A feasibility study for the Canadian REV’s Brodarevo 1 and Brodarevo 2 hydroelectric projects on the River Lim in southwest Serbia is completed. Total estimated capital costs are 145 MEUR, according to the feasibility completed by Energoprojekt.
Total capital cost of the project is estimated to be EUR145.83 million, including EUR34.08 million related to the construction of 7.31 kilometres of new road and tunnels on the M21 highway between Prijepolje and Bijelo Polje, where it will be affected by the project.
EHC has recommended a capacity increase from the pre-feasibility of 58.4 MW to 59.1 MW, with a corresponding output of 232.5 GWh/year. The study has also defined dam sites and provided recommendations for the design of the hydroelectric power plants
Electricity Sales & Operating Costs
The Brodarevo 1 and 2 projects have been included in the Italy-Serbia bilateral agreement on renewable energy, whereby Serbia may export green energy into Italy (see Company news release of February 7, 2012). Under the terms of this agreement, all renewable energy produced by approved projects in Serbia and exported to Italy will receive a guaranteed price of EUR155 per MW hour (“MWh”) for a 15-year term. For the purposes of the feasibility study, EHC has used a more conservative net realized price of EUR147.5 per MWh to reflect costs associated with transmitting the power from Serbia to Italy and assumed that the projects will sell electricity into the regional Serbian market following the initial 15-year term at a projected price of EUR80 per MWh.
EHC has estimated annual operating expenses of EUR1.1 million for Brodarevo 1 and EUR1.3 million for Brodarevo 2, for a total of EUR2.4 million per year or EUR10.2 per MWh on average.
Based on EHC’s assumptions and calculations, the after-tax unlevered IRR is estimated to be 13.14% for Brodarevo 1, 16.79% for Brodarevo 2 and 15.07% for the combined projects. The after-tax unlevered NPV of the combined projects at an 8% discount rate is estimated to be EUR98.657 million, and at a 10% discount rate is estimated to be EUR58.797 million.
Reservoir anticipates 30% of the project capital will be financed by equity and intends to obtain debt from a syndicate of lenders for the remaining 70%. For the purposes of the feasibility study, the Company has assumed, based on preliminary discussions with potential lenders, that the debt will have a 15-year term from initial drawdown and be subject to an annual interest rate of 6.5%.
Based on EHC’s assumptions and the capital structure outlined above, the after-tax equity internal rate of return for the combined projects is estimated to be 24.04%. The after-tax levered NPV of the combined projects at an 8% discount rate is estimated to be EUR101.20 million and at a 10% discount rate is estimated to be EUR71.72 million.