get a higher return on investment with wärtsilä€¦ · 2 © wärtsilä 29.8.2016 [get a higher...

© Wärtsilä

Get a higher Return On Investment with WärtsiläWärtsilä reciprocating engine technology outperforms gas turbines in the ISO-NE market

Joseph Ferrariwww.industrialinfo.com

© Wärtsilä 29.8.2016 [Get a higher Return On Investment with Wärtsilä / Joseph Ferrari]2

Wärtsilä

• Founded in 1834

• Headquarters in Helsinki Finland

• Net Sales € 4.7 billion (2013)

• ~ 18,700 people worldwide

• Reciprocating, or Internal Combustion Engines

• 182+ GW installed globally

• 58+ GW installed power plants (2.7+GW in the US)


Wärtsilä solutions maximize returns for investors.

• Results are focused on Equity IRR, but have parallels and meaning for

• Utility

• Cooperative

• Municipal and

• Industrial

• investors as well.

ISO-NE


WHAT WE’LL COVER

Zonal Analysis (ISO-NE zone, tech pricing & parameters, etc.)

Investment benefits Wärtsilä brings

- By trading strategy (DA, DART, DART+AS) and

- Relative to other gas-fired options

Extending results to the rest of ISO-NE

Incentivizing Flexibility – impact of true Real Time Market Settlement

Wärtsilä Strengths, Conditions and Business Case


STRENGTHS, CONDITIONS AND BUSINESS CASE

Reciprocating

engine

Operational

FLEXIBILITY

Optimization of

market operations

Volatility

Strength

Business

case

Market

conditions

Dual Fuel (on the fly)

2-5 min start

20% MSL

Ramp to full load < 1 min

No start costs

Min up time ~ 0, min down

time 5 min


COMPARATIVE ANALYSIS STRESSING VALUE OF FLEXIBILITY

Traditional 20 year analyses focuses on DA energy

Lucrative potential for revenues from

- Real Time

- Ancillary Services

Units with greater flexibility more able to capture these revenue streams.

- Wärtsilä customers in other markets take full advantage of this

We show financial performance for units

- In DAY AHEAD (DA) Market only

- In Day Ahead + Real Time (DART) markets

- In DART plus Ancillary Services (DARTAS)

Comparative: Results for Wärtsilä relative to that of other gas-fired

solutions (Simple and Combined Cycle GTs)


WHAT PART OF ISO-NE?

Ascend Analytics (Colorado).


MODELING APPROACH

BACK-CAST

Use Simulation tool to find

average costs and

revenues from 2011-2014

(inclusive)

20 YEAR FORWARD

Average Costs and

Revenues (from back-

cast) used as common

values for next 20 years

(considered indicative).

EQUITY IRR

Calculated for the

projected 20 year project

/ financing timespan


MODELING APPROACH

Technical input• Heat rates (GTPro)

• Part load heat rates

• Variable O&M cost

• Capacity derating

• Start-up times

• Start-up costs

Market input• Day-ahead prices

• Real Time Market prices

• Ancillary service prices

• Daily gas price

Site input• Elevation

• Hourly temperature data

Modeling platform

• Excel tool for backcast

analysis

• 5 minute granularity to

analyze the real time

market

• Optimize the operation of

asset against the LMP

and offer capacity

optimally between energy

and A/S

• Assumes that capacity

fits into the merit if it is

feasible to operate the

plant

• Takes into account

temperature derating on

hourly level

Market model outputs

• Running hours and

number of starts

• 5 minute dispatch

profile

• Revenue per market

• Operating costs (fuel,

VOM, start-up costs)

• Gross margin from the

market operations

Investment inputs

• Investment cost

• Fixed Operation &

Maintenance costs

• Capital structure

• Cost of capital

• Capacity market

income

Financial model

• Project feasibility

• Project IRR

• Equity IRR

• Cash flows

Back-cast 20 yr. forward

+


Looking at 50 to 200 MW simple cycle projects, EPC (everything inside the fence) and assuming all options are dual fuel.

Wärtsilä 18V50DF 900 $/kW

100 MW Aero GTs 900 $/kW

40 MW Aero GTs 925 $/kW

And assuming in large part they’d be considered against a larger

1x1 Frame CCGT (318 MW) 1100 $/kW

For all the investment cost was EPC plus a 15% adder for ”Owners Cost”

