1. Financial Model

2. Economic Analysis of CHP System for DIA - Contents
Information Sources and Basic Assumptions
Plant data
DIA Usage data
Rate data
Gas Price data
Model Layout
Status Quo Usage and Cost
Status Quo Usage Components
Natural Gas Purchases in CHP Case for Electricity
Natural Gas Purchases for Supplemental Firing
Standby Costs in CHP Case
Financial Model, Inflation, Rate of Return
Analysis of Alternative Plant Configurations
Analysis of Standby Rates
Alternative Gas and Electricity Prices

3. Model Assumptions

4. Economic Analysis of CHP System for DIA – Basic Assumptions
Information Sources and Basic Assumptions
Plant data
DIA Usage data
Rate data
Gas Price data

5. Economic Analysis of CHP System for DIA – Plant Assumptions
Plant Information Sources is Detailed Analysis Provided by Solar Turbines
Adjustments included for altitude (reduces electricity output)

6. Economic Analysis of CHP System for DIA – Plant Data
Focus on Two Cases
Simple Cycle
Combined Cycle
Primary Issue is Tradeoff Between Heat Rate and Surplus Steam Available
Tradeoff between heat rate and steam available

7. Economic Analysis of CHP System for DIA – Usage Data
Electricity Data – 2003 Billing
Only include metered load; Only include accounts with positive revenue; peak load is 46,000 kW.
Natural Gas Data – From Discussion with Don Clarke
Air Conditioning Load – 11.2% of Electricity Usage

8. Economic Analysis of CHP System for DIA – Rate Data
Electricity Rates – PSCo Rate Book including commodity adjustment factor of $ per kWh.
Natural Gas Rates – From Discussion with Don Clarke
Natural Gas Commodity Price – From Futures Markets Analysis
Transport Charge is .417 per MMBTU. Model assumes same inflation as electricity rates

9. Economic Analysis of CHP System for DIA – Natural Gas Prices
Current Price is about $7/MMBTU; Average next twelve month price is $6.75/MMBTU
Forward prices decline significantly in future years .

10. Economic Analysis of CHP System for DIA - Analysis
Analysis of alternative plant configurations (combined cycle versus simple cycle)
Analysis of standby rates versus purchasing redundant capacity
Analysis of alternative electricity price inflation, given current gas and electricity prices
Analysis of different gas price assumptions with alternative inflation rates

11. Plant Configuration Analysis

12. Base Case Assumptions Assumptions
Simple cycle and combined cycle configuration
Base case electricity and gas use
Gas prices from futures markets
3.5% electricity price inflation (consistent with high natural gas cost)
No Standby purchased
Firm gas prices

13. Plant Configuration Case Results
Simple Cycle Case
ROI 3.0%
Payback 17.1 yrs
Combined Cycle Case
ROI 8.3%
Payback 12.3 yrs
Negative Cash Flow in Early Years for Both Cases

14. Plant Configuration Case Results
Combined Cycle improves performance
Surplus steam does not add much value because of limited use at the airport
Analysis includes altitude adjustments with reduces electricity output by about 20% but does not reduce capital cost or natural gas requirements
Payback period is long because of gas price assumptions and forward rates

15. Standby Case
The next cases compare the performance of the configurations assuming that standby capacity is purchased instead of purchasing redundant capacity.
The standby cases assume enough standby capacity is purchased to cover the capacity of one unit.
Inflation rates on standby are the same as the overall inflation rate for electricity prices (3.5% in the base case).
Standby versus redundant capacity is presented for both the combined cycle configuration and for the simple cycle configuration.
A 2% random outage rate is assumed for the system causing energy and daily demand purchases.

16. Standby Case Results – Simple Cycle
Simple Cycle Case without Standby
ROI 3.0%
Payback 17.5 yrs
Simple Cycle Case with Standby
ROI 2.7%
Payback 16.8 yrs

17. Standby Case Results – Combined Cycle
Combined Cycle Case without Standby
ROI 8.3%
Payback 12.3 yrs
Combined Cycle Case with Standby
ROI 8.2%
Payback 11.8 yrs

18. Standby Case Results The standby case slightly worsens performance.
Payback is somewhat improved because of smaller investment in plant.
Analysis depends on the amount of standby capacity purchased and the outage rate of plants.

19. Alternative Electric Inflation Case
The base case assumes the electricity inflation is somewhat higher than the overall rate of inflation.
This is consistent with the high energy costs implied by forward gas markets – PSCo will at some point have to increase rates with more natural gas usage or it will have to incur high capital costs for new clean coal or other capacity.
The electricity inflation rate (also applied to natural gas transportation) has an important effect on the economics of the project, so we show how high or low the inflation rate becomes before the CHP becomes uneconomic.
Electric Inflation rates – 4.5%, 4%, 3.5% (base), 3%, 2.5%, 2%, 1%, 0% (All cases use the combined cycle case)

20. Sensitivity Case – Electricity and Natural Gas Inflation
Base Case – 3.5% Electricity Inflation
Lower Electricity Inflation – 2%

21. Sensitivity Analysis – Combined Cycle Case; Electricity Inflation
Combined Cycle Case 4.5% Inflation
ROI 10.5%
Payback 10.4 yrs
Combined Cycle Case with 4% Inflation
ROI 9.4%
Payback 11.3 yrs

