the costs to the owner of in-house and external engineering andmanagement services after financial closure, including inspections and monitoring of the works,contract administration and superintendancy, project management and coordination between theEPC contractor, connection contractors and contractors providing minor services, witnessing oftests and management reporting.Minor items include all the procurement costs to the owner outside of the primary plant EPC costsand the electricity and gas connections. This includes permits/licences/fees after Financial Closure,connections of other services, office fit-outs and the like. This also reflects any site specificoptimisation or cost requirements of the plant above those of a "generic" standard plant covered inSection 4.3.Start-up costs include the cost to the owner of bringing the plant to commercial operation (notingthat the actual commissioning of the plant is within the plant EPC contractors scope). The owneris typically responsible for fuels and consumables used during testing and commissioning,recruiting, training and holding staff prior to operations commencing, and for establishing systemsand procedures.Note that initial working capital, including initial working capital for liquid fuel inventory and foraccounts receivable versus payable, are not included (these are an ongoing finance charge includedin the fixed operating costs of the plant in Section 5.1).SKM (Singapore) Pte. Ltd. PAGE 29
  34. 34. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report 4.8. Owners costs prior to Financial ClosureAt the time of Financial Closure, when the investment decision is being made, the costs accrued upto that time against the project are "sunk" and are sometimes not included in a new entrant costestimate.Nevertheless, the industry needs to fund the process of developing projects to bring a plant frominitial conception up to financial closure. If these are to be added, the costs can be highly variable.The allowances should include both in-house and external costs to the owner/developer fromconcept onwards including all studies, approvals, negotiations, preparation of specifications,finance arranging, legal, due diligence processes with financiers etc. These would typically be overa 3 to 5 year period leading up to financial close. An example of typical allowances based onpercentages of the EPC cost is shown in Table 18.Table 18 Owners costs allowances prior to Financial Closure Area Percentage Cost, per unit of EPC + (SGDM) connection costPermits, licenses, fees 2% 10.4Legal & financial advice 2% 10.4and costsOwners engineering and 2% 10.4in-house costsTotal 31.1Permits, licences and fees primarily consist of gaining the environmental and planning consents forthe plant.Legal and financial advice is required for establishing the project vehicle, documenting agreements,preparing financial models and information memoranda for equity and debt sourcing, managementapprovals and due diligence processes.Owners engineering and in-house costs prior to financial closure include the costs of conceptualand preliminary designs and studies (such as optimisation studies), specifying the plant, tenderingand negotiating the EPC plant contract, negotiating connection agreements, attending on thefeasibility assessment and due diligence processes, management reporting and business casepreparation, etc.Project development on a project financed basis sometimes incurs extra transaction costs, such asswaptions for foreign exchange cover or for forward interest rate cover. These are highly projectspecific and not always necessary. No extra allowance is included.SKM (Singapore) Pte. Ltd. PAGE 30
  35. 35. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report5. Operating costs 5.1. Fixed annual running costAn assessment of the fixed annual cost of operating a CCGT station is shown in Table 19.Note that we have included the gas turbine and steam turbine Long Term Service Agreement(LTSA) costs as variable costs rather than fixed costs, as LTSAs are normally expressedsubstantially as variable costs. The EMA Vesting Contract Procedures state that semi-variablemaintenance costs should be included with the fixed costs amounts. If calculated correctly with theappropriate plant factor, the same vesting contract LRMC will result. Current LTSA costs forCCGT plants have been expressed as variable costs in this review and hence these costs areincluded in the variable cost section.Typically, an LTSA only covers the main gas turbine and steam turbine components. All of thebalance of the plant including boilers, cooling system, electrical plant etc are maintained separatelyby the owner outside of the LTSA. The cost of this maintenance is typically considered to be afixed cost, and is included in this section.Table 19 Fixed annual operating cost allowanceArea SGDM for 2 unitsManning 4.53Allowance for head office services 2.72Fixed maintenance and other fixed 11.501operations 20Starts impact on turbine maintenance 0.785Distillate usage impact on turbine 0.064maintenanceEMA license fee (fixed) 0.05778Working capital (see below) 8.322Emergency fuel usage 2.448Property Tax 1.384Insurance 4.792Total (for 2 units) per year 36.594Costs per unit would thus be SGD18.297M per year.20 Calculated as 3% of the plant capital cost per year excluding the cost attributable to the gas turbine and steam turbine (which are included in the variable operating/maintenance costs below). These costs need to cover non-turbine maintenance, all other fixed costs including fixed charges of utilities and connections, service contracts, community service obligations etc.SKM (Singapore) Pte. Ltd. PAGE 31