CAPACITY OPTIONS & INVESTMENT COSTS


ADDITIONAL INVESTMENT INPUTS

Factor Value

Equity/Debt 30%/70%

Debt interest 5%

Loan term 20 years

Tax rate 37.5 %

FOM 10 $/kW-yr


TECHNICAL INPUTS

Unit 18V50DF 40 MW Aero GT 100 MW Aero GT 300 MW CCGT

Output (Unit) 16.8 MW 41 MW 102 MW 318 MW

Heat Rate 8,400 Btu/KWh 9,365 Btu/KWh 9,105 Btu/KWh 7,000 Btu/kWh

Minimum stable load 20% 40% 40% 40%

Heat Rate at minimum

stable load 11,267 Btu/KWh 12,534 Btu/KWh 12,190 Btu/KWh 8,170 Btu/kWh

Start-up time to full load 5 min 10 min 10 min 60 min

Start-up cost

(maintenance)0 USD/start 0 USD/start 0 USD/start 25,000 USD/start

VOM 5.5 USD/MWh 4.0 USD/MWh 4.0 USD/MWh 1 USD/MWh

FOM 10 USD/kW/year 10 USD/kW/year 10 USD/kW/year 10 USD/kW-yr

Estimated Water

(gal / MWh)0

0 (dry)

75 (Sprint)

Water injected

30 dry IC

140 wet IC

5 ACC

250 Cooling tower


Finalized capacity auction results confirm resources, prices fo New England power system in 2018-2019

CAPACITY PRICING / PAYMENTS

From page 2:

http://www.iso-ne.com/static-assets/documents/2015/02/fca9_finalresults_final_02272015.pdf

Used in this analysis

10 $/kW-mo (y 1-7)

7 $/kW-mo (y 8-20)


RESULTS

Day Ahead (DA), Energy Only

Day Ahead + Real Time (DART) Energy

DART + Ancillary Services (Regulation), (DARTAS)


OPERATING PROFILES (DA)

As expected: Operating Hours a function of efficiency

Number of Starts a function of Flexibility

-

100

200

300

400

500

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

2011 2012 2013 2014 Average

Nu

mb

er

of

Sta

rts

Op

era

tin

g H

ou

rs

Day Ahead Energy


GROSS MARGINS (MARKET REVENUE / MW INSTALLED)

-

10 000

20 000

30 000

40 000

50 000

60 000

Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT

( $ p

er

MW

in

sta

lled

)

Average Gross Margin (Day Ahead Energy)


DAY AHEAD 12 X WÄRTSILÄ 18V50DF


DAY AHEAD 2 X 100 MW AERO GTS


DAY AHEAD 5 X 40 MW AERO GTS


DAY AHEAD 1 X 1 FRAME CCGT


DAY AHEAD SUMMARY, EQUITY IRRs

ISO-NE, WCMASS

EQ

UIT

Y IR

R

W50DF 100 MW GT 40 MW GT Frame CCGT

15.8%14.4%

11.6%13%


RESULTS





OPERATING PROFILES (DA + RT, OR DART)

-

100

200

300

400

500

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

2011 2012 2013 2014 Average

Nu

mb

er

of

Sta

rts

Op

era

tin

g H

ou

rs

Day Ahead + Real Time Energy



-

10 000

20 000

30 000

40 000

50 000

60 000

70 000


( $ p

er

MW

in

sta

lled

)

Average Gross Margin (Day Ahead + Real Time Energy)


DART SUMMARY, EQUITY IRRs

ISO-NE, WCMASS

EQ

UIT

Y IR

R


19.4%16.9%

13.9% 14%


RESULTS





Reserve (spin & nonspin) as per Forward Reserve Market (not included in this analysis). Regulation is per 5-min market with hourly settlement

NOTE ON ANCILLARY SERVICES

Due to limited data availability (historical) this analysis looks at RegCP relative to energy prices and assumes plant dispatches for Energy + Reg if the revenue is greater than that from energy alone.

Therefore revenue benefits from AS (Regulation) in the ISO-NE market is Conservative (under-valued).

Figures from: http://www.iso-ne.com/static-assets/documents/2015/02/regulation_market_settlements_02_19_2015.pdf


OPERATING PROFILES (DART+AS, OR DARTAS)

-

100

200

300

400

500

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

Wärt

silä

40

MW

GT

10

0 M

W G

T

1x

1 C

CG

T

2011 2012 2013 2014 Average

Nu

mb

er

of

Sta

rts

Op

era

tin

g H

ou

rs

DA+RT Energy + Regulation



-

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000


( $ p

er

MW

in

sta

lled

)

Average Gross Margin (DART + Regulation)


DARTAS SUMMARY, EQUITY IRRs

These returns (especially for Wärtsilä) are indicative and conservative

as they only represent the $/MWh dispatch against RegCP.

ISO-NE, WCMASSE

QU

ITY

IR

R


20.8%17.6%

14.3%15%


What if your site/application does not need Dual Fuel Capability?

• Wärtsilä would offer 18V50SG

• Higher unit output (18.4 MW net vs. 16.8 MW)

• Lower heat rate (8130 Btu/kWh HHV net, vs. 8400)

• Lower Capex (@ $50 to 100/kW less expensive)

Gas turbine alternatives may also be lower Capex, but their gas performance would not improve.

