STUDY ON THE INTEGRATED WASTE TO ENERGY PROJECT IN GREATER MALANG, THE REPUBLIC OF INDONESIA

Transcription

1 STUDY ON PRIVATE-INITIATIVE INFRASTRUCTURE PROJECTS IN DEVELOPING COUNTRIES IN FY2011 STUDY ON THE INTEGRATED WASTE TO ENERGY PROJECT IN GREATER MALANG, THE REPUBLIC OF INDONESIA SUMMARY February 2012 Prepared for: The Ministry of Economy, Trade and Industry Prepared by: Hitachi Zosen Corporation EX Research Institute Ltd. Smart Energy Co., Ltd

2 1. Background and Necessity of the Project In Indonesia, according to the Waste Management Law (Act Number 18 Year 2008 regarding Waste Management) that was enacted in 2008, the current disposal method of open dumping will be banned by 2013, when it will become necessary to adopt new methods of treating wastes. Sanitary disposal site treatment, which entails managing leachate and covering landfilled waste with earth, is the least costly method and enables adverse impacts on the local environment (water system pollution, odor and harmful pests) to be partially mitigated, however, it does not represent a fundamental solution. Moreover, strong opposition by local residents and so on makes it difficult to find new sites for landfill disposal sites. In areas where there is no spare land available, the long distance haulage of wastes becomes necessary, and authorities are looking into the construction of wide area disposal sites under provincial government initiative. In these circumstances, some municipalities regard incineration plus waste to energy as an ultimate solution that doesn t depend on final disposal sites. Moreover, within the flow of waste treatment in Indonesia, the project here targets activities that are currently managed by basic local government units on the municipality and regency levels. In other words, assuming that treatment of wastes not including hazardous materials entails a) temporary collection by local communities, b) extraction of valuable resources by the non-public sector at temporary collection stations, c) collection and final disposal by local governments, and d) extraction of valuable resources on disposal sites under the recognition of public sector authorities, the target scope of the project covers c) and d). 2. Basic Policy Concerning Decision of the Project Contents Waste treatment methods tend to evolve in the following order in line with economic development: I: open dumping II: sanitary landfill III: composting + sanitary landfill IV: incineration and waste to energy or mechanical separation + composting/methane fermentation + incineration and waste to energy. Indonesia currently stands at stage I but is now approaching the threshold with the next stage. In terms of the ratio of discharged waste that disposed in landfill, this is 100% in the cases of I: open dumping and II: sanitary landfill, around 50-60% in the case of III: composting + sanitary landfill, and around 10-15% in the case of IV: incineration and waste to energy or mechanical separation + composting/methane fermentation + incineration and waste to energy. iii

3 In stage IV, the decision of whether to adopt incineration and waste to energy or the combination of mechanical separation + composting/methane fermentation + incineration and waste to energy depends on the level of separation in the discharge stage, the amount of compost that can be used in the local area and the spare capacity of final disposal site. If only biological treatment is adopted, in the case where waste is not totally separated, residue will arise, while in cases where landfill disposal cannot be adopted, the waste has to be treated by incineration. Indonesia is currently in the process of shifting from stage I, and considering that treatment costs increase as the stages advance, it is appropriate for it to move to II or III. However, in view of the difficulty of securing final disposal sites, the current conditions of power shortages and growing awareness of the need to reduce greenhouse gases, there is ample scope to consider shifting to stage IV, which entails the smallest final disposal quantities, generates the most energy and is most effective in terms of reducing greenhouse gases, etc. In particular, in urban areas of population concentration and tourist sites where it is important to promote a clean image, this is already a viable option, and it will also become a possible option in medium-size cities in future assuming that current economic growth is maintained. In view of the above points, the stage IV treatment method is examined in the project, however, decision about whether or not to incorporate biological treatment is made according to the composition and water content of waste. If waste contains a high ratio of organic matter and has a high water content, biological treatment + incineration and waste to energy is assumed, however, if the water content is no higher than 50%, the following examination is conducted assuming an incineration and waste to energy system only. As a result, since the water content of household waste is no more than 50% even in the rainy season, while the water content of market waste is always more than 60%, it has been decided to conduct treatment in separate lines. In other words, it has been decided to adopt direct incineration treatment for household waste, whereas composting followed by separation with combustible items being incinerated and noncombustible items being landfilled is adopted for market waste. iv