  36. 36. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportManning costs have been estimated based on 42 personnel covering 2 units atSGD107,700/person/year. The unit rate considers the cost allowed in 2010 for the 2011-12 reviewindexed using a factor produced from average remuneration changes in a “chemicals”manufacturing environment in Singapore (in the absence of a power generation industry indexbeing available). This index is shown in Figure 12.The personnel include shift operators/technicians and shift supervision as well as day shiftmanagement, a share of trading/dispatch costs if this is undertaken at the station (versus headoffice), engineering, chemistry/environmental, trades supervision, trades and trades assistants,stores control, security, administrative and cleaning support. The cost per person is intended tocover direct and indirect costs.Figure 12 Labour cost index 21 120% 100% 80% Labour cost indec (relatie to 2010) 60% 40% 20% 0% 1998 2000 2002 2004 2006 2008 2010 2012 201421 Indexed produced using SingStats “Yearbook of statistics Singapore 2011 Table 10.7 and 10.8 "Chemical and chemical products" manufacturing” average remuneration.SKM (Singapore) Pte. Ltd. PAGE 32
  37. 37. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportHead office costs would be highly variable and depend on the structure of the business and theother activities the business engages in. Only head office support directly associated with powergeneration should be included as part of head office costs. The allowance for head office costs is anominal allowance (60% of manning cost allowance) for services that might be provided by head-office that are relevant to the generation services of the plant. These would include (for example): • Support services for generation such as trading etc; • Corporate management and governance; • Human Resources and management of group policies (such as OH&S, training etc); • Accounting and legal costs at head office; and • Corporate Social Responsibility costs.The manning and head office costs are bundled (with non-fuel working capital costs) are based on60% of the manning cost allowance per the 2011-12 review.The starts impact on turbine maintenance costs accounts for the fact that some gas turbine OEMsadd an Equivalent Operating hours (EOH) factor for starts and this impacts on the costs under theLTSA.EOH costs are based on 1.75 EUR/CCGT-MWh at nominal full load based on discussions with theOEMs. Allowing for part load adjustments the equivalent cost is EUR469.7/EOH. Note that theLTSA is based on the gas and steam turbine only rather than maintenance of the whole plant. Thestarts factor only impacts on the gas turbine component however. Based on 50 starts/unit and 10EOH/start, the cost is SGD392,604/unit/year.Additionally, the distillate usage (discussed below) also has an impact on turbine EOHconsumption. Based on 1.5 EOH/hour when operating on distillate, the additional EOHconsumption over natural gas fuel operation is 0.5 EOH/hour. This equates to an impact onmaintenance of SGD32,053/unit/year.Calculation of the working capital cost and the emergency fuel usage cost below requires anestimate of the costs of distillate and natural gas. For the purposes of the draft report assumedprices of 29.25 SGD/GJ and 22.10 SGD/GJ for distillate and gas, respectively are applied.This distillate cost assumption is based on USD977.6/t (USD128.29/bbl) for this draft report basedon the average of daily rates for Gasoil (0.5%) from Dec 2011 through Feb 2012. A handling anddelivery cost based on the allowance of USD6.02/bbl is added to give a delivered distillate cost ofUSD134.31/bbl, or SGD29.25/GJ.SKM (Singapore) Pte. Ltd. PAGE 33
  38. 38. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportWorking capital costs are the annual costs of the financial facilities needed to fund working capital.This comprises two components: • Emergency fuel inventory: 90 days (per 2 units), 8.8PJ at a distillate cost of SGD29.25/GJ and a pre-tax real WACC of 3.2% gives a working capital cost of SGD8.211M/year; and • Working capital against the cash cycle (timing of receipts from sales versus payments to suppliers) based on a net timing difference of 30 days and excluding fuel costs (based on the short settlement period in the market of 20 days from the time of generation). For two units the working capital requirement on this basis is SGD3.46M and the working capital cost (using a pre-tax real WACC of 3.2%) is SGD0.11M/year.Emergency fuel usage is a notional amount of emergency fuel