3.4 Pricing SPS Produced Energy at the Incremental Cost of Alternative Generation 3.4.1 Introduction If the SPS is purchased and operated by an independent corporation, and the energy sold to an operating utility or consortium of utilities without a fixed term purchase agreement, the price of the electrical energy to the utilities would have to be competitive with the incremental costs of alternative generation if the SPS is to be used to meet the base load. The incremental cost of the conventional generation would depend on the mix of different generation equipment in the power pool and the cost of the primary fuel. The question is, if the SPS generated energy were priced at the incremental costs of the base load alternatives, what type of economic pressures would be experienced by the corporation owning the SPS? How much of a return on the stockholder's investment would the corporation be able to pay under these circumstances, and what would be the repayment schedule? These questions would be best answered by examining the cash flow of the hypothetical corporation. Under certain economic conditions, it is possible for the corporation that owns the SPS to sell energy to the utilities at a price slightly less than the incremental cost associated with conventional generators and still allow for capital recovery and a reasonable rate of return to its stock/bond holders. However, the ability to every pay dividends would depend on the federal government's inability to control inflation. Even if it is eventually possible to recover all of the SPS capital costs, it will not be possible to begin repaying the stock/bond holders until after the year 2010. The risks associated with this type of pricing scheme are likely to be too high for any private corporation; only the federal government is able to assume such a risk. When the SPS begins operation in 1994, the parent corporation will owe their stock and/or bond holders approximately $7.6 billion (1974), "Space-Based Solar Power Conversion and Delivery Systems Study - Interim Summary Report", by ECON, Inc., Report No. 76-145-IB, March, 1976.
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