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<br />that best utilizes the sites power potential, total gross <br />revenues may not be as large as revenues using some <br />other configuration of equipment or civil work. <br /> <br /> <br />A third approach would be a joint venture between the <br />developer and the site owner. Normally, the owner <br />would contribute the value of the site as the basis for <br />an equity position in the overall project. This is <br />attractive to developers since it provides the project <br />with an equity base equal to the value of tlw site <br />itself. It also is attractive when arranging financing <br />for the project, especially where the site is marginal <br />and cash flows in the early years must be used to <br />cover debt service and other direct operating <br />expenses. <br /> <br />In the event a site owner needs the power, a fourth <br />compensation approach might be tried. In this situa- <br />tion, the developer could sell power to the site owner <br />at a lower price than the owner would have paid the <br />local utility. Firms with dams on their property thus <br />convert a liability to an asset without committing <br />capital or bearing a risk. <br /> <br />Negotiation of a Fair Price <br /> <br />Because of the large initial capital investment requir- <br />ed to develop a hydro project, it is essential that any <br />price paid to an owner, either in the form of a royalty <br />or as an absolute purchase, be compatible with the <br />debt service needs of the project. For example, <br />consider the two projects shown in Table 1 on page 15. <br />Project A is clearly a more attractive site. It has a 40 <br />foot head and costs $1,750 per kW to build, while <br />Project B has only a 20 foot head and costs $2,000 per <br />kW. Although Project A costs $3.5 million it produces <br />8.76 GWh while Project B costs $2.0 million but <br />generates only 4.38 G Who <br /> <br />14 <br />