Please Explain !
Why Jaks Hai Duong Power plant made more money when coal price rocketed ? Explanation simplified !
Everyone is worried that rocketing coal price will hurt the operability of coal power plants like Jaks Hai Duong Coal Power Plant (JHDP) BUT JHDP posted highest operating profit in Q3 2021 !
Lucky for us that Just88 shared the explanation provided by DK who has undisputed indepth knowledge on coal power plant under BOT contracts in Vietnam. His prediction of RM196m profit sharing from JHDP is a very close call. It is unfortunate that DK had to leave i3 due to the rampant personal attacks on him.
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Stock: [JAKS]: JAKS RESOURCES BHD
(The following is shared here with DK's permission) |
Stock: [JAKS]: JAKS RESOURCES BHD
Oct 7, 2021 7:16 PM | Report Abuse
(The following is shared here with DK's permission)
Dear Just88,
I refer to your email on the question regarding the impact of coal prices on JHDP, my understanding of the coal pass through mechanism is such that the power plant operator is given an agreed target heat rate to generate each Kwh of electricity. The power plant has to operate within the targeted heat rate in order to generate energy profit through energy payment.
Eg : Agreed heat rate = 9500BTU / Kwh
Assuming the average price of the coal purchased by JHDP during a particular billing period is USD100 per ton and each ton of coal is tested to have 20m BTU. Hence, the cost of each BTU is USD100/20m = USD0.000005 for this billing period. Therefore, agreed heat rate of 9500BTU/Kwh means that Vietnam EVN will pay JHDP USD0.0475 per Kwh electricity generated (USD0.000005 x 9500) during this billing period. If JHDP is able to achieve lower heat rate of say 9000btu/kwh, it is able to make USD0.0025 per Kwh electricity generated (500btu x 0.000005).
Therefore, higher coal prices mean higher energy profit due to higher price per BTU. This is provided the power plant is able to achieve the targeted plant efficiency. Ie achieving lower than agreed heat rate in generating electricity.
I hope the above clarifies.
Thank you
DK
For now, I concur with the explanation provided by DK until someone comes up with a more logical explanation.
I will try to explain DK's logic using a simple example of hiring a Taxi.
The contract is much the same as one where a tourist agreed to hire a taxi full time for a fixed monthly sum plus an agreed fuel consumption rebate (eg 0.1 litre petrol) for every kilometer journey travelled.
At the end of each month, the taxi driver will prepare his invoice as follows;
| Charges | Average Petrol Price | Amount (RM) |
| Taxi Rental Charges | fixed | 3,000 |
| Fuel Charges for e.g 2,000km x 0.1 litre petrol ron97 = 200 litres | RM 2.50 | 500 |
Assuming the taxi driver is able to control its taxi's fuel comsumption rate at 0.08 litre for each kilometer travelled, he is able to make additional profit on the fuel charges due to petrol savings. In this example, his actual petrol comsumption is 2,000km x 0.08 litre = 160 litres, actual cost is RM400. Hence, he made extra RM100 on fuel savings of 40 litres.
Fuel charges = 200 litres x RM2.50 = RM500
Actual Cost = 160 litres x RM2.50 = RM400
Fuel savings/profit = RM500 - RM400 = RM100
What if the petrol price is RM3 per litre ? His gain will be 40 litres x RM3 = RM120. Hence, the logic of higher fuel price higher profit.
However, there is an important caveat, the taxi must not consume more than 0.1 litre per kilometer journey. Otherwise, the effect will be negative. Higher fuel price bigger losses.
After some deep thoughts, I began to appreciate the rationale behind DK's explanation. This is a win-win arrangement between JHDP and the Vietnam Government. The Vietnam government is assured that it will not overpay for inefficient power plants and JHDP is protected against fuel cost fluctuations as well as incentivised to keep its power plant in the most efficent operating conditions.
Thank you.
This article is purely for educational purposes. This is not a buy or sell recommendation ! You should consult your dealers or remisiers before making any decision.
