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Reseach skill exam_paper_suardi_nur


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Reseach skill exam_paper_suardi_nur

  1. 1. Seulawah Agam Geothermal Power Plant Development: The Economic Rationale and Competitiveness With Coal Based Power Plant Suardi Nur M.Sc Program of Renewable Energy Management Albert-Ludwigs University of Freiburg email ABSTRACT This paper presents a comparative overview of the economic rationality and competitiveness related to the development Seulawah Agam geothermal power plant with a coal based power plant in same installed capacity. The cost and economic benefits that will be evaluated are capital cost, operational and maintenance cost (OM), environmental damage externality cost and global environment benefits from CO2 emission trading. The results imply that Seulawah Agam geothermal power plant is less competitive to a coal based power plant without including environmental damage externality cost. It will be more competitive when benefit from CO2 emission trading also included. Keywords : Geothermal energy . Coal based power plant . Enviromental cost. CO2 emission. Economic competitiveness 1. INTRODUCTION Indonesia has biggest geothermal potential in the world with 27.000 MWe or nearly equivalent to 40 % world potential that spread in 151 locations (DESDM, 2006). According to a study from Engineering and Consulting Firm Association Japan 2008, from that number only 857 MW has been utilized. One of the potential is Seulawah Agam geothermal field. It is located in District Aceh Besar Province of Aceh. Based on Sinclair Knight Merz (SKM) Workshop Report on Seulawah Agam Development 2008, the Seulawah Agam volcano has potential to generate electricity up to 100 MW. 1
  2. 2. Figure 1 : Seulawah Agam mountain location Source : Final Report of Seulawah Agam Geothermal Workshop The current state of project is on tendering process. In 2009, in order to accelerate the development of the project German Government has allocated a 7 million Euro grant that will be used for exploration risk mitigating. Beside that, for exploitation and utilization Phase I, 40 MW of Geothermal Power Plant, the German Government and the German Development Bank (KfW) will provide the concessional loan 54 million and 24 million Euro respectively. Until December 2009, before Indonesian Government issued Regulation of Ministry of Energy and Mineral Resources concerning the electricity tariff from geothermal power plant, high investment cost and inappropriate feed in tariff has slowed down the development of geothermal resources in Indonesia (Wijaya, 2006). Another factor is the overabundance of other primary energy resources availability especially coal that led to the lower operational cost of coal-based power plant. Based on those facts, a geothermal power plant is considered uncompetitive to a coal-based power plant. 2
  3. 3. The objective of this paper is to view economic rationale and economic competitiveness of Seulawah Agam geothermal power plant development respect to a coal-based power plant with similar installed capacity. The aspects that will be evaluated are capital cost, operational and maintenance (OM) cost, environmental damage cost and the global environment benefit from carbon credit trading. The reason to choose Seulawah Agam Geothermal Power Plant as a case is by considering that the energy requirement in this area traditionally met by fossil fuel mainly oil, gas and coal (kfw-entwicklungsbank, 2009). Seulawah Agam geothermal power plant project will use the new generation engines with the low emission, therefore this project will help Indonesia to develop more environmental friendly energy generation in order to mitigate the climate change (bappenas, 2009). Furthermore, the development of Seulawah Agam serves as a pilot case for the development of geothermal energy for power production, particularly in the Province of Aceh, applying ordiance 27/2003, the Government Implementing Regulation 59/2007 and ordinance 11/2006 through a Public Private Partnership (PPP) approach. 2. LITERATURE REVIEW Energy sector contributes three quarter of CO2 emission volume (Hammons, 2005). The combustion of fossil fuel is responsible for most of anthropogenic green house gas emission. Therefore, the utilization of renewable energy resources will be in favor than fossil energy resources (Nugroho, 2005). Geothermal energy is the best choice due to emission reduction in energy production, but geothermal energy needs to be competitive with the price of fossil fuel sources (Fauzi, et al, 2000). The high availability of coal resources over the world put environmental concerns to be resolved. A coal power plant particularly will produce pollutants like SOx, NOx, particulates and heavy metals (Ziock, et al, xxxx). In term greenhouse gases emission not only CO2 emission from coal power plant is considered, but also NOx emission. Electricity sector is responsible for 20% of NOx 3