4 (1) Current Flow of Wastes (Waste Stream) Figure 1 shows the current waste stream. Figure 1 Flow of Municipal Solid Waste in Malang City Generation Households Collection TPS Extraction of valuable materials Final Disposal Markets/Shops TPA Composting Facilities (Source: Created by the research team ) (2) Results of Waste Qualitative Analysis In the dry season, raw waste accounts for the largest proportion, approximately 50%, of both household and market waste, and this is followed by plastics which account for 17%. Concerning household waste especially, combustible waste accounts for 90%.. The ratio of metals is low, indicating that it is recovered in the collection stage. v

5 Figure 2 Results of Survey of the Composition of Dry Season Waste in Malang City (dry weight composition) Waste from Household (dried weight basis(%)) Waste from Market (dried weight basis(%)) Paper, 14.7 Metals, 0.6 Textile, 2.4 Leaves, 5.3 Stones, 2.6 Diaper, 2.3 Others, 0.2 Diaper, 0.5 Metals, 0.4 St ones, 17.3 Textile, 2.1 L eaves, 4.2 Others, 0.0 Paper, 9.8 Plastics, 16.9 Moisture:55.4% Food waste, 55.2 Plastics, 16.6 Moisture:60.7% Food wast e, 49.1 (Source: Created by the research team) In the rainy season, the ratio of raw waste is lower than in the dry season, however, combustible waste accounts for more than 70% of household waste when paper waste is included. In terms of water content, this is 59.4% in household waste and 67.1% in market waste. In conclusion, household waste will be used in incineration and waste to energy generation without conducting prior separation or biological treatment, while the treatment flow for market waste will be separation + composting + separation. (3) Target Waste Volume in the Project 1) Target Areas The project target area shall be the area within roughly a 30 km radius of the project site, upon taking collection and haulage efficiency into consideration. The target districts in that case are as follows. 1 Malang City: Entire area 2 Malang Regency: Jurisdiction of 4 cleansing offices (I. UPTD SINGOSARI II. UPTD TUMPANG IV. UPTD BULULAWANG V. UPTD KEPANJEN) 3 Batu City: Entire area vi

6 Figure 3 Four Malang Regency Cleansing Offices around Malang City (Source: Created by the Research team based on the map provided by Malang City) 2) Volume of Waste Targeted by the Plan The planned volume of waste for 2020 as the target year is estimated below with the following fluctuation factors taken into account: - Population fluctuation - Increase of waste generation due to improvement of economic activities and living standard - Collection rate (ratio of the collected waste volume to tgenerated waste volume that requires proper processing) Based on the results of hearings with each municipality and the survey of incoming amount of waste to the TPA final disposal site, Table 1 shows the current collection rate, and Table 2 shows the setting for According to these findings, the amount of waste treated in incineration and energy to waste facilities is 685 t/d, however, considering the operating rate of facilities, facilities with treatment capacity of 800 t/d (400 t/d x 2 incinerators) are planned. Moreover, concerning the shortfall during the initial stage of operation, excavated waste will be combusted together with the incoming waste. vii

7 Concerning market waste, assuming that 65 t/d will be generated in 2020, following the implementation of sorting (removal of unsuitable objects), composting and further sorting, it is estimated that 13 t/d of compost, 25 t/d of combustible residue, 16 t/d of incombustibles and 12 t/d of volume reduction and recovered resources will be generated. Government Table 1 Current Collection Rate in Target Project Districts TPA waste haulage volume (t/d) Population Increase factor *1 Waste source unit (kg/pers on per day) Volume of waste generate d (t/d) Volume of waste recycled (t/d) Collecti on rate a b c d e 2 g f=(a+ g)/e) Malang City , % Ⅰ.UPTD , % SINGOSARI Malang Ⅱ.UPTD Regency , % TUMPANG (Supid Ⅳ.UPTD Urang , % BULULAWANG 30km Ⅴ.UPTD radius) , % KEPANJEN Sub-total ,574, % Batu City , % Grand total , % 1: Factor that takes into account the impact of students and tourists other than the registered population 2: e=b x (1+c) d 1000 (Source: Created by the research team) viii

