The Virgin Islands Water and Power Authority
Contact: Jerain Fleming, Public Information Officer
340-774-3552 extension 2065 or 340-244-1245
November 20, 2014
WAPA Announces Updated Budget for Propane Conversion Project
Anticipated 30% Fuel Cost Savings will Not be Impacted by New Budget
Today the Virgin Islands Water and Power Authority (WAPA) and Vitol, WAPA’s partner and supplier for the propane conversion project, announced an updated project budget. The revised budget, for the projects on St. Thomas and St. Croix, does not impact the benefits of the propane conversion for the Territory. WAPA’s use of propane is still expected to begin in the first quarter of 2015.
Since signing the initial contract in July 2013 the project partners have implemented an aggressive schedule to deliver the benefits of the propane conversion to the Territory as soon as possible. The project commenced with an initial estimated project budget before the front end engineering and design (FEED) was complete. Following the completion of the FEED, the project leadership anticipated needed adjustments to the budget. The need for the adjustment to the project budget was realized as unforeseen complications arose. These complications have resulted in the need to increase the project budget. The new total project budget is $150 million.
It is important to note, that although the project’s costs have increased, customer savings from the switch to propane will not be impacted. WAPA remains committed to maintaining savings for all customers, and fuel costs will still be reduced 30% due to the conversion from fuel oil to propane. These fuel cost savings will be passed along directly to customers.
Commenting on the revised budget WAPA Executive Director Hugo V. Hodge Jr. said, “I want to assure our customers that the adjusted project budget will not impact the amount of savings expected for WAPA customers, or the improvements to air quality that the conversion project will deliver for the territory. We continue to anticipate a 30% reduction in the cost of fuel and a 20% reduction in greenhouse gas emissions. While the amortization period will be longer, the economic and environmental benefits will not be forfeited. We continue to look forward with great anticipation to providing these benefits to the community as soon as possible.”
The increased cost of the project is being shared by the project partners, WAPA and Vitol. Vitol is still paying all upfront costs and WAPA will now repay Vitol according to a new amortization schedule. WAPA and Vitol had previously agreed to an amortization period of seven years with the option to complete payment in five years. The amortization period has been extended to ten years, with the option to complete payment in seven years.
The primary reasons for the project cost increase are improvements in the scope of the project and the cost of permitting and materials to complete the project. For example, the offshore propane storage vessel will now be held in place using a permanent mooring instead of being anchored in place. This is a safer and more secure way to keep the fuel in place during periods of inclement weather. Another driver of the cost increase was undocumented soil conditions and underground obstacles at the St. Croix site. On St. Thomas the volume of rock needed to be removed from the site was far greater than anticipated. Weather-related delays, maintenance, and clean-up after storms have also impacted the project budget.
On July 25, 2013, WAPA signed a contract with Vitol Virgin Islands Corporation to build the infrastructure needed to handle and store propane, and to convert seven of WAPA’s existing GE turbines to burn propane. The project is expected to reduce WAPA’s fuel cost by approximately 30%, or $90 million annually, which will be realized by ratepayers. The project will also reduce emissions of greenhouse gases by approximately 20% and greatly reduce emissions of particulate matter from both power plants. The preliminary budget estimate for the project was $87 million. That number was determined before final front end engineering and design (FEED) work was completed, and before permitting activities had begun. The project always envisioned adjustments to this number following the FEED process.
The recommended safety distance between a property line and an industrial propane storage tank is 30 meters, approximately 98 feet. At WAPA’s St. Croix power plant new propane storage tanks are being installed 106 feet from the nearest fence line, which is greater than the recommended safety distance.
For maximum safety the propane storage tanks are being buried and encased in concrete mounds, which will serve as a barricade and protect the tanks in any type of hazardous situation, such as a hurricane or earthquake. The distance from the outer wall of the mound to the Authority’s property line is 70 feet, and the distance from the wall to the nearest storage tank inside the mound is 36 feet, bringing the total distance to 106 feet, well above the minimum safety distance. Furthermore, there is an additional 20 feet from WAPA’s property line to the nearest building.
The St. Croix facility will also be equipped with gas monitoring and leak detection systems so that if a leak or breach occurs it will be identified and stopped immediately. The project engineers and designers also commissioned an independent “Fire Risk Assessment and Hazardous Area Classification” study, to help guide design of the propane tank storage facilities safety features. All of the recommendations from this study are being implemented.
WAPA’s propane conversion projects on St. Croix and St. Thomas are an important improvement for the USVI. The new facilities will help WAPA lower power bills for all residents, provide reliable power and help keep the community safe.
The USVI Water and Power Authority (WAPA) project to use propane as the primary fuel for power generation is making great progress. The use of propone instead of fuel oil, which is linked to the global price of crude oil, will result in significant savings for customers, as well as environmental benefits for the community. Even with recently falling crude oil prices the conversion to propane will still bring significant savings to the USVI.
WAPA’s propane supply is linked to the Monte Belvieu, TX propane spot price index which was $0.88 per gallon on October 20, 2014. Current and historical Mont Belvieu prices can be found here. WAPA will pay the price at Mont Belvieu plus transportation and delivery costs. Accounting for all costs, including the costs of the project, Propane is still more affordable than fuel oil.
However, WAPA’s project will give the USVI flexibility because the plants will maintain the ability to use fuel oil if that fuel becomes more economic compared to propane. As we know the price of fuel oil can fluctuate dramatically because it is linked to crude oil prices that are susceptible to extreme price volatility from factors such as weather-related incidents, geopolitical events or global macro-economic trends. For example, in 2008, the price of crude oil reached a record high of $145 in July and subsequently dropped to $30 a barrel in December. While the current crude oil price stands at around $85 a barrel, fluctuating prices brings a great deal of uncertainty to energy suppliers, which translates into higher energy costs for residents and small businesses.
For now we expect propane to remain the clear fuel of choice for the USVI because of the cost savings it will provide to customers. However, WAPA is constantly monitoring energy markets and we will have the ability to make changes if needed.