JPS $50B Power Plant appears to be overpriced and has to be very wrong !

I wanted to comment on the recent claim that the 190MW power plant to be built by JPS would cost the country north of $50B or just over US$431M.

I have analyzed this figure and has found this cost not only very extravagant, but also out of line with the claim made by Chairman of ESET Vin Lawernce where he was said to have made the following statement.

JPS has agreed to to a power tariff of not more that US 12.89 cents ( kwh) to facilitate the construction

The words seemed to have been carefully chosen, it did not say US$0.1289 per Kwh would have been the final price to the grid so I am going to assume that this US$0.1289 is the price of generation and is not the final price that the electricity would reach the grid at.

I am inclined to believe that the US 12.89 cents per kwh is the actual generation cost as by own calculations shows the cost of generation of this plant at US 11.55 cents per KWH See  https://commonsenseja.wordpress.com/2014/09/19/eset-the-new-energy-path-further-review/

There is one problem however with the above as it has the cost of the plant at US$194M, which is more in keeping with what I expected and not the US$434M price tag that was announced by the JPS. (Estimated cost of plant is US$1,023 per Kwh)

Using JPS figure of US$434 for the power plant project, the cost of electricity generated would be around US 12.51 cents per KWH but would be delivered to the grid at about US 20.52 cents per kwh due mainly to the high cost to finance the construction of the plant.  See calculations below,

I suspect the huge variation in my numbers vs JPS number has more to do with with fact that JPS may be considering the following as part of the project and this it must.

  1. Dock work for LNG deliveries.
  2. Facility to unload bulk LNG from its suppliers.
  3. Construction of  regasification and storage facilities for LNG.

Using international figures for regasification plants at about US$0.74 per MMBTU  and estimating the total fuel use at the plant of ~ 10 million MMBTU per annum and further assuming JPS wants to build a facility to process the above mention amount fuel per annum.

I will further assume that the cost of project in Jamaica is 30% higher than international bench mark, then the cost of the regasification facility will be the order of

10,000,000 x $0.74 x 1.3 =  US$9.62M or  J$1.115B

So in looking at the numbers

  1. Cost of power plant US$194m x 1.3 = US$252.2M
  2. Cost of regasification plant and storage    = US $9.62M
  3. Cost of dock and loading facilities  ~ US$ $4.5m
  4. Cost of pipeline etc  ~  US$1.5M
  5. Cost the cost associated with the land based system would be in the region of US$15.62M)

Total estimated cost of project ~ US$267.2 M or $31.07B

A land base regasification plant would be the most expensive route for JPS to go and the length of time this would take, could further delay the construction of the plant for delivery of power to the grid in 2018. Were JPS to consider a Floating Storage and  Regasification Unit ( FRSU) the process of getting power to the grid would be a lot faster and the cost would be much lower.

A study done in 2010 by  Donald Hertamark  (USA) and Haydn Furlonge ( Trinidad) showed that a  FRSU for Jamaica would run us a cost of  J$450M ( US$5.06M)  which if adjusted for inflation would be in the region of $661m  ( US$5.69M) in todays dollars

This would be in the region of 30% of the land based cost and would now put the entire project cost at US$257.3M

JPS therefore needs to explain to the public how it arrived at a cost of US$434m. If JPS is to hold to this figure, they would not be able to sell power at less than US 20.52 cents per KWH, which is well above what the public would like to see.

Over to you JPS !

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2 Responses

  1. I consider myself an energy expert based on my 20 years in the industry in several countries around the world. I now consult and help smaller countries to develop power plant projects as the one being described focusing on helping them access funding.

    I see where you’ve made lots of assumptions including the price of LNG (which is clearly a wild guess), the heat rate of the power plant (which is specific to the type of units, the configuration and even the ambient temperature) and the loan period.

    It’s obvious to me that no JA power company is going to access a 30 year loan in the fist instance. Typically, loans for these types of projects for emerging market debt will not exceed 15 years, and for that period, JA will also not attract 8% debt but more likely 10% debt. Shucks, the JA Gov’t is borrowing at 7.25% from the int’l markets!

    A few other major observations. The project must include a regasification terminal and there’s no way such a terminal will cost under $100M whether fixed or floating. Your number of < $10M shows you know little of the market. So, the total cost mentioned by JPS must include a terminal since CCGTs in JA are not likely to cost less than $1,200 per KW.

    The price mentioned is clearly the generation cost only and the COE (cost of energy) being quoted is ambitious given no one can say with certainty what the price of LNG will be and so it is scary to think someone believes the price will not exceed $12.89 when gas will likely make up more than 70% of the COE and this will definitely be a floating price. Plus, I assume the project will take at least 3 years to develop fully. Indeed, it will be impossible to raise funding for this project without a clear and transparent process for resetting the price of fuel given the volatility of fuel prices. Also, you cannot imagine how much credit support will be required to bring LNG to JA and/or to even try to fix the price of LNG even 1 year in advance. There's a reason why there are only 2 countries in the region importing gas today and they are much larger economies than JA.

    However, that COE is certainly good for JA given nothing on the island comes even remotely close with typical HFO units costs at about 18c / kWh at todays fuel prices. I see where Wind was awarded at 13c / kWh but remember Wind is an intermittent source and must be backed up with firm capacity. I also see where solar was awarded at 18.8c /kWh which quite frankly is not competitive. That said, I appreciate that the name of the game is diversity, so you don't want all your eggs in one basket but I suspect you could have gotten Solar at closer to 15c / kWh.

    Last point and I'm done. The cost of the project will clearly be cite specific and dependant on a myriad of variables which cannot be easily calculated. To raise funding for this project a very detailed financial model will have to be developed to justify the costs to the financiers and to determine the tariff. The banks will want to fully appreciate how this tariff has been established and be confident that the project will be viable. After all, they will be providing most of the capital.

    I really hope ESET has the full details of such a financial model or JA won't be seeing any new power anytime soon! Good luck JA.

    • You are correct regarding the regasification plant. The figure actually quoted for a FRSU capable of processing 1.25 mpta (millon metric tonnes per annum) was US$450m. This plant would be more than 5 times the estimated usage rate of JPS hence JPS would require a smaller facility which could run the company upwards of US$96m and not the US$9.62 I mentioned. Will re run the numbers in the am.

      Tony your insight into the project would be more than welcome.

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