8 Table 2 Target Waste Volume (2020) Waste Recycling source rate (Not Collection Populatio Increase unit WtE) (recycling Government n factor (kg/perso, WtE) n per day) WtE processing volume (t/d) a b c f d e 1 Malang City 915, % 95.0% 412 Ⅰ.UPTD SINGOSARI 405, % 35.0% Ⅱ.UPTD 422, % 35.0% TUMPANG Malang Ⅳ.UPTD Regency 374, % 35.0% 234 BULULAWANG Ⅴ.UPTD KEPANJEN 566, % 35.0% Sub-total 1, % 35.0% Batu City *2 234, % 65.0% 79 Grand total 2, : e=a x (1+b) x c x (d-f) 1,000 2: Population increase rate and waste source unit are assumed to be equivalent to those in Malang City. (Source: Created by the research team) 3) Technical Methods The methods that are generally adopted for incinerating waste in Japan are incineration and gasification melting. Here, the incineration method is adopted. The gasification melting method is not adopted because the targeted waste in the project has lower heating value than the waste in Japan and requires support combustion, the issue of how to utilize slag is a problem, and operation control of the system is complicated and so on. Among incineration methods, since the stoker incinerator, which has the most extensive record of use with municipal waste and doesn t require any special technology in operation, is deemed to be the most appropriate, this method is assumed in the examination here. ix

9 3. Outline of the Project (1)Conceptual Design The project facilities comprise two incinerators with treatment capacity of 400 t/d each, and it is assumed that each one is operated for at least 8,000 hours per year. The incoming waste undergoes sanitary treatment and volume reduction, while the waste heat that is generated in the waste incineration is collected in the boilers so that power can be generated in steam turbines. The generated electricity will be used inside the plant, while excess energy will be sold to the power company via the local power grid. At this time, combustion control that entails little fluctuation in the steam flow will be conducted in order to enable the generated steam energy to be utilized effectively. Concerning the treatment of waste gas, Indonesia adopts general incinerator controls (Baku Mutu Emisi Udara untuk Incinerator (BAPEDAL/09/1996) as well as dioxin standards on a par with the international standard, and it uses a system comprising slaked lime, active carbon spray and bag filter. Incidentally, the project plant is planned for construction on a site adjoining Supit Urang Final Disposal Site in Malang City, on hilly land with hardly any residents in the nearby area. Accordingly, the layout of the facilities is designed with greater emphasis on business profitability rather than landscape. Moreover, as the plant is located next to a disposal site, there is no need to take special measures to counter odor. (2) Business Form As project models for developing a private sector initiative infrastructure project, the DBO scheme (design-build-operation scheme) and PPP scheme (build-own-operation scheme or build-operate-transfer) are examined. In the Study, financial and economic assessment is carried out assuming the PPP scheme as a realistic scheme. x

10 Figure 4 Conceptual Diagram of Project Scheme (Source: Created by the research team) (3) Project Cost A private sector enterprise or special purpose company (SPC), acting as the project enterprise, will conclude a project agreement with the public side. Based on the agreement, it is proposed that the public sector side carries in waste and that the private sector side is consigned to construct, operate and maintain the waste treatment facilities. It is expected that total construction budget is 9.77 billion Japanese Yen ( million USD). Concerning revenue for the SPC, it is expected to receive tipping fees (T/F) from the public sector side and payment for generating energy from waste heat and supplying it to the power company during the operating stage. The main items of expenditure are the personnel expenses, utility costs and maintenance costs entailed in operating the treatment facilities and the cost of raising funds for the initial investment, and these are used in calculating the necessary income and expenditure balance in the project plan. 1) Estimation of Construction Costs The following table shows the results of estimating construction costs based on estimates and hearings from Japanese-owned general construction firms and engineering companies and makers in Indonesia. xi