usage for testing, tank turnover etc.Calculated as 1% of the annual fuel usage and using a cost based on the extra cost of distillate overnatural gas (SGD29.25/GJ vs SGD22.10/GJ).Property tax has been estimated based on 10% per year of an assumed Annual Value of 5% of theland, preparation and buildings/structures cost 22 . Note is also made of the IRAS circular regardingproperty taxes on plant and machinery 23 . The value of certain fixed plant and machinery itemsmust be included within the property valuation when calculating property taxes. However anappended list of exemptions exempts most of the principal plant items of a CCGT plant includingturbines, generators, boilers, transformers, switchgear etc. To allow for the extra value of theportion of the plant that is included, 10% of the cost of the plant is included in the property taxvaluation calculation (except where already included). The total value included for calculation ofproperty tax is thus SGD276M (2 units).Insurance has been estimated based on 0.5% of the capital cost. This is considered to coverproperty, plant and industrial risks but would not cover business interruption insurance or the costof hedging against plant outages.A comparison with the values shown in the 2011-2012 review is shown in Table 20.22 Following http://www.business.gov.sg/EN/Government/TaxesNGST/TypesofTaxes/taxes_property.htm23 IRAS circular: "TAX GUIDE ON NON-ASSESSABLE PLANT AND MACHINERY COMPONENTS FOR PETROCHEMICAL AND POWER PLANTS", 16 Nov 2006.SKM (Singapore) Pte. Ltd. PAGE 34
  39. 39. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 20 Fixed annual operating cost allowance comparison, SGD Millions for 2 unitsArea 2011-12 review Current reviewManning 4.20 4.53Allowance for head office services 2.52 2.72Fixed maintenance and other fixed 11.501operations 15.631Starts impact on turbine maintenance 0.935 0.785Distillate usage impact on turbine 0.064maintenance 0.0763EMA license fee (fixed) 0.05 0.058Working capital 13.526 8.322Emergency fuel usage 1.497 2.448Property Tax 1.037 1.384Insurance 5.509 4.792Total (for 2 units) per year 44.981 36.594 5.2. Variable non-fuel costIt is assumed a Long Term Service Agreement (LTSA) would be sought for the first one to twooverhaul cycles of the gas turbine and steam plant (typically 6 to 12 years). These are typicallystructured on a "per operating hour" or "per MWh" basis and hence are largely variable costs.An assessment of the variable, non-fuel, costs is given in Table 21.SKM (Singapore) Pte. Ltd. PAGE 35
  40. 40. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft reportTable 21 Variable non fuel costsArea SGD/MWh NotesGas turbine 3.42 Based on approximately EUR1.75/MWh of total plant output, adjusted for part load factorSteam turbine 0.5Balance of plant, 0.5chemicals,consumablesTown Water 0.052 For a salt water cooled plant the town water costs are typically small. Based on 0.1t/MWh usage and a cost of 0.52 SGD/t 24 .EMC fees 0.343 Based on EMCs Admin Fees of S$29.027 million / 2, and a forecast wholesale volume of 42,257 GWh.PSO 0.221 From EMC website 25 for FY2010-11EMA license fee 0.179 Advised by EMA(variable)Total 5.21Note the MWh in the above are those of the overall CCGT plant unit, not the individual turbineoutput.If the alternative treatment of the LTSA had been adopted the variable operating cost would reduceby approximately SGD3.92/MWh and the fixed operating cost would increase by approximatelySGD19.16M/y (for 2 units). This would not change the LRMC value calculated.A comparison with the values shown in the 2011-2012 review is shown in Table 22.Table 22 Variable operating cost allowance comparison, SGD/MWhArea 2011-12 Current review reviewGas turbine 4.64 3.42Steam turbine 0.5 0.5Balance of plant, chemicals, consumables 0.5 0.5Town Water 0.2 0.052EMC fees 0.3343 0.343PSO 0.2205 0.2212EMA license fee (variable) 0.155 0.179Total 6.55 5.2124 http://www.pub.gov.sg/general/Pages/WaterTariff.aspx for “Industrial Water Tariff”25 http://www.emcsg.com/psobudgetandfeesSKM (Singapore) Pte. Ltd. PAGE 36
  41. 41. Long Run Marginal Cost (LRMC) parameters, 2013-2014 – Draft report6. Other parameters 6.1. Build durationCurrent expected build duration for this type of plants is 30 months. This is unchangedfrom the 2011-2012 review. 6.2. Economic lifeThe technical life of this type of plant is considered to be approximately 30 years.The economic life has been assessed at 20 years as discussed in Appendix B (versus 24 years in the2011-12 review). 6.3. Average expected utilisation factorIn the 2011-12 review the plant load factor of the new plant was determined from the averagehistorical capacity factor of the existing Class F plant (Senoko Energys CCP 3 to 5, YTLPowerSerayas CCP 1 and 2 and Tuas Power Generations CCP1 to 4) for the 12 months leading upto the base month. .EMA has advised that for consistency with the previous reviews, the actual historic capacity factorfor the previous 12 months should again be applied. This value has been advised by EMA to be72.8%.SKM (Singapore) Pte. Ltd. PAGE 37

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