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How the new President Duterte of the Philippines and its new DOE Secretary Cusi can reduce Philippine Electricity Cost – the most expensive power in Asia

May 23rd, 2016 Posted in cost of power generation

How to reduce Philippine Electricity Cost – the most expensive power in Asia – to improve its competitiveness

On various occasions and public debates, there is a unified concern to lower Philippine electricity cost in order to improve the country’s competitiveness in order to attain inclusive economic growth.

However, reducing power costs, such as putting up more cheaper power plants like coal-fired power plants instead of expensive petroleum-based power plants and intermittent renewable energy power technologies have to be balanced with the need to reduce greenhouse gas (CO2), sulfur (SO2), NOX and particulate emission to mitigate climate change and air pollution.

But this would require technical effort, economical approach and environmentally sound action plan that could only be developed through a scientific-based “integrated energy planning”. For such planning to gain wide-spread reach, technical, economic, financial and optimization tools must be within reach by energy and development planners, be it at the level of a community such as off-grid remote areas, river-basin based development regions, island groups, countries, and continents with integrated energy and power networks.

This would require, I believe, easy access to a set of tools and processes that will automate and institutionalize the technical and economic analysis of renewable energy (RE) projects and non-RE projects to determine feasibility, provide inputs to both short-term and long-term optimal dispatch and capacity expansion planning, in order to achieve optimum energy and power generation mix, least cost of energy, lower fuel consumption, reduced GHG emission, sulfur, NOX and particulate emissions and global warming impact of the power industry.

In this regards, I have a complete line of project finance models for renewable energy (biomass, solar PV, wind, mini-hydro, ocean thermal) and conventional fossil (diesel/bunker genset, oil thermal, coal thermal PC, petcoke thermal, gas thermal, geothermal, combined cycle GT, simple cycle GT, large hydro, pumped or storage hydro, nuclear, clean coal CFB and IGCC, WTE, CHP, gasification and pyrolysis, direct combustion, cogeneration for heat and power, and tri-generation for heating, cooling and power), RE-fossil off-grid hybrid energy systems (biomass, solar PV, wind, mini-hydro and diesel/bunker genset) and RE-fossil-energy storage technologies.

It can be very useful in determining the economic feasibility of each power generation technology (calculates the equity and project IRR, NPV and PAYBACK), calculates the first year tariff (non-RE technologies) or feed-in-tariff (FIT rate of RE technologies), selects the most appropriate technology given the nature of the energy/power demand, fuel supply availability, energy resource availability, and determines which technology provides the largest benefit to cost ratio (B/C ratio of gov’t taxes and benefits plus net income to investor to the all-in capital cost of the technology).

The following table summarizes the first year tariff (LRMC) of from the various power generation technologies. The table is sorted from renewable energy to conventional/fossil/nuclear technologies from cheapest to expensive LRMC. The cheapest RE is onshore wind (5.335 PhP/kWh), followed by biomass IGCC (6.380), biomass cogeneration (6.841), biomass direct combustion (6.889), mini-hydro (7.438), 1 mw Solar PV (8.090), 25 mw Solar PV (8.690), biomass gasification or pyrolysis (13.255), offshore wind farm (13.276), biomass WTE (13.338), 10 mw OTEC (14.928) and 50 mw OTEC (15.088)

The RE technologies must enjoy priority dispatch whenever it is available and cannot be stored. There will be merit order to optimize and minimize the SRMC (during short-term optimal dispatch) or minimize the LRMC (during long-term capacity planning).

After RE, the conventional/fossil/nuclear technologies are dispatched using the following merit order: natural gas combined cycle GT (4.423), PC coal ultrasupercritical 650 mw (5.235), PC coal supercritical 500 mw (5.460), CFB coal 135 mw (5.664), CFB coal 50 mw (5.763), large hydro (5.995), PC subcritical 400 mw (6.033), natural gas thermal (6.634), nuclear uranium PHWR (6.980), natural gas simple cycle GT (8.897), fuel oil thermal (11.151), dual flash geothermal (11.999), fuel oil genset (13.880) and diesel oil genset (19.249).

