Jagdeo pulling numbers out of thin air to justify US$2 billion Wales gas plant – Engineer

Oct 09, 2022 News

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…believes new costs to generate power may triple

…challenges Jagdeo, economists to prove otherwise  

By Davina Bagot

Kaieteur News – An engineer with over 50 years of expertise is challenging Vice President Bharrat Jagdeo’s figures as it relates to the cost to generate electricity via the US$2 billion Wales gas-to-energy (GTE) project.

In the absence of any new feasibility studies for the venture – even though the cost has significantly increased from US$478 million to US$2 billion – Jagdeo said he “estimates” the project to generate electricity and distribute same at US$0.15 cents per kilowatt hour (KWH).

He explained during a press conference in June that while the five US cents per kilowatt hour may be the cost to generate the electricity, another five cents may be lost in the transmission and distribution of the power. This could take the final price for the sale of the electricity to about US$0.15 cents, after adding five US cents as profits for the company.

However, Mr. Fitzroy Fletcher, a Jamaica-born engineer does not agree with these “estimates” as provided by the VP. In fact, the specialist, who graduated from the University of the West Indies in 1969 and later achieved an MBA from the University of Toronto in 1974, has provided a detailed analysis of the project explaining that its intent of lowering electricity costs by 50 percent will not be possible considering the new developments.

In an interview with this newspaper, Fletcher noted that Energy Narrative (EN), the consultancy firm that conducted a pre-feasibility study for the gas project, concluded that the pipeline and NGL plant would cost an estimated US$450 million and the Guyana Power and Light Inc. (GPL) would generate electricity at approximately 8.5 US cents per KWh, which would be about a 40 percent reduction on GPL’s generating costs when the world market price of crude oil was approximately USD60.00 per barrel.

Now that the cost of the pipeline alone has increased to US$1.3 billion, Fletcher reasoned that this mammoth increase, would necessarily drive up the cost of gas supplied to GPL, and consequentially, place the viability of the project in jeopardy.

To this end, he pointed out, “The Government’s estimates that with the latest pipeline cost, the cost of generating power by GPL would be less than the EN estimate of 8.5 US cents per KWh, and be as low as 4 or 5 US cents per KWh, appear to be figures drawn out of a hat, and wishful thinking.”

The engineer explained that the EN study, which relied on their international experience, and assessment of locally supplied data, including GPL’s financial and accounting records, provided valuable information in arriving at their conclusions. This study estimated that at a pipeline and NGL plant construction cost of US$450 million, the cost of the energy supplied to GPL would be approximately USD3.50 per million British Thermal Unit (BTU), Fletcher noted.

He went on to point out, “A straightforward calculation, using the latest pipeline cost, the projected pipeline lifespan of 25 years, and, a cost of capital of 10 percent, would increase the energy cost to GPL to USD7.80 per million BTU. This dramatic increase of GPL’s energy costs, and factoring in the information that energy normally averages about 65 percent of generating costs, would result in GPL generating power at approximately 15 US cents per KWh. An increase of this order would obliterate any benefit of using natural gas.”

Notably, Jagdeo said that the US15 cents would be the total cost to generate the power, make a profit and cater for losses during the transmission phase. However, Fletcher has made the point that US15 cents would merely be the cost to generate the electricity, given the new price difference.

The engineer said the conclusion that the pipeline is not feasible can be arrived at even without using the EN study. He explained, “Data about the pipeline that is in the public domain tells us that the pipeline transporting 50 million cubic feet of gas per day would be required to power the new 300 MW plant. That translates to 10 cubic feet of gas to produce one KWh of electrical energy, assuming a 70 percent average utilisation of the new plant. Using a rounded figure of USD8.00 per million BTU as the cost of energy supplied by the pipeline to GPL; the cost of energy to produce a KWh works out at 8.0 US cents per KWh.”

In explaining his logic, the engineer defined the formula he used to arrive at his conclusion. He said that the bids received for the power plant so far are between US$500 million and US$700 million. Therefore, using a US$600 million estimate, Fletcher noted he then inserted the capital cost.

According to him, “To arrive at GPL’s overall power generating cost, two other cost areas must be added. These are the cost of the capital investment, and, the operating and maintenance (O&M) cost. The capital cost per KWh is calculated at 3.5 US cents per KWh, using the US$600 million capital cost, a 30-year lifespan of the plant and a 10 percent cost of capital. O&M costs are often estimated at about 20 percent of total costs. The total power generating cost of GPL, with the above figures totals about 13.5 US cents per KWh, which is almost triple the 4 or 5 US cents announced by the Government.”

To this end, the engineer told Kaieteur News that the costs associated with developing the GTE project have escalated too much therefore rendering the project no longer feasible.

Fletcher has challenged both the Vice President and economists to prove his estimates wrong regarding the project.

Back in June when Jagdeo was questioned about the feasibility of the venture, he explained, “We are doing estimates. We are saying US$1 billion now for the pipeline. That is where we run the numbers. So assuming it comes in at US$900 million, then if it comes in that will come down; the US$1.6 cents will come down to about US$ 1.4 cents so it comes down lower. If it goes to US$1.1 billion, it may go to US$1.7 cents…that’s just the pipeline part…then if you estimate the power plant and the NGL facility to be about US$700 million… that will add another one point something cents per kilowatt hour.”
VP Jagdeo said that if one were to consider estimates for paying for the pipeline, NGL and power plant, it can come down as low as four cents to about five cents per kilowatt hour. He said this would be paid back over 20 years.

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