11 Table 3 Estimation of Construction Cost Item Foreign Portion Indonesian Portion Cost Civil and building works cost 0 1,800 1,800 Plant works cost ,100 Equipment purchase cost 2, ,500 Design and supervision cost 2, ,500 General administration cost Total 6,120 3,650 9,770 (Source: Hitachi Zosen Corporation) 2) Estimation of Operation and Maintenance Costs The operating cost (OPEX) is estimated as follows. Incidentally, revenue from power sales is given as a negative cost here. Table 4 Summary of Operating Costs Item Amount (million yen/year) Amount (million IDR/year) Operation and maintenance cost 46 5,395 Utilities cost ,744 Maintenance cost ,730 Other operating costs 48 5,630 Total ,499 (Source: Hitachi Zosen Corporation) The following table shows the total project cost including a construction cost an operating cost for 15 years. xii

12 Table 5 Summary of Project Budget (million yen) Sum total of operationg period Total Project Cost 14,956 Operation and Mentenance(O&M) Cost 4,410 Depreciation charge (15 years) 10,546 Operating profit and loss 6,209 Non-operating income 0 Non-operating expense 0 Payment interest(6%) 3,543 Non-operating profit and loss -3,543 Profit of the term (before-tax) 2,666 Corporate tax Tax rate:25% 666 Profit of the term(post-tax) 1,999 (Source: Hitachi Zosen Corporation) Concerning the revenue, it is estimated to receive waste treatment revenue as a tipping fees (T/F) from the public sector side and revenue from the sale of power to the power company as follows. Table 6 Summary of Operation Costs(Revenue) Item Amount (million yen/year) Amount (million IDR/year) Tipping Fee Revenue ,086 Power revenue ,487 Total 1, ,573 (Source: Hitachi Zosen Corporation) (4) Results of Preliminary Financial and Economic Analysis Concerning the preconditions used in financial and economic analysis, the abovementioned construction costs, operation and maintenance costs are used, while the preconditions for other financial and economic analysis are as follows. xiii

13 Table 7 Preconditions for Financial and Economic Analysis Item Preconditions Remarks Annual treatment volume 256,000 t/y Project period Operating period of 15 years 20 years was also examined Depreciation Equal-installment depreciation adopted over the operating years for each equipment unit period Tax Corporation tax 25% Loss carried forward, 5 years Loan 15 years is assumed Interest Policy rate 6% As of November 2011 Price fluctuation Inflation is not taken into account. Equity capital Initial investment x 30% (Source: Hitachi Zosen Corporation) The mean expenditure and revenue balance over the project period will be as indicated below. Table 8 Mean Expenditure and Revenue Balance Expenditure million yen Revenue million yen TF (Upper: Unit price, Construction cost Lower: t/y) 10, , (Upper:construction cost, Lower: period) Power sales Personnel expenses 46 1,050 IDR/kwh 643 Utilities cost 100 (Exchange rate) Maintenance and repair costs yen:117.3 IDR Measuring costs 34 1 dollar: yen Others 14 EBIT (pre-tax before paying interest) 414 Total 1,411 Total 1,411 (Source: Hitachi Zosen Corporation) Upon calculating the financial internal rate of return (FIRR) assuming waste treatment cost of 3,000 yen/t (351,900 IDR/t), the project IRR works out as 6.4%, which is higher than the policy rate of xiv

14 inflation of 6%. Therefore, the project is deemed to be financially feasible. The following items are taken into account when calculating the economic internal rate of return (EIRR) for the project. - Waste volume reduction effect on existing final disposal sites: 8,925 million IDR/y (76 million yen/y) - Effect in terms of limiting emissions of greenhouse gases (95,424 t/y): 6,814 million IDR/y (58 million yen/y) Concerning the economic internal rate of return (EIRR), a figure of 8.4% is obtained, indicating that this waste to energy project can be significant in economic terms too. Moreover, the results of calculating the net present value (NPV) and cost benefit (B/C) assuming a discount rate of 6% are as indicated below. Table 9 List of Results from Financial and Economic Assessment FIRR (financial internal rate of return) 6.4% EIRR (economic internal rate of return) 8.0% NPV (net present value) 1,439 million yen B/C (cost benefit analysis) 1.14 (Source: Hitachi Zosen Corporation) As a result of the financial and economic analysis, the project is deemed to be feasible in terms of the actual project profitability and the economic effect on society. (5) Examination from Environmental and Social Aspects 1) Analysis of Water Environment around the Disposal Site Water environment survey around the Malang City final disposal site (Supit Urang) and forecasting of the effects of incinerator introduction were carried out xv