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Discussions
3 people like this. Showing 14 of 14 comments
Inefficiency tends to increase as the power plant aged due to wear and tear of equipments, parts and machineries. After certain timeline, the company would need to prepare capex to perform periodic maintenance to ensure efficiency remains at certain%.
2022-01-04 10:08
Forget about Jaks coal fired power plant
USA already find fault with Malaysia glove on Esg concern
USA is turning to Renewable energy and might impose ban on nations using polluting coal fired power plant in future
https://www.youtube.com/watch?v=STK2EIvOFj8
2022-01-04 13:28
Calvin Tan, do you know USA has 246 coal fired plants? How do they ban others for using coal when they have so many themselves? Don't simply spit out nonsense without checking facts.
https://en.wikipedia.org/wiki/List_of_coal-fired_power_stations_in_the_United_States
2022-01-04 14:25
If US is so concerned about climate change. They need to ban bitcoin/crypto already like China did.
A small data center has been set up next to a coal-fired power plant in Missouri to mine Bitcoin.
https://www.datacenterdynamics.com/en/news/ameren-deploys-bitcoin-mining-data-center-at-coal-power-plant/
A Bitcoin miner is buying power plants to mine crypto now
https://sea.mashable.com/tech/17647/a-bitcoin-miner-is-buying-power-plants-to-mine-crypto-now
2022-01-04 14:38
This uncensored is siding with the most evil country in the world, the USA, who have more than 850 war bases around the world & have killed million & million of innocent people by conducting wars in various countries loh!
This naive uncensored is a stooge to USA and he want lecture us on evil ah ?? This is a big hypocrisy mah!
He should go back & study loh!
China different loh, it is a great nation & never interfere & attack other nations mah!
China love & protect its people loh!
Do not believe or manipulated by evil uncensored loh!
2022-01-04 14:40
Leave politics aside, ESG is for Now and our future generation.
In theory, energy input equals output plus losses. If the optimum is already 9500 BTU/kWH, it will only get worse with equipment aging due to efficiency losses. More pollution will be created with less efficient equipment.
Taking the Taxi as an example, 1 month might not see aging of the Taxi and congestion on the road. What happens after 5, 10 or 25 years later? It will get worse, action shall be taken as soon as possible. Go Green as soon as possible.
JAKS made the right move to go into green energy, instead of relying on coal power plants. Whoever follows Glasgow COP26 will know how green energy will be produced at a lower cost and more efficient in the near future compared with coal power plants. Many countries have already taken the decision of not building new coal power plants, retiring or converting existing coal power plants to other energy feedstock..
Happy trading.
2022-01-04 15:10
The point for solar...is that u generate power during the day mah!
What happen at nite leh ?
2022-01-04 15:30
Hi stockraider, now everything go hybrid, day time power generation stored by very efficient battery system..for night time use.
2022-01-04 15:58
I won't take the Chinese partner as ignorance as many of us here not to understand the physics of coal power plant and left out the aging factor in its negotiation with the Vietnamese government.
2022-01-05 20:57
What I know about typical IPP contract in Malaysia:
1) Contract 20 - 25 years.
2) Buyer to decide when to connect or not to the power grid.
3) If connected, Seller will get more revenue and profit.
4) If not connected, Seller to pay a fixed amount provided the plant is ready to be connected, Seller revenue and profit will be minimum.
5) End of contract, two alternatives, both Buyer and Seller can agree to extend with new rate, or Buyer take over and pay an amount as per the contract.
6) Fuel is cost plus basis.
So my concern is during the long 20+/- years:
1) If there is many new local IPP in future, foreign IPP will be the last one to be connected, is there any provision in the Contract to protect foreign IPP?
2022-01-07 08:09
i3gambler, JHDP is guaranteed capacity payment for 25 years and capacity payment makes up 80% of the total tariff payment.
2022-01-07 08:57
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How you know JHDP is able to achieve lower heat rate?
This is provided the power plant is able to achieve the targeted plant efficiency. Ie achieving lower than agreed heat rate in generating electricity
2022-01-04 09:43