Returns for a pure gas Wärtsilä offering would be

• Higher than indicated in this analysis

• Have even greater returns relative to gas turbine options

OF NOTE – WÄRTSILÄ DF SOLUTIONS VS. SG


APPLICATION TO OTHER ZONES IN ISO-NE?

Reciprocating

engine

Operational

FLEXIBILITY

Optimization of

market operations

Volatility

Strength

Business

case

Market

conditions

Includes Efficiency- What other

zones have similar market

pricing?

Similar Pricing & Volatility

indicates similar business case.

Which Zones w/similar market

pricing have similar volatility?


DAY AHEAD ZONAL STATS

Observations

1) DA Pricing going up (2012-2014)

2) DA Volatility going up (2011-2014)

3) Not clear which zones “similar” to WCMASS


REAL TIME ZONAL STATS

Observations

1) RT Pricing going up (2012-2014)

2) RT Volatility going up (2011-2014)

3) Not clear which zones “similar” to WCMASS


WHICH ZONES?

Highest prices & volatility (DA & RT) 2014

2014 revenues influence financial outcomes (IRRs)

Look just at 2014: Zonal prices and volatility relative to WCMASS

2014 Statistics CT CA ME NEMASSBOST NH RI SEMASS VT WCMASS

Avg. DA price (Zone/WCMASS) 0.99 1.00 0.96 1.00 0.99 1.00 1.00 0.99 1.00

Volatility DA price (Zone/WCMASS) 0.99 1.00 1.00 1.00 1.00 1.01 1.01 1.00 1.00

Avg. RT price (Zone/WCMASS) 1.00 1.00 0.93 1.01 0.97 1.00 1.00 0.97 1.00

Volatility RT price (Zone/WCMASS) 0.99 1.00 0.94 1.01 0.96 1.01 1.01 0.99 1.00

Similarity Metric 3.97 4.00 3.83 4.03 3.92 4.03 4.02 3.95 4.00


ZONES WITH EXPECTED MARKET OUTCOMES SIMILAR TO WCMASS

Indicated areas would have

similar outcomes- in which ICEs

provide greater return on

investment relative to simple or

combined cycle GTs

CA = “Control Area”- everything

in ISO-NE except northern Maine,

connected to Canada. So the similarity

of CA implies much of New England

would benefit from fast, flexible ICEs


ISO-NE Initiative: Subhourly Real-Time Settlement Key Project

Project Overview *

The ISO is evaluating a move to a subhourly settlement interval for generation resources, external transactions, dispatchable asset-related demand resources, and demand-response resources in the real-time markets.

The real-time markets (energy, reserve, and regulation) are settled hourly, even though the ISO calculates real-time locational marginal prices (LMPs) every five minutes. Existing settlement rules tend to undercompensate certain resources, particularly more flexible generation and storage assets that respond quickly when system events result in tight operating conditions and there are significant midhour price changes. Compensating resources at the more granular, five-minute price would help improve price formation by ensuring that the price suppliers are paid for real-time performance is a more accurate market signal of the power system’s current operating conditions.

INCENTIVIZING FLEXIBILITY IN ISO-NE

* From: http://www.iso-ne.com/committees/key-projects/subhourly-real-time-settlement


Focal Zone = WCMASS

Node ID 4355 (randomly chosen)

Month = January 2015

Data collected

• Hourly average RT pricing ($/MWh)

• Actual 5-min RT pricing ($/MWh)

EXAMPLE OF VALUE 5-MIN RT SETTLEMENT WOULD BRING TO FLEXIBLE GENERATION

Gross Revenue using

hourly Avg RT settlement

(the old way)

Gross Revenue using

proposed 5-min RT

settlement (the new way)vs.


VISUAL EXAMPLE (REPRESENTATIVE)

RT Dispatch



103 $/MW with existing

hourly settlement

182 $/MW with proposed

5-min settlement



DA

commit

RT Commit

330 $/MW, hourly settlement 419 $/MW, 5-min RT settlement


5-MIN RT SETTLEMENT BENEFITS WÄRTSILÄ'S GREATER FLEXIBILITY

Gross revenues for Wärtsilä with proposed 5-min RT settlement

26% increase RT revenue

7% increase in total revenue

40-50% greater revenue than aeroderivative GTs


Conclusions

Wärtsilä maximizes returns in ISO-NE compared to other gas-fired options.• In a (load serving) context, translates to Wärtsilä

minimizing cost• Trends mirrored in other markets as well (Alberta,

ERCOT, NYISO, PJM, SPP)

The value of flexibility is increasing in the market place• Increasing renewable penetration = more volatility• New and existing Ancillary Services need flexible

capacity• In ISO-NE transition to 5-min RT settlement will

increase revenues, more so for units with greater flexibility (5-min start, small min up/down times, no start costs, coupled with high efficiency, e.g. Wärtsilä!)

Markets recognize the value of flexibility, and it should be incorporated into investment analyses.

Joseph Ferrari

Market Development Analyst

[email protected]

mailto:[email protected]

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