As can be seen, the most expensive RE such as biomass WTE and OTEC are much cheaper than petroleum-based diesel oil genset, which will provide both cheaper and cleaner energy (less CO2, SO2, NOX and particulate emissions).

Also, there is a spot for nuclear energy as it is cheaper than natural gas simple cycle GT, fuel oil thermal, dual flash geothermal and petroleum-based generation from fuel oil and diesel oil gensets. The nuclear option must be left open so that the Philippines can hope to compete with the nuclear-powered economies of South Korea, Japan, China, Taiwan and soon Vietnam and Malaysia in the not so distant future. Unless the Philippines go nuclear, it could not reduce its electricity cost significantly and thus compete sustainably with its neighboring countries.

Power costs must reflect true costs of generation and not supported by subsidy. Power cost ($/MW, PhP/MW) is minimized through optimization of the power capacity  mix during long-term capacity expansion planning while hourly, weekly, monthly and annual generation cost ($/MWh, PhP/MWh) is minimized through optimization of generation mix during short-term merit order dispatch.

 

Comparative Cost of Electricity (PhP/kWh): MW Net CF, % All in, $/kW $/kW/yr $/MWh TE, % Fuel Cost & Units LRMC PhP/kWh
Wind Farm Onshore – 8.53 FIT 15.000 34.00% $2,213 39.55 2.00 5.335
Biomass IGCC (26.00%, 4000 Btu/lb) – 6.63 FIT 600.000 85.00% $4,400 62.25 7.22 39.22% 1,299 PhP/MT 6.380
Biomass Cogeneration (26.00%, 4000 Btu/lb) – 6.63 FIT 50.000 83.00% $4,114 105.63 5.26 28.00% 1,299 PhP/MT 6.841
Biomass Direct Combustion (28.00%, 4000 Btu/lb) – 6.63 FIT 50.000 83.00% $4,114 105.63 5.26 28.00% 1,299 PhP/MT 6.889
Mini Hydro – 5.90 FIT 3.600 43.33% $3,522 16.96 2.40 7.438
Solar PV Farm (1 mw) – 9.68 FIT (Chinese) 1.056 25.00% $2,988 19.82 2.80 8.090
Solar PV Farm (25 mw) – 9.68 FIT 25.000 25.00% $2,502 10.73 33.28 8.690
Biomass Gasification (27.09%, 4,000 Btu/lb) – 6.63 FIT 20.000 83.00% $8,180 364.79 17.49 27.63% 1,299 PhP/MT 13.255
Wind Farm Offshore – 8.53 FIT 30.000 37.00% $6,230 74.00 3.00 13.276
Biomass WTE (18.96%, 4000 Btu/lb) – 6.63 FIT 50.000 83.00% $8,312 392.82 8.75 28.00% 1,299 PhP/MT 13.338
Ocean Thermal (10 mw) 16.000 60.00% $11,197 58.11 1.48 14.928
Ocean Thermal (50 mw) 80.000 60.00% $11,197 58.11 1.48 15.088
Natgas Combined Cycle (53.07%, 22,129 Btu/lb) 620.000 87.00% $917 13.17 3.60 48.40% 19,540 PhP/MT 4.423
PC Coal 650 mw – ultrasupercritical (51.22%, 10,000 Btu/lb) 650.000 85.00% $2,934 31.18 4.47 43.66% 3,740 PhP/MT 5.235
PC Coal 500 mw – supercritical (47.79%, 10,000 Btu/lb) 500.000 85.00% $2,934 31.18 4.47 38.70% 3,740 PhP/MT 5.460
CFB Coal 135 mw (41.18%, 10,000 Btu/lb) 135.000 85.00% $2,934 0.01 0.00 33.73% 3,740 PhP/MT 5.664
CFB Coal 50 mw (34.76%, 10,000 Btu/lb) 50.000 85.00% $2,934 31.18 4.47 32.14% 3,740 PhP/MT 5.763
Large Hydro 500.000 52.00% $2,936 14.13 2.00 5.995
PC Coal 400 mw – subcritical (44.45%, 10,000 Btu/lb) 400.000 85.00% $3,246 37.80 4.47 35.48% 3,740 PhP/MT 6.033
Natgas Thermal (45.00%, 22,129 Btu/lb) 300.000 60.00% $1,000 30.00 10.00 38.00% 19,540 PhP/MT 6.634
Nuclear Uranium PHWR (33.23%, 3,900 GJ/kg) 1,330.000 90.00% $5,530 93.28 2.14 33.23% 33,660,000 PhP/MT 6.980
Natgas Simple Cycle (38.00%, 22,129 Btu/lb) 85.000 30.00% $973 7.34 15.45 31.45% 19,540 PhP/MT 8.897
Fuel Oil Thermal (38.00%, 18,300 Btu/lb) 300.000 60.00% $1,000 30.00 10.00 38.00% 36,066 PhP/MT 11.151
Geothermal (28.00%, 1,104 Btu/lb) 50.000 92.00% $6,243 132.00 8.00 10.00% 243 PhP/MT 11.999
Fuel Oil Genset (36.00%, 18,300 Btu/lb) 225.000 50.00% $1,363 25.30 36.16 36.00% 36,066 PhP/MT 13.880
Diesel Oil Genset (32.00%, 19,200 Btu/lb) 25.000 40.00% $1,040 10.73 33.28 32.00% 54,438 PhP/MT 19.249

