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New big coal plant for NSW: Bayswater 2 internal rate of return of 12pc – if fuel $0.90/GJ for domestic coal, and no carbon cost

Posted by gmarkets on 26 September, 2007

A submission to the Owen Inquiry into Electricity Supply in NSW, by Macquarie Generation, reported Macquarie Generation had undertaken a preliminary financial analysis of the Bayswater 2 project. The business case shows a significant net present value (NPV) of almost $500 million over a 25 year project life with an internal rate of return (IRR) of 12 per cent (real). The capital cost of new power station projects have increased substantially in recent years, up to 50pc in two years for some generation assets.

Fuel cost of around $0.90/GJ for domestic coal: “These price increases are driven by a number of factors, such as higher international commodity prices (steel and copper) and generally strong international demand for new generation plant and equipment. These rising capital costs will increase the marginal cost of all new generation projects in Australia in the near term.

MacGen has mountains of coal: The business case assumes a fuel cost of around $0.90/GJ for domestic coal; “fuel at prices that would enable the operators of the Bayswater 2 project to compete with other major generation centres and coal regions in the NEM.

Carbon price not counted: “The business case does not factor in the likely costs of a carbon price on coal fired electricity generation at this stage. While the Commonwealth and State Governments have announced similar plans to introduce an emissions trading scheme, there is no detail on the likely emission targets that would apply in the next 10 to 20 years. Without this information it is not possible to accurately model the costs of purchasing emissions permits to acquit unknown abatement obligations”.

Reference: Submission to Owen Inquiry into Electricity Supply in NSW, Macquarie Generation. G V Every-Burns, Chief Executive and Managing Dierector, 29 June 2007. Phone: +61 2 4968 7499 Fax +61 2 4968 7433 Website: http://www.macgen.com.au

Erisk Net, 29/6/2007

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