Polar Works-Inlet Cooling Technology Overview-Economics and Financing-Out Sourcing

Economics and Financing

Out-Sourcing

Some companies are reluctant to out-source any services at their plants; other companies out-source aggressively. Some services that are commonly out-sourced are water treatment, O&M personnel, and outage overhauls.

Some companies look at out-sourcing as something of an insult. To them, it's an admission that an outside company can do something better than they can. This outlook can be taken as a matter of pride for being the best. However, this pride can sometimes be misplaced, and can result in failure to capture developing opportunities. At Polar Works, it is our job to show you that taking on an inlet cooling project as a B/O/O structure can be better than doing it yourself. Here's why.

If a company is putting up its own capital to finance a project, then the internally high cost of capital (being equity-based, let's assume 30% interest) will apply to the project. It is very unlikely that the company had put up all the capital for building the original power plant, so it shouldn't have to put up all the capital for this capacity augmentation either. When Polar Works finances the project as if it were its own power project, we can bring in lower-cost capital in a debt structure. This increases the financing horizon of the project, allowing us to amortize the capital over a longer period. This translates into a lower cost of the service, allowing more of the incremental cash flow to return to the site owner in those critical early years of a project, when summer electrical prices might be volatile and extraordinarily profitable, as is being seen in so many areas of the country.

So to those companies that might see the Polar Works' B/O/O structure as an intrusion to their financial or operating autonomy, we aren't saying that we can own and operate the project any better than they can. We are saying, though, that we can provide the highest project cash flows during those times of critical summer power shortages. We do this by taking a longer view of project financing, working as a long-term partner in these plants' success.

Further, we can streamline the technology acquisition process by self-financing the project. This is especially critical during these periods of diminished summer reserve margin, which are causing such a dramatic increase in spark spread...