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9.3.4 The geothermal projects will reduce customers’ tariffs The development of geothermal projects will have a positive impact on the economies of the beneficiary countries. The main and most tangible benefits are the reduction in the average tariff to customers and also the reduction in the importation of fuel oil. We estimate that the implementation of the proposed projects will lead to an average tariff reduction of between US$0.02 per kWh to US$0.13 per kWh.124 Below, we describe these impacts and how they were calculated. The development of geothermal projects will have positive impact on the economies of the beneficiary countries. One of the most tangible benefits is the reduction in the average tariff to customers. The tariff will be lowered because the cost of generating electricity from geothermal generation is lower than the cost of generating electricity from fuel oil and diesel generation. If these savings are passed on to customers, the geothermal projects would lead to an average decrease in tariffs of about 20 percent.125 That is a reduction from an average tariff of US$0.34126 per kWh (2014) to an estimated average tariff of US$0.27 per kWh. Below we show how we calculated the expected tariffs. For each country, the expected average tariff when geothermal generation is introduced is calculated as the weighted average of the current average tariff (2014) and the expected tariff with geothermal. More specifically, we carried out the following calculation: Expected tariff = Current with geothermal electricity Percentage of non-geothermal generation Tariff for geothermal Percentage of geothermal generation The weights are the contribution of geothermal and diesel (or HFO) generation to the total projected generation in each country when geothermal comes online.127 The “tariff for geothermal” is the sum of two components: the estimated geothermal PPA rate, plus the portion of the current tariff—that is not generation cost—that will still be charged to customers, regardless of the generation source, when geothermal comes online. The estimated geothermal PPA rate is the rate at which the geothermal projects need to sell each kWh of electricity to be able to service their debts and provide equity investors with a 15 percent real return.128 The portion of the current tariff that is added to the estimated PPA rate is an estimate of the costs not related to generation that are charged to customers via tariff regardless of the generation technology used. Such costs include an estimate of transmission and distribution costs, administrative and other non-generation operating expenses, and other costs. The estimated PPA rate and tariffs are calculated using the financial model for geothermal projects that Castalia prepared for the IDB. We present the detailed financing analysis to arrive at the PPA rate for each country in sections 11.5.2, 12.6.2, 12.6.3, 13.5.2, 14.7.2, 14.8.2, and 15.5.2. Table 9.8 shows the estimated tariff for each country. tariff 124. Financial model that accompanies this report; Castalia, “Financial Model for Geothermal Projects in the Eastern Caribbean” (2015, developed for the IDB). 125. This is an estimate based on the current total generation, and the estimated generation from geothermal resources, and assumes that the cost reductions will be passed on to customers. The final reduction in tariff will depend on the Governments’ or regulators’ decision on how and what proportion of cost reductions are passed on to costumers. 126. CARILEC, 2014 Average Tariffs in EC Countries (2015); GRENLEC, 2014 Annual Report; VINLEC, 2013 Financial Statements. The average tariff is the cost of service calculated using the information from the 2014 and 2013 financial statements for the utilities that publish it, and the 2014 average tariffs published by CARILEC for utilities that do not publish financial statements. 127. Energy supply curve projected for the publication: IDB and Castalia, “Sustainable Energy in the Eastern Caribbean: Achieving an Unrealized Potential” (2015). The annual generation from geothermal projects is calculated with an 85 percent capacity factor. 128. Castalia, “Financial Model for Geothermal Projects in the Eastern Caribbean” (2015, developed for the IDB). 71PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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