STUDY ON THE COAL GASIFICATION AND POWER GENERATION PROJECT IN MAE MOH, THE KINGDOM OF THAILAND

Transcription

1 STUDY ON PRIVATE-INITIATIVE INFRASTRUCTURE PROJECTS IN DEVELOPING COUNTRIES IN FY2011 STUDY ON THE COAL GASIFICATION AND POWER GENERATION PROJECT IN MAE MOH, THE KINGDOM OF THAILAND SUMMARY February 2012 Prepared for: The Ministry of Economy, Trade and Industry Prepared by: THE INSTITUTE OF ENERGY ECONOMICS, JAPAN Mitsubishi Corporation Chiyoda Corporation

2 (1) Background, necessity, etc. of the project Under the authority of the Ministry of Energy of Thailand, the Thai government and Electricity Generating Authority of Thailand (EGAT) announced Summary of Thailand Power Development Plan (PDP 2010) in April 2010 based on the following issues in order to promote the best mix of power supply composition. 1) More than 70% of the whole Thailand's power generation composition depends on natural gas-fired power generation, which is an unstable situation. Therefore, there is an urgent need to diversify energy including the use of coal-fired power generation from the viewpoint of energy security. 2) Under the projection that the domestic natural gas will peak out around 2015, Thailand is working to introduce LNG. However, the challenge is to utilize lignite which are the valuable domestic resources produced in Mae Moh coal mine. 3) Promotion of cooperation in international efforts towards the reduction of greenhouse gas emissions 4) It is difficult to build coal-fired power plants due to people's feeling of aversion towards them. In the PDP 2010, the installed capacity for coal-fired power generation is expected to increase from 3,897 MW in 2010 to 10,827 MW in The plan aims to promote measures against climate change and diversification of energy through power resources development on the basis of Clean Coal Technology. In PDP 2010, positive consideration is given for the introduction of Clean Coal Technology (CCT) power generation. This includes the scrap and built of existing decrepit Mae Moh Subcritical Lignite-Fired Power Plant using CCT. Under these circumstances, it is considered most appropriate to introduce Integrated coal Gasification Combined Cycle (IGCC) power plants that enable highly-efficient power generation, save Mae Moh lignite resources and have good environmental performances. The Thai government and EGAT have announced a policy to delay the nuclear power generation plan after the nuclear accident occurred in Fukushima, Japan. They are currently revising PDP 2010 and considering the inclusion of IGCC in the PDP as one of CCT. (2) Basic policy concerning the determination of project contents This survey inspects matters concerning the introduction of Integrated Coal Gasification Combined Cycle (IGCC) based on the effective utilization of coals (lignite) in Mae Moh coal mine owned by EGAT to consider whether the project is feasible in terms of technology and economy. The aim of this survey is to make the project effective as measures against climate change and realize diversification of energy and effective utilization of domestic resources

3 (3) Outline of the project This project plans to build an IGCC power plant (1 on 1 type) with a total installed capacity of 500 MW level in existing Mae Moh Thermal Power Plant in Mae Moh district, Lampang Province, located 500 km north of Bangkok and approximately 90 km southeast of Chiang Mai. a) Total project cost 110 billion to 125 billion yen (Exchange rate: yen/us$) b) Outline of results of the preliminary analysis for finance and economy In this project, two types of IGCC are considered: oxygen-blown and air-blown IGCC. As the selling price of electricity cannot be determined, prices range between 0.05 US$/kWh and 0.12 US$/kWh. Evaluation of FIRR was conducted by comparing the prices with an opportunity cost of capital (weight average capital cost: WACC). As a result, if the selling price of electricity is US$/kWh using oxygen-blown IGCC when the project receives a low-interest loan (assumed as 2.5% here) such as JICA overseas loan, etc. (WACC 4.5%), it would surpass WACC. If the price is US$/kWh using air-blown IGCC, it would surpass WACC. If the project gets a loan (6.5% interest is assumed) from a city bank (WACC 7.7%), prices less than US$/kWh would not exceed WACC for oxygen-blown IGCC and prices less than US$/kWh would not exceed WACC for air-blown IGCC. Therefore, it is considered that this project needs to use a low-interest loan such as JICA overseas loan, etc. FIRR(%) Figure S-1 FIRR calculation result Electricity selling price(us$/kwh) (Source) Prepared by study team Air Blown Oxygen Blown WACC: 7.7% (Interest:6.5%) WACC: 4.5% (Interest:2.5%) NPV (Net Present Value) and B/C (Benefit/Cost) when the selling price of electricity is set as 0.08 US$/kWh are as follows

