Steve Barwick: Guest Opinion
August 16, 2011
Public discussion about the Castle Creek Energy Center (CCEC) is vital and important, but over the past few months, the discourse has been clouded by misinformation and wrong assumptions. Public discourse must be based on facts. There are two important facts to know about this project: First, it is fiscally responsible; and second, it is designed to protect the rivers while pursuing renewable power production.
The CCEC makes financial sense. The hydro plant has been criticized for not being financially viable. This is untrue, but the statement also represents a misunderstanding of project goals.
The CCEC is a municipal project designed to address multiple goals. First, it is a response to the need for aggressive action on climate change. This plant will replace coal-fired electricity, which equates to the city reducing its carbon footprint by 3,000 tons a year. Second, it will address the city’s goal of providing citizens with energy at a stable price. It’s imperative to remember that in 2007, more than 70 percent of Aspen voters approved the financing and land use for this project.
The city already provides electricity at a low rate because of its past investments in hydroelectric power plants in Maroon Creek and at Ruedi Reservoir. Those investments have proven to be extremely wise as those hydroelectric plants provide the cheapest source of electricity to Aspen’s electric customers. The CCEC is projected to be a similarly wise investment in cheap energy. To be sure, the proposed investment in the CCEC is projected to be long-term. Hydroelectric power plants require investment up front but then have low operating costs, and they have a life span of 75 to 100 years.
The project is estimated to cost $8.2 million in 2011 dollars. This estimated cost includes half of the cost of the emergency drainline/penstock, which will serve as both a drain for the city’s drinking water reservoir and a means to convey water to the hydroelectric plant. The drainline is necessary even if the hydroelectric plant is never built. If the hydroelectric plant is built, however, the drainline will serve an integral role in the plant’s operation.
The project’s entire funding comes from $5.6 million in bonds, a $400,000 CORE grant, $384,000 in cash from the city’s electric fund and $1.9 million in payments derived from future hydroelectric production.
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The city’s financial projections are conservative and the payback is best explained as an internal rate of return (IRR), which is used to measure and compare the profitability of investments. Assuming a useful life of 75 years and accounting for inflation, the project is projected to have an IRR of between 1 percent and 7.3 percent.
Why such a big spread in the IRR projections? That’s simple. There are two factors that impact the revenues of the project: the future cost of electricity it will replace and the amount of electricity the hydroelectric plant will provide. The spread in the IRR projections is a result of different assumptions made in calculating the IRR. The estimated IRR figures were calculated by assuming varying amounts of increases in the cost of wholesale electricity, which the plant will replace; and different scenarios for the operation of the hydroelectric plant, which include “high water” conditions, “low water” conditions and a mid-level operating scenario.
While financial considerations are not the primary reason for this facility, it is possible in the future that there could be several million dollars of additional revenue from the city’s carbon offsets from this project, which are important financially and environmentally.
The CCEC makes environmental sense. The goals of this project are to produce renewable power and protect stream health. They are not mutually exclusive. The city has already set a precedent for operating a hydroelectric power plant in an environmentally friendly manner. The city began studying the Maroon Creek hydrology and environment factors more than 25 years ago in concert with the construction of the existing Maroon Creek hydroelectric plant. After 25-plus years of operation, a recently completed health study of Maroon Creek shows that the downstream fisheries are healthy and there have been absolutely no negative impacts to the creek.
Past success is no guarantee of future performance. The city has taken the unprecedented step of guaranteeing that it will not operate the hydroelectric plant in any manner or at any time that the river’s health is potentially at risk. The city and the Colorado Division of Wildlife have jointly developed a voluntary plan to continuously monitor the creeks for the next decade, to ensure flows, habitats and fisheries remain active and healthy.
For the first three years the plant will operate only from late spring through early fall, when water levels are high. Production will ramp up for years four through six to include additional months. After this, the city will ramp up to full production. If environmental studies conducted during any of these first two scenarios show any degradation in stream health, the city will curtail production of electricity by diverting less water out of the stream, putting the health of the streams first.
This is one of the most, if not the most, carefully conceived plans for the environmentally conscious operation of a traditional hydroelectric plant in the country. This is an uncompromising goal and one that the citizens of Aspen should be proud of.
The CCEC is still under consideration by City Council. The Aspen City Council is expected to take up the issue again in the fall. More information is available at http://www.aspenpitkin.com, including financial scenarios and environmental reports.
Steve Barwick is Aspen’s city manager.
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