The Energy Regulatory Commission posted a Decision last week to its website (two months after the Decision was signed, by the way) that established the 2008 Long Run Avoidable Cost (LRAC) for the Best New Entrant Plant in the Visayas.
This is the benchmark that the ERC has used in justifying and approving the pricing provisions to be incorporated into Kepco’s sales contracts to the Distribution Utilities (DUs)in the Visayas region for power from their new coal-fired plant under construction in Cebu.
The 2008 LRAC for Visayas is P4.2511/kWh.
It’s predicated on the following assumptions:
- January 1, 2008 Base Date
- $2,567/kW Total Investment Cost (all-in cost) for a 200 MW coal-fired plant
- 80% Capacity Factor
- 10% Auxiliary Load
- 10,275 But/kWh
- 8,800 Btu/lb
- $52.47/MT coal price
- 40.65 Php per US$
Note: I’ve made some conversions to put heat on a BTU basis (I think I did it correctly).
The LRAC is adjustable by [numerous] provisions in the contract. It does not include VAT, which right off the bat raises this price (for a non-renewable fuel) by another 12%. It is also based on the coal and coal transportation costs that existed in the 4th Quarter of 2007. As general market prices for coal go up and down and as the exchange rate goes up and down and as inflation goes up and down, the prices Kepco may charge goes up and down.
Here is a worksheet I used for forecasting the LRAC using the ERC approved methodology and allowing me to dial-in varying assumptions, including those for inflation, coal price and exchange rate. Feel free to download it for your own use. No warranties.
I don’t make predictions - that is insane. But in my line of work (planning) I have to look out into the future. The forecast scenarios I prepare are but tools, a pick-axe to help bring down “a wall of radical uncertainty in a chaotic and unpredictable system” … to help make decisions.
Anybody dealing with planning type issues related to large-investment bets - like utility capital assets - might want to go read Nasim Taleb’s Fooled By Randomness. But I also recommend this short piece on the web entitled “Crisis Fatigue and the Co-Creation of Positive Possibilities” by Tom Atlee that I just came across - I highly recommend it.
Tom Atlee
All the predictions — both good and bad — tell us absolutely nothing about what is possible. Trends and events only relate to what is probable. Probabilities are abstractions. Possibilities are the stuff of life, visions to act upon, doors to walk through. Pessimism and optimism as both distractions from living life fully.
I like two of Dave Pollard’s take-aways from this piece (buried in this post):
- Let go of outcome
- Look for positive possibilities and ways to partner them into greater probability
You don’t know what the outcomes are going to be - there is just no way. There should be no remorse regarding outcomes - unless, perhaps, the outcome is the result of a possibility you failed to consider as possible and therefore failed to dial it into your decision.
Therein lies the true nature of the problem of planning. It is very difficult to see all of the possibilities - both good and bad.
I’m in the midst of a consulting engagement advising the seven ECs on Panay and Guimaras regarding the evaluation of bids they received ten days ago to supply base and intermediate load power supply to the cooperatives on a long-term basis beginning in 2011.
Now I am not at all wanting to pass the buck and I believe fully in the soundness of my advice - I’ve been involved in negotiating more power supply deals than these guys will every see in their lifetime. But my advice has stark limitations. They have more experience with their ECs’ situation than I’ll ever achieve in my lifetime.
I think I’ll open my next presentation to the Board - this coming Wednesday - with a quotation from the story below.
Mike McDerment is co-founder of the successful start-up FreshBooks, a product I use, and he just made a blog post today entitled “7 ways I’ve almost killed FreshBooks.”
Here’s #4
4. Placing my faith in consultants
Nobody cares about your business as much as you do, and frankly people who are smart - consultant/MBA smart - don’t know your business as well as you do despite the fancy words and references to past success. You are in business because of the way you see your opportunity.
Try as you may to change this fact, no one will ever possess your unique perspective so don’t kid yourself into thinking a consultant knows your business better than you. At the same time, stay open to their advice and take it into consideration as you make decisions, just don’t bet the farm on what they think you should do.