 

There are cases where an RE technology seems promising but has a less than unity (1.0) B/C ratio when compared to other non-RE technologies. Also, RE technologies, being intermittent, may require also fossil power generation (diesel/bunker genset, coal supercritical, natural gas simple cycle GT or combined cycle GT) with high response ramp up rates to provide electricity network backup and ensure network stability and overall network reliability in case the sun or the wind dies down and provides diminished or nil solar power and wind power.

The benefits of a power plant includes the present value of local and national taxes plus the net income after tax discounted at the pre-tax WACC which is compared to the all-in capital cost of putting up the power plant.

Based on my experience in running these financial models, the power generation technology with the highest benefit-to-cost ratio is the natural gas combined cycle (1.175) followed by natural gas thermal (1.164),  natural gas simple cycle GT (1.143), fuel oil thermal (1.136), dual flash geothermal (1.039) nuclear power plant (1.022), large hydro (1.003), fuel oil genset (0.989), diesel oil genset (0.989), and coal-fired power plants such as 50 mw CFB (0.960), 135 mw CFB (0.958), 400 mw PC subcritical (0.988), 500 mw PC supercritical (0.989) and 650 mw PC ultrasupercritical (0.982), and 220 mw petcoke CFB (0.859).

On the other hand, the RE power generation technologies, due to their high cost per kW installed capacity and intermittent nature of the energy resource, tend to have less than unity (1.0) B/C ratio, though this may be understated because the cost of CO2 emission of fossil power plants above is not considered as no carbon tax is imputed in the cost.

The RE power generation technology with the highest B/C ratio is 10 mw OTEC (0.891) followed by 50 mw OTEC (0.827), off-shore wind farm (0.790), 3.6 mw mini-hydro (0.776),  50 mw biomass direct combustion (0.691), 50 mw biomass cogeneration (0.686), 600 mw biomass IGCC (0.682),  20 mw gasification (0.678),  and 50 mw biomass WTE (0.678), 15 mw onshore wind farm (0.670)  and 25 mw solar PV (0.637).

