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Why is Jaks Hai Duong Power Plant (JHDP) guaranteed to make profit ?



Vietnam News
"Representative of Jaks Power Co., Ltd., the investor unit of Hai Duong BOT Thermal Power Plant, said that at 22:00 on August 7, the company successfully synchronized Unit 1 into the national grid. The company will continue to test the reliability of the grid and carry out evaluation activities to put Unit 1 into commercial operation by the end of September 2020." 
https://zingnews.vn/nha-may-nhiet-dien-bot-hai-duong-van-hanh-thuong-mai-vao-cuoi-thang-9-post1118300.html


Unit 1 of the power plant will start commercial operation by the end of September, but can it make profit in the midst of Covid19 ? 
Absolutely YES as it will receive CAPACITY PAYMENT which is guaranteed by the Vietnam Government.
Explanation;
Jaks Hai Duong Power Plant (JHDP) will receive 2 types of payment from EVN after commercial operation.
  1. Capacity Payment ( Base on Capacity made available) 
  2. Electricity/Energy Payment ( Base on Electricity output)  
This article does not intend to cover electricity/energy payment as it constitutes less than 20% of the expected earnings of the power plant.
Capacity payment = Net dependable capacity x Total charge rate
  • Net dependable capacity is based on testing carried out before the start of an operating year, and
  • Once the Net dependable capacity is determined, a total charge rate base on the power purchase agreement will be applied to calculate the Capacity payment. Total charge rate is the sum of,
  1. Fixed rate per Kwh per year, and
  2. Fixed maintenance charges (Adjusted for inflation), and
  3. Fixed operation charges (Adjusted for inflation)
For Example, 
Assuming;
  • Net dependable capacity = 1,120MW (1,120,000 Kwh)
  • Total charge rate is USD300 per Kwh per year
Capacity payment = 1,120,000 x 300 = USD336m for a particular operating year.
However, if the total outages exceeds the allowance given, liquidated damages will be deducted from the capacity payment.
Note that this capacity payment which is guaranteed by the Vietnam Government, is fixed, predetermined and compulsory regardless of the level of electricity generation.

What does Capacity Paymant cover ?
Capacity payment is the only future cash flow used by the project investors to determine the viability of their investments. Capacity payment is determined to sufficiently cover the followings;
  1. Equity capital
  2. Bank borrowings 
  3. Loan Interest
  4. Fixed maintenance costs
  5. Fixed operation costs
  6. Required Investment returns
Investment returns guidance given by the management is 12% IRR and 8 years payback period.

Conclusion
Therefore, barring unforeseen circumstances, JHDP is guaranteed to deliver the required investment returns to its investors once it achieved commercial operation.
Hope this article has improved your knowledge on the earnings of Jaks Hai Duong Power Plant.

Thank you.
DK
https://klse.i3investor.com/blogs/Jaks%20resources/2020-08-16-story-h1512363018-Jaks_Resources_Why_is_JHDP_Guaranteed_to_Make_Profit.jsp

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