Technical and Financial Analysis
Technical and Financial Analysis – Aug. 2016
The Association to Protect Amherst Island has updated its technical and financial analyses of the proposed Windlectric/Algonquin Power project on Amherst Island. The analyses are based upon the revised project plan which replaced the 33 Siemens 2.3-113 turbines with 26 Siemens noise-reduced 3.2-113 turbines. Approval for the project was given by the Ministry of the Environment and Climate Change in August 2015. One year later construction has yet to begin. In its most recent quarterly report (2016 Q2) Algonquin Power predicts that the 75 MW project will generate 235 GWh per annum, the capital cost will be $272.5 million and the commercial operation date will be sometime in 2018.
The APAI detailed technical analysis predicts instead a long-term average of 150 GWh per annum. This prediction is based upon the Siemens specifications for the power output, the average wind speed for Amherst Island, 7 years of generation data for the province-wide wind energy system and in particular the performance of the nearby Wolfe Island wind energy system. A notable feature to come out of this data is the reduced energy output of wind turbines under realistic meteorological and atmospheric conditions and the decline in the efficiency year-over-year.
With this prediction and the assumption of bank lending for 50% of the project cost at 4.75%, an end-of-operation decommissioning cost of $50 million and conservative assumptions for operation and maintenance costs, tax credits, royalty and other payments, APAI predicts that the internal rate of return will be negative 1%.
There are considerable further risks in undertaking the project. These include the problem of cost over-run, wake-loss of turbine output with the high density project, the mitigation measures to protect the natural and cultural heritage of the island, the likelihood that turbine noise at homes will be out of compliance with provincial regulation, and the fire hazard on an island with a dry micro-climate and limited fire-fighting capability.
For a company with a market capitalization of $3 billion (August 2016), to tie up $300 million of debt and equity for 20 years with a negative return is a considerable burden. Clearly, money has already been invested but the amount is small compared to the annual losses that will accrue if Algonquin Power continues with this project. As the go/no-go deadline looms APAI has encouraged the Board of Algonquin Power to take the technical and financial analyses seriously and to halt the project.
An earlier analysis, based upon the original project description, is fully referenced and includes appendices describing the background for the present APAI prediction of the probable annual energy generation: Economic Report – March 2015.
A detailed technical analysis of the expected annual energy generation of the modified project is given in the following link. It is based upon the Siemens specification for the power output, the average wind speed at the hub height from the Ontario Wind Atlas, a Raleigh distribution of wind speeds about this average and a reduction factor due to real wind conditions: Annual Energy Generation for the Windlectric Amherst Island Wind Energy Project – November 2015
For the financial analysis, together with a copy of the letter sent to the Directors of Algonquin Power, follow this link: Financial Analysis of the Algonquin Power/Windlectric Amherst Island Wind Energy Development
The technical and financial analyses represent the opinion of the Association to Protect Amherst Island only, and represent a good faith effort to promote and protect the public interest relating to the Algonquin Power/Windlectric Amherst Island Wind Energy Proposal.