As an integrated energy planner, you may want to take a look into this complete line of project finance models that are based on one model template so that the results are purely the outcome of the technical and economic features of the technology, and not on varying modeling techniques. See sample inputs & assumptions worksheet below:

Model Inputs and Results.xlsx – Copy

These models are helpful in determining the short run marginal cost (SRMC = fuel cost + variable O&M cost) which can be used in determining the short-term optimal dispatch or hourly optimal supply mix in a Wholesale Electricity Spot Market (WESM) and long run marginal cost (LRMC = annualized capital cost + fixed O&M costs + SRMC) which is the same as the levelized cost of energy (LCOE) of each technology which can be used as inputs to a long-term optimal dispatch or least cost capacity expansion planning Mixed Integer Linear Programming (MILP) model for each country so that future power plants may provide the optimal power generation mix that also minimizes greenhouse gas (GHG) and sulfur emissions, minimizes fuel and operating costs and capital costs.

Existing power plants are modeled with replacement cost (not depreciated cost) so that in case an old power plant conks out, there is an opportunity to replace it since electricity tariffs are economically sustainable and priced to allow cost recovery. The capacity and generation potential is made open and not fixed (greater than zero capacity constraint instead of equal to capacity constraint) so that the capacity expansion model can shut it down and retire it should future power plant technology candidates can provide capacity and energy generation at greater efficiency and lower fuel consumption, GHG emission, sulfur emission and operating costs.

For developing a country’s least cost capacity expansion planning model, the WASP or MESSENGER of the International Energy Agency (IEA) and other international and private institutions (e.g. PLEXOS) provide the modeling tools for maintaining the data inputs and generating the LP matrix, solving the problem using an LP simplex optimizer (e.g. IBM CPLEX, GUROBI) and LP report writer to display the results in the prescribed format.

The LP results of a “feasible” run provide among others the optimal generating capacity mix (hourly or annual average) for existing and future power generation technologies that produces the least cost (fuel costs, fixed and variable O&M costs, and all-in capital cost) on an hourly or yearly basis.

On the other hand, the LP results of a “not feasible” run would provide the cost penalty for not meeting the violated constraint. For instance, a cheaper technology is being encouraged by the LP model but its capacity is limited (maximum constraint) – this signifies an opportunity to provide more capacity with this more cost-effective technology. On the other hand, an expensive technology is being discouraged by the LP model but its capacity is restricted to a level (equal constraint or minimum constraint) – this signifies an opportunity to reduce capacity or retire this expensive technology.

When applied to an electrical network, a “not feasible” run due to a violated constraint on a sub-station bus capacity or transmission line capacity would provide opportunities for new capital investments to decongest the transmission system so that cheaper power generation technologies could be dispatched to the other nodes of the electrical network in order to meet power demand. The shadow price (pi value) of the violated constraint provides an indication on the maximum value of the investment that may be made to decongest the network.

You may download the RE power generation technology models:

ADV Biomass Cogeneration Model3 (new) – Copy – process heat (steam) and power

ADV Biomass Direct Combustion Model3 – Copy – bagasse, rice husk or wood waste fired boiler steam turbine generator

ADV Biomass Gasification Model3 – Copy – gasification (thermal conversion in high temperature without oxygen or air, pyrolysis)

ADV Biomass IGCC Model3 – Copy – integrated gasification combined cycle (IGCC) technology

ADV Biomass WTE Model3 – Copy – waste-to-energy (WTE) technology for municipal solid waste (MSW) disposal and treatment

ADV Mini-Hydro Model3 – Copy – run-of-river (mini-hydro) power plant

ADV Solar PV 1 mw Model3 – Copy – solar PV technology 1 MW Chinese

ADV Solar PV 25 mw Model3 – Copy – solar PV technology 25 MW European and Non-Chinese (Korean, Japanese, US)

ADV Wind Onshore Model3 – Copy – includes 81 wind turbine power curves from onshore WTG manufacturers

ADV Wind Offshore Model3 – Copy – includes 81 wind turbine power curves from  offshore WTG manufacturers

ADV Ocean Thermal Model3_10 MW – Copy – ocean thermal energy conversion (OTEC) technology 10 MW

ADV Ocean Thermal Model3_50 MW – Copy – ocean thermal energy conversion (OTEC) technology 50 MW

