P6
In period 1, it is ensured that CP Kelco's investments will be repaid. During this period, the surplus heat is settled at VEKS' substitution price, which means that for the depreciation of CP Kelco's investments, there will be the difference between VEKS' payments for the heat supply and the direct operating costs for heat exchanger and heat pump etc. This period is expected to last 3-4 years. In period 2, it is ensured that VEKS' investments are repaid. During this period, the surplus heat is settled with VEKS, corresponding to the direct operating costs for heat exchanger and heat pump, etc., so that for the depreciation of VEKS' investments, there will be VEKS' substitution price and the difference between VEKS' payments for the heat supply. This period is expected to last about 3 years. In period 3, which starts when both parties' investments have been repaid, the profit is divided between the parties when the surplus heat project has been realized. The profit is determined as the difference between VEKS' substitution price for heat supplied by alternative heat suppliers and the current operating costs for the supply of surplus heat. As previously mentioned, the profit between CP Kelco and VEKS is divided according to their "Budget Net Investments". SUMMARY The surplus heat project has now been in operation for a year and the experience from this has met expectations. Heat production has been slightly lower than expected, which has also characterized the operating costs - thus, it means a better operating result than budgeted. The learning from the project here and now is that for such a project to succeed between such different parties like CP Kelco and VEKS, the secret is: • A good chemistry between the parties involved at all positions of the collaboration. • Open calculations in which each party has the full insight into the counterparty's financial calculations. • Respect for each other's interests. • Trust. If the above framework conditions are present, a good, but also necessary, foundation has been created for a good project and, thus, for a good business for both parties.
Each party prepared a budget for their own investments, freezing each party's share of the investments that would subsequently be included in "Budget Net Investments". This "Budget Net Investment" is subsequently used as a distribution number between the parties for determining the heat price, when both parties' investments have been repaid. After completion of the construction work, each party had to prepare a building account including documentation for costs incurred. The building accounts were to be presented to and approved of by the counterparty. The realized investments should subsequently be included in each party's “Actual Net Investments”, which forms the basis for the length of the repayment periods for the parties' respective investments.
CONSTITUENT PARTS OF THE AGREEMENT - DELIVERY PERIOD
The basis for pricing of the surplus heat depends on which period of the year the supply of surplus heat occurs. A distinction is made between two periods: • "Off-Peak Consumption Periods" are those months of the year when the heat deliveries from CP Kelco alone could be replaced by heat deliveries from the KKV CHP plant - typically 4-5 months. • "Peak Consumption Periods" are those months of the year where the heat deliveries from CP Kelco would have been replaced by heat supplies from AVV1 CHP plant and AVV2 CHP Plants - typically 7-8 months.
CONSTITUENT PARTS OF THE AGREEMENT - SUBSTITUTION PRICE
The substitution price is defined as the price VEKS should have paid for heat deliveries from either KKV CHP, AVV1 CHP or AVV2 CHP Plant, if no surplus heat was supplied from CP Kelco: • In the "Off-Peak Consumption Periods", this means that the substitution price corresponds to the price for heat supplies from the KKV CHP Plant. • In the "Peak Consumption Periods", this means that the substitution price corresponds to the price for heat supplies from AVV1 CHP plant and AVV2 CHP plant.
CONSTITUENT PARTS OF THE AGREEMENT - PRICING OF SURPLUS HEAT
Lars Gullev, lg@veks.dk For further information please contact:
The agreed price for the surplus heat is in the interval between VEKS' substitution price for heat deliveries from alternative heat suppliers and the operating costs for the surplus heat from CP Kelco, including surplus heat taxes.
E N E R G Y A N D E N V I R O N M E N T
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