NEW ENGLAND
...sible since the relation of the NPVs of the two projects is not affected by the change of tax rate Not a decision making factor Risk: None Discount (k) 19.26% 68.62 If the discount rate goes up to this rate, the present value of cash flows increases, since these are higher for the Cable project. For the United States it is not really reasonable to have such a high discount factor judging from the past decades. Risk: low Cost of Purchased Power 9.55% 152.9 The cost of the purchased power from the mainland is the main cost driver for the Cable solution. If it goes above 9.55%, the NPV for the costs of this project would go beyond the alternative. The average price growth for ultimate customers by NEES in the past 6 years was 7 %, as the increase in estimated average customer growth. However from 1990 to 1991, the costs jumped by 14%, so the risk that the flip rate can be reached is not unreasonable. However since there is no alternative power supplier on the Island, NEC needs to pass on the increase in costs to customers. Risk: Medium Production Costs 5.57% 116,6 If the production costs for the Diesel solution can be lowered from 8.65% to 5.57%, the decision would flip since this is the main cost driver. In order to achieve a reduction of 3 percentage points, that is a reduction of 35%, the company has to implement a major restructuring of its processes. Whether this is possible with a generally outdated technology cannot be judged at this point. Risk: Medium O & M Not available Even if the O & M is brought down to Zero, the decision for the Cable Solution would still be preferable This cost driver is not important enough in order to flip the decision since it only forms 16% of the total costs. Risk: None Based on the quantitative analysis the decision would remain to implement the Cable Solution, however NEC will have a single supplier of power and will need to hedge power costs since the risk is there that a large increase in costs could eat up the profits if they are not passed on to the end customers one to one. Qualitative Analysis Cable Diesel Feasibility The technology of laying a cable in the sea is existent and the costs have gone down since the last evaluation. Rating: Good Diesel generators are a common feature on the Island, therefore no issues regarding the feasibility. However land availability might become a problem Rating: Medium Reliability Cable failure is considered unlikely, but back up plans will be provided. Reliability would be doubled. Rating: Good Frequent Interruptions (40 times of 30 ...