  4. 4. emission in United States (Burtraw, 2003). NOx is considered as indirect greenhouse gases (GHGs), which influence climate by altering levels of direct species and it’s very complex to represent NOx emission into CO2 equivalent (Delucchi, 2007). From coal burning the span of range emission is very large, which span 4 – 113 g SO2/kg coal for china and 8 – 16 g SO2/ kg coal for India and value for NOx are more consistent for both countries span 5 -12 g/ kg coal (Shindell, 2009) In 2007, Global Environment Facility (GEF) has assessed economical competitiveness of 51 geothermal field in Indonesia with total potential 13,824 MW to coal power plants. The results show 662 MW of geothermal energy economically justified if environmental benefits are excluded (business as usual), 2,442 MW of geothermal power is economically justified if local environmental benefits (reduced TSP, SO2, and NOx emission) were considered, and 9,669 MW were justified if both local and global environmental benefits are incorporated. 3. ASSESSMENT METHOD The data will be used are from Geothermal Development Project Proposal in Indonesia (GEF, 2008). All costs are assumed to be economic costs, i.e. exclusive of taxes and duties. The coal price is based on international prices. The methodology consists of following steps: 1. The estimation of capital, operational and maintenance cost of coal based power plant. 2. The estimation of capital, operational and maintenance cost of Seulawah Agam geothermal power plant. 3. The estimation of local environmental damage cost of coal based power plant. 4. The estimation of global environment impact of geothermal power plant justified by avoidance CO2 emission. 4
  5. 5. Major assumptions For Coal Based Power Plant: Table 1 : Basic assumption parameters for coal based power plant - Capital cost ($/kW) * 1000 - O & M cost ( $/ kW – year) 45 - Plant efficiency (net, %) 36 - Economic life (year) 25 - Capacity factor (%) 75 - Coal price ($/ton) 30 - Coal quality LHV (kcal/kg) 4,800 Sulfur content (%) 0.23 Ash/ TSP content (%) 3.3 Carbon content (%) 60 - Emission removal efficiency TSP/ Particulate (%) 95 SO2 (%) 0 - Economic life (year) 25 *FDD is not installed Source : Global Environment Facility (GEF) Based on this data we can calculate the capital, operational and maintenance cost (including fuel cost). The following additional data is needed in order to the local environmental damage externality cost. There are several methods can be used to estimate the local environmental externality cost from a coal based power generation (GEF, 2008): • The first method is by estimated the cost of damage directly caused by air pollution, including for example, health cost due to pollution and agriculture losses because of acid rain, etc. • Another alternative is by estimated the cost needed for investing and maintaining the facility to avoid the pollution. Each of these methods needs extensive data, which is not available in Indonesia. Therefore, the costs associated with pollution in developing countries are often estimated using the benefit transfer method. This method adjusting the cost in one country to be applicable in another country is 5
  6. 6. commonly by comparing the ratio of GDP or PPP per capita between those countries (GEF, 2008). Table 2: Externality cost estimation in Indonesia Country PPP per capita Pollutants Reference Price Externality Cost In 2006 ($) ($/ ton) ($/ ton) Indonesia 3,950 TSP 1,807 (China) 555.6 US 44,260 SO2 1,000 (US) 89.2 China 7,730 NOx 1,800 (US) 160.6 Source : Source : Global Environment Facility (GEF) In table 1, nitrogen content in coals is not given. Therefore, data from Cooperative Research Centre for Coal in Sustainable Development (CCSD) will be used. The coal contents 1.5 - 2.0 % of nitrogen and the percentage 1.5% of nitrogen will be used in this paper and also assumed that every kilogram of coal will produce 4 gram SO2 and 5 gram NOx (Shindell, 2009). For CO2 greenhouse gases (GHGs) emission, data from National Power Company (PLN) will be used. Every 1 kWh generation of electricity resulted from coal will produce 0.787 kgCO2 and for indirect NOx gas emission very difficult to be evaluated, therefore will be neglected. For Seulawah Agam geothermal power plant: • The development of installed capacity is 40 MW ( based on proposed project) • The investment cost of Seulawah Agam power plant is 80 euro (based on KfW estimation) • The operational and maintenance cost for geothermal power plan with capacity above 30 MW is 52 US $/ kW (based on GEF data) • The emission from geothermal power plant is much less than coal based power generation • Geothermal power plant normally located far from transmission grid compared with coal based power plant. Therefore the additional cost to build 275 kV transmission line is needed. With assumption it will need 50 km transmission grid and it costs USD 200.000/ km. 6