4 Oxygen-blown IGCC Air-blown IGCC NPV 277 million US$ 428 million US$ B/C An alternative project (here this refers to ultra supercritical (USC) power plant that uses imported coals as fuel and GTCC that use imported LNG as fuel) with the same power generation (net) as that of the relevant project was selected for EIRR. The costs of the relevant project were set as expenditures and the costs of the alternative project as benefits to derive the equivalent reduction rate of both costs. Then, EGAT evaluated the economic efficiency of the project by comparing the equivalent reduction rate with the discount rate (interest + 4-5%) used to review the power resources development. The following results were derived from the comparison with oxygen-blown IGCC (with lower FIRR), which showed that the IGCC economically surpasses the alternative project. EIRR of the relevant project compared to USC: 10.0% EIRR of the relevant project compared to GTCC: 19.3% c) Reviewing the environmental and social aspects The Mae Moh Thermal Power Plant already has desulfurization equipment that has been installed on every unit additionally in order to improve the environmental performance. It was sequentially installed during the 1995 to 2000 period so as to address the concern about environmental problems that grew around the power generation station. This has significantly improved the measures for atmospheric emission matters and the properties of discharged water up to the present. The environmental standard has been revised as necessary so that the management conditions have been established in response to enhancement of environmental consciousness. Although the Mae Moh Thermal Power Plant has been improving its environmental performance, its facilities are becoming old-fashioned. They meet the current environmental standard, but from the view of predicted future, the facility investment utilizing the clean coal technology is required for continually environmental improvement. Implementation of this project will bring much effect in environment improvement. More effect in environment improvement will be expected for the air quality, the water quality, Waste (coal ash), or the like. We have already obtained some proper information about EHIA upon completion of this investigation. Because the current members of consultation with EGAT will be wholly stakeholders of this project, they should subsequently cooperate with the EGAT Investigation Team. (4) Implementation schedule Overall schedule of the project is shown in the diagram below

5 Figure S-2 Overall schedule of the project (Source) Prepared by Study Team Requirements that are essential to implement a project, such as the scope of future works based on the result of the project, are taken into account in this schedule. Assumed action categories in each Mile Stone are listed below. a) Detailed FS: 10 to 12 months It is necessary to implement detailed FS in the following categories to optimize plants and identify the feasibility (marketability) of the project. Materials that are necessary for environmental assessment are also developed in this phase. Optimization of flow scheme Location survey Determination of assumed coal property and implementation of dryness and liquidity test as needed Request for operation to each licenser and signing nondisclosure agreements as needed Considering whether existing facilities can be diverted Developing materials for environmental assessment Calculation of total fund Economic evaluation b) FEED (Front End Engineering Design): 12 to 15 months The basic plan of the plant is formulated and an EPC inquiry sheet is created in this phase. Main actions in this phase are as follows: Determination of facility design specification Preparation of an EPC inquiry specification sheet (preparation of a Basic Design Package) Inquiry/deciding EPC contractors - 5 -