22. Sensitivity Analysis – Combined Cycle Case; Electricity Inflation
Combined Cycle Case 3.5% Inflation
ROI 8.3%
Payback 12.3 yrs
Combined Cycle Case with 3% Inflation
ROI 7.1%
Payback 13.6 yrs

23. Sensitivity Analysis – Combined Cycle Case; Electricity Inflation
Combined Cycle Case 2.5% Inflation
ROI 5.7%
Payback 14.3 yrs
Combined Cycle Case with 2% Inflation
ROI 4.2%
Payback 16.5 yrs

24. Sensitivity Analysis – Combined Cycle Case; Electricity Inflation
Combined Cycle Case 1% Inflation
ROI 0.3%
Payback NA
Combined Cycle Case with 0% Inflation
ROI NA

25. Sensitivity Case – Future Natural Gas Prices
Base Case – Flat Natural Gas Prices
Increased Future Natural Gas Prices

26. Sensitivity Case Results – Higher Future Natural Gas Prices
Combined Cycle Case without Standby
ROI 8.3%
Payback 12.3 yrs
Combined Cycle Case with higher future gas prices
ROI 7.4%
Payback 12.9 yrs

27. Alternative Natural Gas Cases
Currently, natural gas prices – both spot prices and forward prices – are very high relative to history.
If the decision to invest is delayed until the prices come down, the economics can change significantly.
In cases with alternative gas prices, the rate of inflation that is applied to gas and electricity is assumed to be the same.
The most likely case is where 2.5% inflation is assumed.
Alternative cases assume zero inflation and 3.5% inflation.
The alternative cases are run for both the combined cycle case and the standby case.
Alternative gas prices (wellhead prices) include $2.0/MMBTU; $3.0/MMBTU; $4.0/MMBTU; and $5.0/MMBTU.

28. Sensitivity Case Results – Alternative Natural Gas Prices
Historic Natural Gas Prices
Low Natural Gas Case

29. Alternative Natural Gas Prices; Combined Cycle – 2.5% Inflation
Combined Cycle Case -- $2.00 Gas Prices
ROI 13.7%
Payback 8.1 yrs
Combined Cycle Case with $3.00 Gas Prices prices
ROI 9.7%
Payback 11.2 yrs

30. Alternative Natural Gas Prices; Combined Cycle – 2.5% Inflation
Combined Cycle Case -- $4.00 Gas Prices
ROI 5%
Payback 17.8 yrs
Combined Cycle Case with $5.00 Gas Prices prices
ROI NA
Payback NA

31. Alternative Natural Gas Prices; Combined Cycle – 3.5% Inflation
Combined Cycle Case -- $2.00 Gas Prices
ROI 15.1%
Payback 7.7 yrs
Combined Cycle Case with $3.00 Gas Prices prices
ROI 10.4%
Payback 11.1 yrs

32. Alternative Natural Gas Prices; Combined Cycle – 3.5% Inflation
Combined Cycle Case -- $4.00 Gas Prices
ROI 6.5%
Payback 15.9 yrs
Combined Cycle Case with $5.00 Gas Prices prices
ROI .2%
Payback NA

33. Alternative Natural Gas Prices; Combined Cycle – 0% Inflation
Combined Cycle Case -- $4.00 Gas Prices
ROI .1%
Payback NA
Combined Cycle Case with $5.00 Gas Prices prices
ROI NA

34. Alternative Natural Gas Prices; Combined Cycle – 0% Inflation
Combined Cycle Case -- $2.00 Gas Prices
ROI 9.9%
Payback 9.5 yrs
Combined Cycle Case with $3.00 Gas Prices prices
ROI 5.6%
Payback 14.4 yrs

35. Alternative Natural Gas Prices; Simple Cycle – 2.5% Inflation
Simple Cycle Case -- $2.00 Gas Prices
ROI 8.1%
Payback 12.8 yrs
Combined Cycle Case with $3.00 Gas Prices prices
ROI 2.2%
Payback 23.7 yrs

36. Alternative Natural Gas Prices; Simple Cycle – 2.5% Inflation
Simple Cycle Case -- $4.00 Gas Prices
ROI NA
Payback NA
Combined Cycle Case with $5.00 Gas Prices prices

37. Appendix - Inputs

38. Assumptions – Alternative Configurations

39. Assumptions – Natural Gas Prices and Rates

40. Assumptions – DIA Energy Use

41. Assumptions – PSCO Electricity Rates

42. Assumptions – PSCO Electricity Rates

43. Assumptions – Alternative Configurations

44. Assumptions – Alternative Configurations

45. Model Structure

46. Economic Analysis of CHP System for DIA - Contents
Model Layout
Status Quo Usage and Cost
Status Quo Usage Components
Natural Gas Purchases in CHP Case for Electricity
Natural Gas Purchases for Supplemental Firing
Standby Costs in CHP Case
Financial Model, Inflation, Rate of Return

47. Model Layout – Status Quo Usage and Costs

48. Model Layout – Components of Energy Usage

49. Model Layout – Components of Energy Usage

50. Model Layout – Natural Gas for Electricity of CHP

51. Model Layout – Supplemental Natural Gas Purchases

52. Model Layout – Standby Costs