Please Explain !
CALCULATION OF TARIFF CHARGES
On behalf of all Jaks' investors, I wish to take this opportunity to express our appreciation to sifu DK for his unselfish sharing of his knowledge.
I have obtained DK's consent to disclose his reply email.
30/5/2022
Dear xxxx xxx xxxxx,
Thank you for sharing the document of Mong Duong II. It is indeed very informative and it provides very reliable information for the calculation of tariff charges.
With respect to your questions on the potential capacity charges and energy charges for JHDP, my best estimate of tariff charges for JHDP using the data from Mong Duong II and Annual Report of Jaks is as follows;
Capacity charges = Pre-agreed Capacity Charge rate x dependable capacity
Capacity charges profit = capacity charges - fixed O&M - depreciation - interest expense
I derived the capacity charge rate to be between US$256 to US$264 per Kwh (average 260) for year 2016 to 2019. This is inclusive of fixed O&M expenses.
Dependable capacity = 1,120,000 Kwh
Therefore, capacity charges = 260 x 1,120,000 = US$ 291m = RM 1,266 million (ex. rate 4.35)
Fixed O&M cost for a 1200MW coal power plant is about US$30m (RM130m) per year
Depreciation = RM296m
Interest Expense = RM275m
Therefore, Capacity charges profit = 1,266 - 130 - 296 - 275 = RM565m
"The Contract Heat Rate is a pre-agreed number ranging from 9,405 BTU/kWh in the first Contract Year to 9,560 BTU/kWh in the later Contract Years. The Secondary Fuel Charge is equal to the Heat Rate for Secondary Fuel (a pre-agreed amount of 2,783 BTU/kWh"
Energy Charge profit is basically a function of actual heat rate achieved over the agreed heat rate. In short, when you are given 9,405 BTU to produce 1 Kwh of electricity, if you use less than the given BTU, you have cost savings (ie profit), and loss if you need more than the BTU given. On everage, the given amout of BTU translate to a plant efficiency of approximately 36%. Coal fired plants are known to have plant efficiency of around 36%, Hence, very little profit is expected from energy charges. However, there is a catch !
Note that the amount of BTU allocated to secondary fuel is about 30% of the total BTU allocation. Secondary fuel is mainly fuel oil which is primarily used only during start up of boilers as well as low plant load factor of below 60%. Fuel oil is substantially more expensive than coal in term of BTU content. Normally, cost of fuel oil usage is less than 5% of total feed costs for coal power plants. Therefore, there is room for the operator to profit from the price differential between coal and fuel oil but I do not have the numbers to quantify the effect.
I hope the above helps.
Thank you
DK
Note that Jaks' 30% sharing from JHDP capacity charges per annum alone is RM170m (565 x 30%) = EPS RM0.083
Thank you
This article is purely for educational purposes. This is not a buy or sell recommendation ! You should consult your dealers or remisiers before making any decision.
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Discussions
9 people like this. Showing 12 of 12 comments
This is so totally not the way it is calculated.
Powergen contracts are based on IRR .
This follows from US and western models which were then benchmarked to World Bank methods of drawing up contracts.
World Bank methods had become the defacto standard worldwide
and for Vietnam case its 10% IRR
10% IRR is based on approved capex by Vietnam which may or may not be same as per accounts capex shown in Jaks audited accounts.
all these are whatcamacallits
These are actually efficiency bases to make sure operator performs well to agreed standards before the 10% IRR are paid out.
2022-05-31 21:08
essentially whatever you do has no effect at all.
you will only get 10% IRR unless you screw up big time
thats where all these parameters like heat rate, up time, plant conversion efficiency are all methods used as incentives for plant operator to perform well.
2022-05-31 21:17
for simple layman understanding..
ass_u_me a block of coal has 100 units of energy
ass_u_me Vietnam contract says must achieve 32% efficiency
if you achieve less than 32% efficiency you will suffer penalties making your IRR less than 10%
if you achieve more than 32% efficiency you will enjoy incentives making your IRR more than 10%
the contract terms can vary between 32% to 42% depending on plant design and nego skill.
Typical China efficiency is 40.9%
do you feel lucky today?
2022-05-31 21:27
Gotyou, Thank you for sharing DK's reply. I was having difficulty understanding you previous article but DK explanation helped a great deal. Thanks.
2022-05-31 21:27
different plants have totally different designs
different base efficiency per contract
example Plant A contract base efficiency is 32%
example Plant B contract base efficiency is 40%
and the heat path can be totally different.
basing your profits on another power plant means said person have totally no idea how power plant contracts are signed
and revenue generated.
2022-05-31 21:38
Jaks share of profit of JV quarter end 31 March RM 33,936,000. So per year will be RM 135,744,000.
From author: Note that Jaks' 30% sharing from JHDP capacity charges per annum alone is RM170m (565 x 30%) = EPS RM0.083
Jaks' 30% sharing from JHDP capacity charges per quarter 170/4= RM 42.5 million.
Thus Jaks management must have under report the quarter share of profit by RM (42.5-33.94) RM 8.56 million on capacity charge alone. So that about right the money must had gone to someone else pocket.
2022-06-01 15:07
Sslee, could it be due to other reasons like technical problems with the power plant, high repair costs etc. Always so cynical ?
2022-06-01 17:34
"Despite the increased contribution from its associate, we believe that there is still upside to this, given the spill-over of the maintenance charged during the quarter, while most of the work was completed in 4Q21" -- Affin
2022-06-01 23:27
@Sslee, there was a fire incident in one of the 2 turbines from Q4 21.
Assume 1 turbine down for 1 month, then 34m/5*6 = 41m. Which is very close to DK's calculation.
2022-06-02 15:05
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Thanks DK for the sharing!
2022-05-31 10:13