Regional Electricity Supply Issues: Coping with Capacity Needs IDEA International District Cooling Symposium October 2007 Dubai, United Arab Emirates President Mark Spurr Legislative Director
District cooling to the rescue Gulf power demand growing rapidly, driven by increased cooling demand Power constraints holding up real estate development District cooling substantially reduces peak power demand and annual electric energy consumption
Power infrastructure costs Increased power demand means huge costs for Power generation Transmission Distribution Large gas-fired combined cycle power/desal plants Infrastructure costs (USD/kW) Generation 720 Transmission/Distribution 190 Total 910 Potential costs for coolingdriven power infrastructure over 100 billion USD
Power generation capacity Projected increase in capacity by 2020 (MW) Year 2004 (MW) Annual growth Year 2020 (MW) Total Coolingrelated Power infrastructure capital costs for cooling (billion USD) Saudi Arabia 29,100 7.0% 85,908 56,808 39,766 $ 36.1 UAE 16,700 10.0% 76,736 60,036 42,025 $ 38.1 Kuwait 9,400 8.0% 32,204 22,804 15,963 $ 14.5 Oman 3,300 9.0% 13,102 9,802 6,861 $ 6.2 Qatar 2,670 8.0% 9,147 6,477 4,534 $ 4.1 Bahrain 1,700 7.0% 5,019 3,319 2,323 $ 2.1 Total 62,870 222,116 159,246 111,472 $ 101.2 Notes 1 1 2 3 4 1. U.S. Energy Information Administration 2. If recent growth continues. 3. Assumes 70% of total power demand. 4. Assumes current estimated cost of US$ 910 per kilowatt. No inflation accounted for.
Power demand reduction with district cooling 2.00 Peak power demand (kwton) 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 - District Cooling (gasfired) District Cooling (electric with TES) District Cooling (electric) Air-cooled building chillers
Power sector operating costs Power plant heat rate 7,050 Btu/kWhr Generation efficiency 48.4% % Transmission/distribution losses 7.0% Net efficiency 45.0% Variable O&M 2.13 USD/MWh Fixed O&M 12.93 USD/kW Capacity factor 0.60 Average non-fuel O&M cost 4.59 USD/MWh
Power generation fuels Power generation fuel mix varies UAE, Bahrain, Saudi Arabia mostly gas Kuwait relies on oil Saudi moving to crude oil firing for coastal plants
How to value power plant fuel? How can governments optimize use of capital and natural resources? Base power plant fuel costs on emerging world market values rather than near-term contractual prices charged by one government entity to another Example: Saudi Arabia Royal Decree requires crude oil firing in coastal plant, with price set at $0.46/MMBtu Oil is already a fungible fuel commodity, and natural gas is moving in that direction
Increasing value of fuel World Oil Price (US$ per barrel) 80 70 60 50 40 30 20 10 0 1/1/94 1/1/95 1/1/96 1/1/97 1/1/98 1/1/99 1/1/00 1/1/01 1/1/02 1/1/03 1/1/04 1/1/05 1/1/06 1/1/07 What is the market value of the fuels used to generate power? Oil is approaching $100 per barrel Gas is becoming a transported and traded commodity worldwide Gas prices will be increasingly tied to world oil prices
Value of oil per MMBtu US$ per milliion Btu 18 16 14 12 10 8 6 4 2 0 0 10 20 30 40 50 60 70 80 90 100 US$ per barrel of oil Pricing of oil used in power plants is a fraction of the opportunity cost Using a barrel of oil has the same economic result as buying it
Impact of oil prices on LNG price LNG price CIF ($ per MMBtu). $12 $10 $8 $6 $4 $2 $- $30 $40 $50 $60 $70 $80 Low High Average LNG prices related to oil prices Figure shows projected impact of changes in oil prices on LNG price Costs of liquefaction, shipping and regasification have declined Provides more opportunity for net revenue on the gas itself Oil price ($ per barrel)
The S word: Subsidies Power tariffs do not reflect the marginal cost of power generation, transmission and distribution systems
Commercial building power rates Commercial electricity tariff (US$/kWh) 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.00 Saudi Arabia Dubai Bahrain Abu Dhabi Kuwait
Marginal cost of power 160 US $ per MegaWatt-hour of electricity xx 140 120 100 80 60 40 20 0 $10 $15 $20 $30 $40 $50 $60 $70 $80 $90 $100 Power plant fuel (US$ per barrel oil-equivalent) Capital amortization cost Non-fuel operating cost Fuel cost Highest consumer price Lowest consumer price
New England Hourly Electricity Price Index - August 8, 2005 3000 $.700 2500 $.600 2000 $.500 KW 1500 $.400 $.300 $/kwh 1000 $.200 500 $.100 0 $.000 12:00 AM 6:00 AM Noon kw $/kwh 6:00 PM Midnight
Governments can save money by providing incentives Priority allocation of power to District Cooling Cost-based, Time-of-Day (TOD) power tariffs Reduced power tariffs for District Cooling systems Capital incentives for reducing peak power demand
Thanks for your attention! Mark Spurr Phone: 612-607-4544 Email: mspurr@fvbenergy.com