Investor owned generation is being encouraged world-wide due to the current de-regulatory climate and the need to deflect the heavy capital outflow required to finance power stations from the balance sheets of the public utilities. Independent power producers (IPPs) are striving to minimise cost and increase returns on their investment, while public utilities are trying to maximise the benefits from privately owned plant in order to reduce their own costs; all of which leads to reduced tariffs payable by the utilities’ customers. At the same time the reliability of supply to customers must not be compromised.

• Power market surveys
• Power system planning
• Tariff design
• Optimum private-public investment strategy
• Risk management
• Power purchase agreements

Ideally, the stipulations and the pricing policy in a power purchase agreement (PPA) between a private power producer and a utility should manifest in a ‘win-win-win’ situation for the seller, buyer and buyer’s customers respectively, creating a harmonious environment for all parties during the entire franchise period of the PPA.

Although the electricity market has only recently experienced this steep acceleration in private sector power transactions, SMEC has been actively working in this area almost from its inception. SMEC’s responsibilities in this field have included private power market surveys, economic and financial modelling, tariff formulations, risk assessment, PPA preparation, PPA negotiation and optimisation of power plant operation to suit both electricity buyer and seller requirements. Of particular relevance is SMEC’s role in analysing the technical, legal and economic background, and final preparation of the PPA for the privately owned 3300 MW Ertan hydro power project (Asia’s largest) in China.

SMEC has also gained further valuable insight into the private power market in its role as promoter and developer of the 750 MW West Seti hydroelectric project in Nepal. SMEC has been exclusively responsible for all aspects of project implementation, including preparation and negotiation of the PPA, wheeling agreement, and detailed engineering design.

The services offered by SMEC are extensive and include:

Power market surveys

• macro and micro economic analysis
• load forecasting
• assessment of customer ability and willingness to pay for electricity
• captive power surveys.

Power system planning

• optimised generation planning for identification, costing and scheduling of projects most suitable for IPP implementation
• optimised transmission planning to determine the most suitable transmission or wheeling options for IPP projects
• optimisation of IPP installations to integrate with and supply electricity to existing power systems, including determination of power station size, type and operating modes to maximise IPP revenue
• optimised operations planning to extract maximum operational benefits from IPP projects and to derive despatch procedures
• Study of environmental benefits/costs for IPP installations.

Tariff design

	Determination of appropriate tariffs between:
	IPPs and transmission wheeling utilities transmission wheeling utilities and industrial, commercial and domestic customers IPPs and individual load customers via transmission links utility generators and wheeling companies generators (IPPs) and utilities or wheeling companies wheeling companies and distribution utilities or privatised distribution companies
	separation of tariffs into capacity and energy components
	rationalisation of tariffs between utility long run marginal cost (LRMC) requirements and IPP financial requirements
	determination of tariffs to satisfy future financial indicators within IPP and utility organisations
	setting up of financial models to assist prediction of IPP financial performance for a range of tariff scenarios
	determination of tariffs for ancillary services.

Optimum private-public investment strategy

• determination of optimum ownership structure
• determination of optimum financing structure.

Risk management

	identification and understanding of risks to IPPs
	quantification and timing of :
	development period risks construction period risks
	operating period risks
	risk mitigation and optimal risk allocation.

Power purchase agreements

	Preparation of PPAs between:
	IPP and utility IPP and wheeling company wheeling company and utility IPP or wheeling company and private customers
	preparation of PPAs, to include:
	capacity and energy tariffs
	power wheeling arrangements
	pass through events performance requirements account settlement procedures disputes, default, termination, indemnification and arbitration clauses risk mitigation and allocation measures power and energy metering methods operation and maintenance requirements scheduling and despatch procedures procedures for maintenance of records
	assist clients with PPA negotiations.