The Caribbean Utilities Company on Friday won a four-way bid for new electricity supplies in Grand Cayman for 25 years, starting in mid-2016, charging consumers roughly the same as current prices.
Under the new agreement, signed late last week, the cost of a kilowatt hour of electricity, currently priced between 23 cents and 24 cents, will fall between 0.5 cents and 1.5 cents, according to Managing Director of CUC overseer Electricity Regulatory Authority Charles Farrington.
“It’s a little difficult to say because it varies with the cost of fuel,” as well as other factors, Mr. Farrington said, “but this [new] plant is more efficient, so the pass-through costs of fuel are reduced.”
According to CUC, the 39.7 megawatt (MW) generation project will cost $85 million to build. Mr. Farrington said, however, that associated expenses would raise the price to nearly $100 million during the course of the contract. The new plant will adjoin CUC‘s present North Sound Road generation facility.
A discrepancy in several of the figures emerged at the last minute, however, as the authority downgraded CUC’s initial investment to $70 million, and said it would generate 36MW of power. CUC later named the 39.7MW figure, including a 2.7MW heat-recycling installation, seeking to boost the efficiency of the new plant.
CUC’s figures, however, peg basic generation capacity at 37MW instead of the ERA’s 36MW. The utility sought to explain the 1MW difference, saying the new contract allowed “for actual capacity installed to be within +/- 10 percent of the 36MW.”
The competition drew multiple bids from three firms: CUC submitted proposals based on diesel fuel, heavy fuel oil and liquefied natural gas (LNG); Cayman’s Dart Realty engineering company DECCO offered two bids based on propane gas; and New Jersey-based architectural and engineering Lewis Berger Group, a major US-government contractor in Iraq and Afghanistan, submitted a tender contingent on propane.
Mr. Farrington said CUC withdrew its LNG submission, while the ERA “eliminated its heavy fuel oil because of the time frame involved,” leaving single tenders from both the utility and Louis Berger and the same pair from DECCO.
“CUC charged declining costs over 25 years,” the managing director said, “while DECCO had fixed costs and Louis Berger had increasing costs for the number of kilowatt hours to be generated annually.”
While acknowledging that propane gas is cheaper “at the source,” he said transport costs and the relative inefficiency of converting LNG to electricity “eliminated the advantage.”
Government requires CUC annually to review market trends, anticipating consumer demand, potential plant retirements and any changes to reserves of generating capacity, necessary to supply Grand Cayman with reliable power.
In its most recent assessment, the company forecast demand growth of 36MW by 2016.
After a global pre-qualification survey by ERA consultant Washington-based management, technology and policy firm ICF International, the authority invited 10 companies, including CUC, to submit their qualifications, ultimately selecting five to receive a formal 31 January “request for proposals” – seeking 18MW of electricity by May of 2016 and another 18MW by June of 2016.
In February, the ERA and ICF briefed the five, detailing the bidding and scoring processes. Ultimately, only three companies answered the request.
The government teams evaluated both pricing and “non-pricing” factors, Mr. Farrington said. Capacity charges – return on investment, profit, financing, interconnections and upgrades – and fuel costs comprised the former, while permits, site development plans, equity and banking commitments, construction, environmental impact, equipment, procurement, land acquisition, training and staffing were part of the latter.
The teams concluded that CUC offered “a strong development plan,” Louis Berger had “a good development plan,” and both DECCO bids “contain[ed] a weak development plan.”
ICF’s overall assessment on a scale of 100 awarded CUC 97.86 points, DECCO 73.52 and Louis Berger 69.42.
Both Mr. Farrington and ERA Deputy Managing Director Louis Boucher said CUC’s bid also proved attractive because of its use of “waste heat,” a by-product of diesel production, which converts only 50 percent of the fuel into electricity, throwing off the other 50 percent as heat.
Without offering details, Mr. Boucher said CUC would capture the “waste heat” from the new MAN diesel engines, employing an additional 2.7MW steam turbine to recycle the by-product into further production, although at only 20 percent efficiency, but nevertheless boosting generating capacity.
He and Mr. Farrington said the ERA would “now turn to renewable” power sources,” and “take a view of the energy picture on the island,” saying the CUC grid was prepared to accept 13 MW of “non-firm” energy, power supplies that could not be guaranteed 24 hours per day.
“LNG is cleaner and cheaper” than diesel, Mr. Farrington said, “but it’s more expensive to get here. Solar is only available when the sun shines.”
By law, CUC must have between 135MW and 155MW of “firm” generating capacity, he said, citing technical problems with storage of renewable-source electricity.
“Solar is the fuel of the future,” he said, “but it’s not quite there. Photo cells can’t run during the night, but if you could store it, it could be ‘firm.’ The battery technology is coming.”
Previous bidders for solar and wind generation, Chicago’s New Generation Power and Pittsburgh’s International Electric Power LLC had run into severe problems, knocking one of them – he was unable to recall which – out of the project. The other had experienced long delays, although Mr. Farrington said he expected to see a plan “pretty soon.”
CUC released a statement late on Friday quoting the company’s president and CEO, Richard Hew: “CUC put a significant amount of effort into developing a very competitive proposal, and, having won, we have demonstrated that CUC represents the best value for electricity consumers in Grand Cayman.
“This project will require a significant, long-term financial undertaking by CUC to deliver the benefits of safe, reliable and highly efficient production of electricity for consumers in Grand Cayman.
“We now look forward,” he said, “to signing agreements with our equipment provider, MAN Diesel & Turbo of Augsburg, Germany, and primary construction contractor BWSC of Denmark, to build and commission the new power plant.”