Digest Number 509

> Charles: Do you anticipate that the L1 SPS demo would have an
ROI of
> 100:1 ? What kinds of cash flows do you imagine would accrue
from such
> a demo?
>
> Ron
> *******

I can categorically state that we won't be looking at a ROI of 100:1!

Here are some facts to work with.

The capital cost of power plants tends to the dollar/watt range for
plants in the 100MW to 2GW range.

Fuel costs are extra. I'm sorry I can't provide the data on the fuel
cost component of operational expenses but I've lost my data. If
you're really interested it shouldn't be too hard to find out how
much energy is released from oil, natural gas, coal.

We know that the wholesale cost of electricity is in the range of 2-
4 cents per kW/hr.

So if you have a modest SPS of 1GW, it could produce a revenue
stream of $175.2 - $350.4 million dollars per year.

Using O'Neill's figures for the mass of a SPS, 10 kg per kW, the 1
GW SPS would mass at 10,000 tonnes.

Granted these are all disparate facts, but my analysis is that the
capital cost could exceed the earth-based plants because the fuel
cost would be non-existent, so I'll double the capital cost
allowance. Subtracting from this capital cost is the lease for the
rectenna land (5 mile radius), which shooting from the hip, we
should be able to find a dual use lease rate of $1,000/acre per
year, which at $50,200,000 per year translates to a cost of
$0.0057/kW/hr.

So, two factors become clear at this stage. 1.) The capital cost of
a 1 GW SPS should be be no more than 2 billion dollars. 2.)
O'Neill's figures indicate that the mass should be 10,000 tonnes but
it's difficult for me to determine the mass breakdown between PC
cells, transmitter/klystron, support structure, or alternative to PV
a solar thermal system, so I'm just going to assume the material
cost to be the same as on Earth, $1/kW and the other dollar will be
for our orbital infrastructure. More appropriately for our pilot
plant project, let's assume that the 10,000 tonnes is lifted from
earth at a cost of $500/kg, for a total lift cost of $5 billion, on
top of the plant cost of $1 billion. So, the pilot SPS is 6 times
more expensive than an Earth alternative with no allowance made for
orbital construction costs.

I don't have the time to do a sophisticated financial analysis,
though you do raise an interesting topic. But if we do a simple
discounted cash flow analysis assuming an infinite series cash flow
of $300 million/year ($0.04 kW/hr) at a high risk cost of capital of
35%, then the 1 GW SPS should cost no more than $857 million.
Clearly the SPS demonstrator will be a losing investment.

But as a pilot project it doesn't have to be judged by investment
standards. If the technology works out, then the risk to the capital
will diminish and if long term bonds are issued (personally I'd like
to see 100 year bonds come back to the market in a significant
fashion - think about how little deprection there would be of
orbital assets,) then we may be safe to assume a capital cost of 9%,
resulting in a maximum SPS cost of $3.33 billion dollars. Now we're
in the game. VERY SIMPLISTIC ANALYSIS FOLLOWS: For each SPS we have
$2.33 billion to offset the cost of the orbital infrastructre. Or
put another way, every 10 GW SPS could be competitively priced at
$20 billion, the SPS operator would earn a profit identical to their
Earth based competitors, the future cash flow could be sold and the
remaining $13.33 billion could be invested in orbital infrastructure
to earn, or lose, whatever return can be extracted from other
ventures.

Further, if we assume an aggressive posture in terms of capturing
market share by pushing for environmental penalties for pollutors,
and by lowering our wholesale rate at a steady 1% real dollar cost
per year, then our SPS can cost no more than $2.97 billion but will
create greater demand for more SPS units.

Of course this whole analysis is built on a house of cards series of
assumptions which I can't support and was done very quickly, but
whatever numbers you choose for your own analysis, what is clear is
that the amortization of the orbital industrialization structure
must be borne by many SPSs. Then we're looking at a profitable
industry. A few SPS can't support the mining, refining, fabrication,
fuel extraction, farming, housing, etc that we'll need in orbit.

Hope this helps.

TangoMan