Also, please download the conventional, fossil and nuclear power generation technology models:

ADV Geo Thermal Model3 – Copy – geothermal power plant  100 MW

ADV Large Hydro Model3 – Copy – large hydro power plant 500 MW

ADV Coal-Fired CFB Thermal Model3_50 MW – Copy – subcritical circulating fluidized bed (CFB) technology 50 MW

ADV Coal-Fired CFB Thermal Model3_135 MW – Copy – subcritical circulating fluidized bed (CFB) technology 135 MW

ADV Coal-Fired PC Subcritical Thermal Model3 – Copy – subcritical pulverized coal (PC) technology 400 MW

ADV Coal-Fired PC Supercritical Thermal Model3 – Copy – supercritical pulverized coal (PC) technology 500 MW

ADV Coal-Fired PC Ultrasupercritical Thermal Model3 – Copy – ultrasupercritical pulverized coal (PC) technology 650 MW

ADV Diesel Genset Model3 – Copy – diesel-fueled genset (compression ignition engine) technology 50 MW

ADV Fuel Oil Genset Model3 – Copy – fuel oil (bunker oil) fired genset (compression ignition engine) technology 100 MW

ADV Diesel Genset and Waste Heat Boiler Model3 – no waste heat recovery – diesel genset (diesel, fuel oil, gas oil) and waste heat recovery boiler 3 MW

ADV Gasoline Genset and Waste Heat Boiler Model3 – Copy – gasoline genset (gasoline, land fill gas) and waste heat recovery boiler 3 MW

ADV Simple Cycle and Waste Heat Boiler Model3 – Copy – simple cycle GT (natural gas, land fill gas, propane, butane, LPG) and waste heat recovery boiler 3 MW

ADV Fuel Oil Thermal Model3 – Copy – fuel oil (bunker oil) fired oil thermal technology 600 MW

ADV Natgas Combined Cycle Model3 – Copy – natural gas combined cycle gas turbine (CCGT) 500 MW

ADV Natgas Simple Cycle Model3 – Copy – natural gas simple cycle (open cycle) gas turbine (OCGT) 70 MW

ADV Natgas Thermal Model3 – Copy – natural gas thermal 200 MW

ADV Petcoke-Fired PC Subcritical Thermal Model3 – Copy – petroleum coke (petcoke) fired subcritical thermal 220 MW

ADV Nuclear PHWR Model3 – Copy – nuclear (uranium) pressurized heavy water reactor (PHWR) technology 1330 MW

You may download the summary that compares all the RE and non-RE power generation technologies from the file below (technology name, construction period months, operating period years, installed capacity MW, net capacity factor % of installed, EPC cost $/kW, all-in capital or overnight cost $/kW, fixed O&M cost $/kW/year, variable O&M cost $/MWh, thermal efficiency % of GHV or plant heat rate Btu GHV/kWh gross generation, fuel GHV Btu/lb or kcal/kg or kJ/kg, fuel density if liquid kg/liter, fuel cost per kg or liter, and SRMC, LRMC or LCOE in PHP/kWh or $/KWh). The exchange rate used is 44 PHP per USD ($).

Summary of Inputs and Results for Power Generation Technologies3 (Aug 28, 2015) – Copy

You may reach me at my email:

mars_ocampo@yahoo.com

energydataexpert@gmail.com

or visit my website:

www.energytechnologyexpert.com

www.energydataexpert.com

or call me:

+63-915-6067949 (globe mobile)

+63-922-8669598 (sun mobile)

+63-2-9313713 (home landline)

+63-2-9325530 (home fax)

Your active encouragement and leadership within your community, development region, company and country, we can help many communities and countries achieve cheaper electricity rates that are not only competitive but also  environmentally benign, GHG emission neutral, global warming potential reduced, and economic development sustainable  since such tools and processes that I am espousing will be within reach by all peoples and governments.

Your Energy Technology Selection expert,

Marcial

 

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