6 c) EPC (Engineering,Procurement,Construction): 33 to 36 months Basic/detailed design of the plant, procurement of materials, site construction and test operations are carried out in this phase. Some of the purchased equipments (facilities) require 24 months to manufacture. Therefore, after adding design period, procurement period, construction period and test operation period based on the implementation of FEED, the total length of period will be 33 to 36 months from basic design (review of EPC contractors) to the start of plant operation. (5) Feasibility concerning operation As stated in (3) b) "Outline of results of the preliminary analysis for finance and economy," the project has a feasibility if it receives a low-interest loan such as JICA overseas loans, etc. (6) Technical advantages of Japanese companies IGCC plants that were reported to have been operated so far in the world are the four projects that started operation in Western countries in the 1990s. Nakoso (Iwama machi, Iwaki City, Fukushima Prefecture) Plant in Japan is the only plant that started operation in this century. As of November 11, 2011, the plant had recorded 2,238 hours of continuous operation. In a long-term durability operation test, the number of operation hours reached 5,000/y which was the initial target. The know-how that has been accumulated in Nakoso IGCC Plant, which has demonstrated high performance and reliability, is considered to become a great source of competitive power when Japan expands sales of IGCC plants. Japanese makers (Mitsubishi Heavy Industries and Hitachi) and engineering company (Chiyoda Corporation), which boast high reliability and technical capabilities in the world, have been developing concrete IGCC project cases and therefore have advantages in terms of technology. The future issue is the development of competitive IGCC plants that can be operated on a commercial basis. Mae Moh coals are characterized by having a high CaO content in ash in the level that is difficult to process in a fine powder-fired boiler. However, it was confirmed that IGCC is suitable for coals with a low ash melting point and Mae Moh coals that have a high content of CaO in ash can be used for IGCC. (7) Concrete schedule for the project completion and risks that may prevent the completion a) Utilization of the Public-Private Partnership (PPP) scheme A great amount of fund is necessary in order to start the operation of IGCC plant, from the stage of detailed project feasibility investigation to detailed design and construction. The initial costs for this project are very high compared to those of other power generation projects. Therefore, it has fallen into the vicious cycle: feasibility of the project decreases significantly due to the payment of interest, etc. and it is unable to make a final decision to invest in the project unable to accumulate know-how on a commercial basis no progress in the development of competitive IGCC plants

7 In order to improve the economic efficiency of the project and for the operating bodies of IGCC projects to make a final decision to invest in a project, financial support to alleviate a heavy burden of initial investment costs of the operating bodies is necessary under the Public-Private Partnership (PPP) scheme, from the stage of detailed project feasibility investigation to detailed design and construction. On the other hand, operating bodies need to request contractors of IGCC plant construction (Japanese makers, engineering companies, etc.) to present competitive construction costs, while IGCC plant makers should try to reduce costs continuously. b) Utilization of the low-interest loan system As stated in (3) b) "Outline of results of the preliminary analysis for finance and economy," it is difficult to carry out the project with the interest of a city bank and the project needs to prepare to receive a low-interest loan such as JICA overseas loans, etc. c) Necessity of shortening the period of approval process In Thailand, approval of EGAT and the government is required for the establishment of a power plant, and it is necessary to estimate the time for the procedure. d) Necessity of shortening the period of environmental impact assessment Before the implementation of the project, a party who applies for the implementation of the project should carry out investigation and analysis on matters concerning the establishment of a thermal power plant in the pollution prevention section prescribed in NEQA1992 1, summarize the results as EHIA and gain approval of a supervisory authority. Although a normal monitoring period is one year, according to the hearing in EGAT, it is assumed that it takes two years for a whole set of procedures including monitoring, analysis, review, discussions with stakeholders and approval of relevant ministries and agencies. EGAT has already started the development of EHIA and procedure to replace the power plants No.4 to 7, which may shorten the time. 1 The Pollution Control Department of the Ministry of Natural Resources and Environmental holds jurisdiction over the legal basis of the current procedures, and the name of the act is Enhancement and Conservation of National Environmental Quality Act B.E (abbreviated as NEQA1992) (Chapter 4, (4) Overview of Related Laws and Regulations for Environmental and Social Considerations in Host Country)

8 (8) Map showing the project site in the country surveyed Figure S-3 Project Site Map Chiang Mai Project Site Bangkok N (Source) Prepared by Study Team based on Website of the Global Internet Partner Utopia Co., Ltd