15 Figure 5 Sampling Points Table 10 Measurement Items and Methods R1 R2 L3 L4 L2 Active Site LEACHATE RESERVOIR ADMINISTRSATI ON BUILDING P1 L5 P2 W1 L1 W2 R3 R4 R5 Items Methods ph ph meter EC EC meter ORP ORP meter DO DO meter COD DR2000 DPM-MT TOC TOC-V TN TOC-V Annmoniac Nitroge Indophenol Alkali Metal AAS Heavy Metals AAS R6 R7 (Source: Created by the research team) It was found that TOC and TN concentrations in rivers are influenced by leachate from the landfill site. Since raw waste is carried into the landfill site without undergoing pretreatment, the organic substances contained in the waste flows into rivers together with rainfall and the water content of the waste. There is a possibility that the purifying action of the river causes the concentrations of these organic substances to drop in the downstream area, however, when non-degradable organic substances accumulate, there is concern that they will combine with chlorine that is added to downstream river water for drinking to produce trihalomethane, which has carcinogenic properties. Degradation of organic materials consumes oxygen in water and leads to generation of odor, discoloration and deterioration of the living environment for aquatic life. Since mitigating the effects of leachate from the disposal site will contribute to the maintenance of human health and the downstream ecosystem, it is necessary to take urgent countermeasures. 2) Impacts on the Informal Sector Investigation was conducted on the impact of waste to energy facilities on the informal sector. Since pickers remove waste in the upstream area, construction of the incineration plant will have hardly any impact on them. On the disposal site, it is desirable if the pickers become no longer necessary. It is recognized that incineration plants are absolutely needed, especially in areas where there is no spare room available. xvi

16 4. Implementation Schedule Table 11 Implementation schedule (Source: Created by the research team) 5. Feasibility of Implementation Assuming the project preconditions in the financial and economic analysis to be the base case, cash flow analysis is carried out. Moreover, sensitivity analysis is carried out assuming parameters that have a major impact on the project and parameters that include uncertainties. xvii

17 Figure 6 Sensitivity Analysis Method Base case preconditions - Procurement interest rate: 6% - Operating period: 15 years - Tipping fee: 3,000 yen/t Internal rate of return constant What is tipping fee? Revised condition1 - Operating period: 20 years Revised condition 3 - Procurement interest rate: 8% Tipping fee constant What is rate of return? Revised condition 4 - Revenue from power sales: Fluctuation Revised condition 2 - Operating period: 20 year (Source: Created by the Research Team ) Assuming the operating period and procurement interest rate to be changeable parameters, the interlinked waste treatment fee and internal rate of return are confirmed. Revised conditions 1-4 are indicated in order below. Table 12 Results of Sensitivity Analysis Based on Revised Conditions Revised Condition Results of Sensitivity Analysis Remarks 1 Tipping fee 3,000 yen/t 2,400 yen/t The tipping fee tends to fall due to lengthening of the period (15 20 years). 2 FIRR 6.4% 8.5% Equity capital IRR 5.8% 9.0% The equity capital IRR is improved due to lengthening of the period (15 20 years). 3 (1) Case where the equity capital IRR is at the base case level: Tipping fee 3,000 yen/t 3,300 yen/t In the case where the procurement interest rate is higher than expected, it is necessary to raise the tipping fee. (2) Case where the equity capital IRR is the required level of 9.0%: Tipping fee 3,000 yen/t 3,800 yen/t 4 Case where revenue from electric power declines due to decline in the waste quality (heating value) or sale price of electricity: Since the tipping fee and revenue from sale of power are almost the same, in the case xviii

