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Samsung Deal: Details of Aegent's Analysis

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For our analysis, Aegent made the following assumptions:

• 20-year contract
• Capacity factors (based on total hours in the year) of 28% for wind and 14% for solar, resulting in a total of 5.5 million MWh in total annual generation and 110 million MWh over a 20-year contract (that annual output is equivalent to about 4% of Ontario's current total annual energy consumption)
• "Typical total peak generation" of 935 MW (based on 28% of 2,000 MW of wind plus 75% of 500 MW of solar)
• Base FIT pricing of $135/MWh for onshore wind and $443/MWh for ground-mounted solar projects of 10 MW or less
• Uniform cost-of-living escalator of 2.5% annually, with 20% of this applied to wind payments and none to solar payments (as per FIT price schedule)
• Incremental EDA rates of $10/MWh for wind and $10/MWh for solar (the latter a conservative value)

Other Assumptions and Factors Considered

• Discount Factor

In our analysis, we used a discount factor of 6%, a value we feel is appropriate when discussing public sector finance issues.

• Reference Case

When comparing total FIT plus EDA expenditures, we needed a comparator. As a reference, we chose a non-renewable but still "clean" natural gas-fired generation under contract with the OPA (running on a directed dispatch or must-run basis). Related assumptions were as follows:

• Capacity required (85% availability, to meet 935 MW of "typical total peak") = 1,100 MW
• Plant capacity and fixed cost payment = $150,000/MW/year
• Plant heat rate (combined cycle) = 7.5 MMBtu/MWh
• Natural gas price (initial) = $8.00/MMBtu
• Marginal maintenance (initial) = $4/MWh
• Escalators: CPI = 2.5%, capacity/fixed-cost = 20% of CPI, natural gas and maintenance = 100% of CPI

• Back-Up for Renewables

Opinions vary on this subject, but we've assumed that each MW of "typical total peak generation" will require 0.2 MW of natural gas-fired backup; i.e., 187 MW of natural gas to back up 935 MW of renewables. For this amount of back-up capacity, we used the same plant capacity and fixed-cost assumption as noted above.

• Cost of Enabling Wires Investment

In the government's backgrounder on the deal, they spoke of Hydro One's $2.3 billion investment in transmission and distribution over the next three years. In our analysis, we assumed that $200,000 per MW of enabling wires investment was required and that this type of rate base would result in operating, maintenance and administration costs of $70,000/year per $ million invested. (If the full $2.3 billion were spent on enabling wires investment at $200,000 per MW, it would enable 11,500 MW of new generation.)

In our analysis summary, we present the results with and without the costs for the back-up and enabling wires investment.

• Ontario and Household Energy Consumption

For the province's total annual consumption, we assumed it starts at 140 million MWh per year in year 1 and that it rises at 1% per year, resulting in 169 million MWh per year of total consumption in year 20.

For the typical household consumption, we assumed it starts at 10.8 MWh per year (900 kWh per month) in year 1 and that it decreases by 0.5% per year, resulting in 9.8 MWh per year (about 820 kWh per month) of consumption in year 20.

Results of Analysis

The table immediately below shows the analysis details, for each of the component costs related to the Samsung deal and the natural gas-fired reference case.

	$ million
	20-year total		annual cost, nominal dollars		household cost/year, nominal dollars
	nominal dollars	net present value	year 1	year 20	year 1	year 20
economic development adder (a)	1,150	673	55	60	4.25	3.48
base FIT (b)	19,465	11,397	933	1,015	71.96	58.85
natural gas back-up (c)	590	345	28	31	2.17	1.79
enabling wires investments (d)	736	431	35	39	2.71	2.24
natural gas generation (e)	12,574	7,157	522	752	40.25	43.58

The next table compares the Samsung deal total cost, excluding additional costs for back-up and enabling wires investment, with the natural gas-fired reference case. The comparison inclusive of additional costs is presented in the main article.

	$ million
	20-year total		annual cost, nominal dollars		household cost/year, nominal dollars
	nominal dollars	net present value	year 1	year 20	year 1	year 20
total samsung deal, no additional cost (a+b)	20,615	12,070	988	1,075	76	62
natural gas generation (e)	12,574	7,157	522	752	40	44
additional cost over natural gas generation	8,041	4,913	466	323	36	19

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