A Comparative Cost Benefit Analysis Engineering Essay

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The paper explains the importance of hydroelectric power over Coal based thermal power and hence formulates a condition for the hydroelectric power plant by using a comparative cost benefit analysis strategy which suggests that HEP is actually a cost-effective option than TP with respect to a 1000MW power plant (given that Social and Environmental benefits have been excluded). In addition, a brief investigation on CER (Carbon Emission Reduction) earning potential for TP and HEP (by employing super critical technology) has also been evaluated. It should be noted that while the harnessing technologies for both powers have been assumed to be neutral, the PLFs (Plant Load Factor) for TP as well as HEP have been estimated at 85% and 45% respectively.

Energy crisis and finding a feasible solution for it forms an important contemporary debate in India today. It has a great impact on the Socio-Economic development and the sovereignty of a country. The growing concern for energy security has become a threat posing to be at par with national security for a developing nation like ours. An estimate shows that for every 1% economic growth, power generation capacity for India needs to grow by 5-6 times to sustain the levels of growth for the years up ahead.

The electricity sector of India has an installed capacity of 207.85 Gigawatt (GW) as of September 2012, the world's fifth largest. Captive power plants generate an additional 31.5 GW. Thermal power plants constitute 66% of the installed capacity, hydroelectric about 19% and rest being a combination of wind, small hydro, biomass, waste-to-electricity, and nuclear. India generated 855 BU (855 000 MU i.e. 855 TWh electricity during 2011-12 fiscal. In terms of fuel, coal-fired plants account for 56% of India's installed electricity capacity, compared to South Africa's 92%; China's 77%; and Australia's 76%. After coal, renewal hydropower accounts for 19%, renewable energy for 12% and natural gas for about 9%.

Looking at the above trends, we can deduce that while coal is considered as one of the most economical resource for power (thermal) in India, the nation's technology has still not been at par to harness coal's energy in supercritical plants. Such plants will be coming up in the near future, but even if they achieve supercritical levels, TP plants have a rising fuel cost (of coal, either domestic or imported), coupled with the rising social and environmental costs in the form of per unit carbon emissions (in tCO2). In this regard, Hydroelectric Power (HEP), or the energy obtained from water, is a renewable form of energy that is being looked at as one of the major sources of power generation in the country, apart from TP. The main principle used in HEP is the kinetic energy of falling/flowing water is converted into electric energy using turbines. The resource is available in abundance and harnessing it does not emit as much carbon as well.

Advantages of Hydroelectric Power:

It is a non-polluting renewable resource of energy.

Fuel cost of HEP plant is devoid of inflation charges and shows a decline trend over period of time thereby reducing the overall per unit cost.

These plants have a long life span (50-100years) in comparison to a 25year lifespan of a Thermal Power Plant.

The HEP plants can be started or stopped instantaneously thus providing improved reliability of the power system.

It also helps in conservation of scarcely available resources (fossil fuels).

These plants are multi-purpose facility with functions including flood control, irrigation, provision of drinking and industrial water etc.

Such plants require large land area for installation and hence are usually set in remote/backward areas, thereby leading to their economic development.

Disadvantages of Hydroelectric Power:

Setting a HEP Plant leads to a change in the geology of the area especially downstream (due to Dam construction etc.)

Dam construction further leads to submergence of land and also causes an ecological disturbance of that area.

Soil quality and Aquatic ecosystem in downstream rivers is adversely affected.

However, it should be emphasized that the impacts of these disadvantages is very low in comparison to the huge benefits arising from the project installation.

Socio-Economic Impacts of HEPP:

Economic Impact:

The 17th Congress of the World Energy Council in 1998 in Houston suggested that, the development and use of apt renewable energies should be given clear priority with an intention of curbing the emissions that occur due to usage of fossil fuels, thus making the HEP one of the most sustainable energy resource.

It should be noted that, installation of HEP projects is often impeded because of significant initial investments required. This HEP project investment cost needs to be balanced against the longer project life and lower operation & maintenance costs and no consumption of fuel for energy production, vis-à-vis those of the TP plant. From an economic point of view and going by the quality of energy produced, this balance suggests a fair advantage of hydropower over thermal power. Moreover, the external benefits and costs associated with the projects with respect to a development perspective also need to be considered. If total costs for the lifetimes of the respective electricity generation options are considered, HEP seems to have the greatest advantage.

Social Impact:

HEP Projects have an astounding impact on the project area. These changes could be geographical such as alteration in land use or extradition of people who inhabited reservoir vicinity etc. However, such projects also have positive impacts such as employment generation and growth opportunities for the locals. Other facilities such as better infrastructure including roads, hospitals, schools etc. are also provided which further enhance the growth of a nation.

The social aspect of HEP plant design is variable and location-specific. Nevertheless, with planned anticipation and subsequent addressing during the project planning stage, the adverse impacts can be efficiently tackled, and in some cases, evaded altogether. Implementation of an effective public participation programme from the early stages of a project becomes crucial. If a project is considered to be a development opportunity for the community, the project affected families (PAFs) will be able to enjoy a higher standard of living through associated infrastructure developments.

Hydropower development in our country:

Our country has an enormous intact resource of HEP. A study in 1987 by the CEA revealed that the total hydro potential to be approximately 150000 MW, of which more than 84000 MW can be generated operating at a PLF of 60%.