18 where the revenue from sale of power falls by 10%, the overall revenue is sustained through revising the tipping fee upwards by roughly 10%. (Source: Created by the research team) In the base case, the equity capital IRR is 5.8%, which is around the same as the policy interest rate in Indonesia, indicating the need to improve profitability from the viewpoint of investors. Judging from the results of sensitivity analysis and the remarks, it is important to enhance the project feasibility and discuss the conditions for project participation through extending the project period, increasing treatment costs or procuring low-interest funds and so on. Estimation is also carried out on the greenhouse gases reduction effect. Through incorporating sales revenue from trading of carbon dioxide emission rights into the project, the project profitability can be improved through adding a third source of revenue to waste treatment fees and power sale revenue. The estimated revenue from such trading is estimated to be approximately 10% of the revenue from power sales. 6. Superiority of Japanese Corporations in Terms of Technology, etc. (1) Superiority of Incineration Technology Incineration treatment of waste in Japan began in 1963, when the first five-year plan for construction of living environment facilities, adopting a policy of basically incinerating municipal waste and landfilling the residue, was compiled. Incineration led to the sanitary stabilization and volume reduction of waste. In subsequent years, new environmental issues such as dioxins occurred, however, these have been cleared through incorporating full environmental maintenance functions into incineration facilities. Currently, incineration accounts for roughly 80% of waste treatment in Japan; moreover, Japan has the highest number of incinerators and the most advanced incineration technology in the world. Thanks to Japan s long experience of waste incineration and the know-how acquired from that, it is possible to construct incineration plants in urban areas and adjoining residential land without any problems. (2) Superiority and Record of Treatment Systems Concerning Japanese incineration facility treatment systems, in terms of treatment capacity, the xix

19 stoker system (fire grate system) accounts for 77%. The merits of stoker incineration furnaces are that combustion is gentle and stable. Also, it is possible to construct large-scale facilities, and maintenance and operation control are easy. As this is the most widespread and mature technology in Japan, the stoker system will be adopted in the project too. 7. Concrete Schedule up to Realization and Impediments to Realization The schedule is indicated in section 4. The risks are described below, however, they key to feasibility lies in appropriate balancing these with the public sector side. (1) Risks Concerning Surrounding Infrastructure Development and Consent of Residents Risks concerning delays to the start of works, extension of the project period and hindrance of the project facilities and equipment can be mitigated if the public sector side takes the initiative in securing and leasing land and securing consent from local residents for the facilities. Also, it is hoped that the public sector side can start the construction of surrounding infrastructure before the start of work on the project facilities. Project risks can be averted if the public sector side cooperates in implementing the environmental assessment and procedures for acquiring permission from supervisory government agencies prior to the start of works. (2) Risk of Fluctuations in Waste Volume, Waste Composition and Prices In order to secure project revenue, it is necessary for a certain amount of waste to be constantly carried in throughout the project period. Project feasibility is dependent on either carrying in a certain amount of waste or having the public sector side guarantee the revenue from waste treatment. Even in the event where the incoming amount of waste declines, it is necessary to have in place a payment mechanism that ensures that fixed costs are covered. Concerning the price of power supplied to the power company, so long as power is supplied, it is important to adopt a contract that guarantees long-term purchase and the unit price of purchase, as in the feed-in-tariff system and so on. Moreover, unlike power generating activity that utilizes fossil fuels, the waste to energy activity entails risk in that the generated amount of power is influenced by the properties of waste (heating value of waste), which corresponds to fuel. Project continuity can be enhanced through incorporating a mechanism for compensating any decrease in generated energy through tipping fees, thereby providing insurance against fluctuations in not only the quantity of waste but also properties of waste. xx

20 (3) Technical Risks In the waste to energy utility, project stability and certainty can be enhanced and technical risks can be mitigated in long-term projects through constructing facilities with proven performance and conducting daily and periodic maintenance. Concerning operation planning and setting of the annual number of operating days too, it is desirable for corporations with a proven record to be involved, for the company that conducted design and construction to conduct repairs of core equipment, and to implement the planned repair and renewal of equipment based on the track record. In this project too, technical risks can be greatly reduced through utilizing the technically superior technologies proposed by the Japanese company. (4) Risk of Force Majeure and Revisions to Law Concerning force majeure and revisions to environmental law and other general legislation, considering the public nature and extended period of the project, it is essential for any risks to be transferred to the public sector side, even if the project is implemented as a PPP scheme. xxi

21 8. Map of the Project Implementation Site in Indonesia Figure 7 Map of the Project Implementation Site in Indonesia (Source: Indonesia: United Nations Development Programme Indonesia East Java Province: Eastjavacoop.com Grater Malang: Prefeasibility Study: Malang Regency June 19, 2011) xxii