  7. 7. 4. RESULT The results are divided into three parts, part one describes the competitiveness by only including the Operation and maintenance (OM) cost and capital cost. The second part includes local environmental benefits and the last part includes the estimation of global environmental impacts. 4.1 Operational & Maintenance (OM) and Capital Cost Competitiveness The coal power plant will consume 1.176.900 ton coal with coal price 30 USD/ ton, therefore the operational cost for 25 year will be 37.5 million USD. For maintenance cost is USD 45 million for 25 years. The capital cost for a coal power plant is 40 million. On other hand, Seulawah Agam geothermal power plant needs 80 million Euro investment cost or USD108 million (1 euro = 1.3 USD, Bloomberg Currency, 21.02.2010) and its operational and maintenance cost is for 25 years is USD 52 million. Figure 2 : Capital, operational and maintenance cost competitiveness Capital and O& M Cost Competitiveness 180 160 140 million USD 120 100 Coal Power Plant 80 Geothermal Power Plant 60 40 20 0 Capital O&M Grid Cost Overall 7
  8. 8. For 275 kV transmission grid, Seulawah Agam geothermal power plant will require USD 10 million. The graph illustrates by excluding local environmental benefits, the development of Seulawah Agam geothermal power plant is not competitive with a coal based power plant in same capacity. Seulawah Agam geothermal power plant needs total USD 170 million for investment and operational and maintenance cost compared to only USD 125.5 million coal based power plant. 4.2 Valuation of Environmental Damage Cost Based on calculation, the total of coal needed to fuel the coal power plant for 25 years is 1.176.900 ton. Without Flue Gas Desulphurization (FGD) installed, the burning of that amount coal will produce 4.707 ton of SO2, 194,000 ton of TSP matter (with removal efficiency 95%) and 5.884 ton of NOx. By multiplying these numbers with the externality cost in table.2, a 40 MW coal power plant will cost USD 109 million for environmental externality cost. If this variable included the competitiveness of Seulawah Agam power plant will increase. Figure 2 : Cost rationale of Seulawah Agam power plant development by including environment externality cost The Cost Rationale by Including Environment Externality Cost 250 200 million USD 150 Coal Pow er Plant Geothermal Pow er Plant 100 50 0 Capital O&M Env. Cost Grid Cost Overall 8
  9. 9. 4.3 Global Environment Benefit By excluding indirect NOx GHGs emission, Seulawah Agam geothermal power plant will avoid 5.3 million ton of CO2 emission. The average price of Certificate Reduction Emission (CER) in 2006 is USD 10.9/ ton of CO2. Therefore, Seulawah Agam geothermal power plant will earn benefits as much as USD 57 million for 25 years CO2 emission avoidance. 9
  10. 10. REFERENCES BAPPENAS. (October, 2009). Pembangkit Listrik Geothermal Seulawah Agam. Retrieved on March 12th, 2010 from geotermal-seulawah-agam/ Burtraw, D. Evan, D.A. (2003). The Evolution of NOx Control Policy for Coal-Fired Power Plant in the United States. Retrieved on March 13th, 2010 from Cooperative Research Center for Coal in Sustainable Development (CCSD). (2008). Fuel Nitrogen and NOx Formation, Retrieved on March 12th, 2010 from Delucchi, M. (2007). Project 4 : Indirect Global Warming Potential of NOx Emission. Retrieved on March, 13th, 2010 from Departemen Energi dan Sumber Daya Mineral (DESDM). (Juni, 2006). Rencana Umum Ketenagalistrikan Nasional 2006 – 2026. Jakarta, Indonesia. Engineering and Consulting Firm Association Japan. (March, 2008). Study Report: Pre-Feasibility Study for Geothermal Power Development Projects in Scattered Island of East Indonesia. Retrieved on March 12th, 2010 from Fauzi, A, et al. (June, 2000). Geothermal Development in Indonesia : An Overview of Industry Status and Future Growth. Retrieved on March 12th, 2010 from com/&hl=id&as_sdt=2000 Global Environment Facility (GEF). (2008). Annex 4 : Result of Project Analysis Indonesia Geothermal Power Generation Project. Retrieved on March 12th, 2010 from %20Geothermal%20Power%20Generation.pdf Hammons, T.J (December, 2005). Impact of Electric Power Generation on Green House Gas Emissions in Europe : Russia, Greece, Italy, and Views of EU Power Plant Supply Industry – A Critical Analysis. Retrieved on March 12th, 2010 from KfW Enwicklungsbank. (June, 2009). Programe - Geothermal Energy to Generate Electricity. Retrieved on March 12th, 2010 from http://www.kfw-,_Programmes_and_Projects/A sia/Indonesia/Project_-_Ferry_for_1,500_people.jsp 10
  11. 11. Nugroho, H. (April, 2005). Financing Renewable Energy Utilization in Indonesia : Notes. Retrieved on March 12th, 2010 from d&pathext=ContentExpress/&view=188/Finance-Renewable-2005- Hanan.pdf Shindell, D.T. Faluvegi, G. (2009). The Net Climate Impact of Coal-Fired Power Plant Emission. Retrieved on March, 13th, 2010 from http://www.atmos- Sinclair Knight Merz. (February, 2009). Final Report : Seulawah Agam Geothermal Workshop. Auckland, New Zealand. Wijaya, A.R. (November, 2006). Pengaruh Kebijakan Pemerintah dalam Optimalisasi Pemanfaatan Energi Panas Bumi. Retrieved on March 12th from kebijakan-pemerintah-dalam-optimalisasi-pemanfaatan-energi- panasbumi.pdf Ziock, H.J. Harrison, D.P. (xxxx). Zero Emission Coal Power, a New Concept. Retrieved on March 13th, 2010 from 11