Table 1: Hydropower potential in India

Basin/ River

Potential Load Factor @ 60% (MW)

Probable Installed Capacity (MW)

Indus

1988

33832

Ganga

10715

20711

Central Indian Rivers

2740

4152

West flowing Rivers

6149

9430

East Flowing Rivers

9532

14511

Brahmaputra

34920

66065

Total

84044

148701

Source: CEA, 1987.

Table 2: Plan wise Growth & Share of HEP:

Plan Number

Plan Period

Total HEP Installed Capacity (MW)

HEP as a % of Total Installed Capacity (MW)

1st Plan

1951-56

1061.44

36.78

2nd Plan

1956-61

1916.66

41.19

3rd Plan

1961-66

4123.74

45.68

3 Annual Plans

1966-69

5906.91

45.58

4th Plan

1969-74

6965.3

41.80

5th Plan

1974-79

10833.07

40.60

Annual Plan

1979-80

11383.97

40.01

6th plan

1980-85

14460.02

33.96

7th Plan

1985-90

18307.63

28.77

2 Annual Plans

1990-92

19194.62

27.79

8th Plan

1992-97

21644.8

25.46

9th Plan

1997-2002

26261.23

25.40

10th Plan

2002-07

34653.77

26.19

Source: CERC, 2007.

It is pretty evident from the above data that, the share of HEP in our country has been declining steadily since 1963, despite it being considered as one of the cheapest alternative to power generation.

Table 3: HEP Global Scenario: Source: IEA, 2004

S.no.

Country's Name

Installed Capacity in 2003 (MW)

HEP share in Total Capacity (%)

1.

Burundi

300

100.00

2.

Benin

120

54.20

3.

Uganda

300

99.6

4.

Bhutan

1480

99.00

5.

Paraguay

7420

99.90

6.

Zambia

1790

93.50

7.

Norway

26610

98.90

8.

Colombia

13790

65.80

9.

Congo

2570

98.70

10.

Cameron

900

89.60

11.

Albania

1670

86.50

12.

New Zealand

8410

62.30

13.

Tajikistan

4440

91.20

14.

Brazil

82460

79.20

15.

Georgia

4650

57.20

16.

Tanzania

860

65.00

17.

Ghana

1310

90.20

18.

Canada

114980

60.20

19.

INDIA

126340

21.30

From the above graphical representation it can be concluded that harnessing of HEP in India is significantly lower (21.30%) in comparison to countries like Norway, Canada or Brazil. For a country like ours, an ideal hydro-thermal mix could be in a ratio of 40:60.

But from the data we can say that, it is only approximately 26% of HEP due to various issues such as:

Long incubation period due to capital intensive nature of the project.

Apathetic performance and action of authorities due to political intrusion and red tapism.

Legal problems during land acquisition.

Procurement of clearances from various departments (Economic, environmental , forest etc)

Financial constraints (high cost of infrastructure development etc.)

Tariff and other regulatory issues.

All these factors need to be addressed in order to enhance the efficiency and effectiveness of this sector.

Comparative analysis of Hydro versus Thermal Power Plants:

Coal as a fuel for generating Thermal Power:

Out of the total installed capacity of 150000MW, 81000MW comes from coal based TP, thus making coal the mainstay of energy resource for the Indian economy. It should be noted that out of the total domestic coal production, power sector consumes about 3/4th, making it one of the biggest consumers of coal. However, if this was not sufficient, the power sector relies heavily on the coal imports to satiate their demand.

Table 4: Comparing Indian Coal with Imported Coal:

S.no.

Parameters analysed

Indian Coal (Chandrapur) (%)

Imported Coal (Ohio-USA) (%)

1.

Fixed Carbon

27.5

44.0

2.

Total Carbon

37.69

64.2

3.

Hydrogen

2.66

5.0

4.

Nitrogen

1.07

1.3

5.

Sulphur

5.78

11.8

6.

Ash

0.8

1.8

7.

Oxygen

47.0

16.0

8.

Total Moisture

5.0

2.8

9.

GCV (Kcal/Kg)

3400

6378

10.

*Coal per unit of electricity (Kg/kWh)

0.77

0.36

11.

*Cost/MT

40$

180$

* 1 $= Rs.45, Cost as on June, 2008. *1kWh= 1Unit of Power. (Source: 2003-04, MoEF)

Currently, India is the 3rd largest producer of coal in the world. However, as seen from graph, Indian coal has high ash content (approx. 35-50%) and low Gas Calorific Value (GCV). These 2 factors along with inefficient combustion technology make them a huge emitter of Green House Gases (GHGs) and Particulate matter subsequently leading to Global Warming.

Red: Imported coal, Blue: Indian Coal.

The ash is an integral component of coal and is made of gypsum (an abrasive material) which makes it difficult to remove it from coal. On the other hand, Ohio coal's GCV is almost double to that of Indian coal. This implies that generating an equal amount of steam (for power generation) would entail using double the amount of Indian coal compared to Ohio coal. However, a look at the cost of Ohio coal, that is 4.5 times that of Indian coal, makes it economically unviable to use imported coal (See Table 4.)

Therefore, the main issues associated with fuel with respect to TP generation are as follows:

Availability of good quality Coal: The TP sector has become most vulnerable owing to non-availability of good quality coal. While it is mandatory to maintain a stock for at least 30days, most of the plants barely survive on 4-7days of reserves.

Rising Prices of Fuels: The total coal reserves in the country amounts to 202 billion tonnes, concentrated in the Eastern states of West Bengal, Bihar, and Orissa. Transporting this coal to other far-flung parts of the country requires substantial energy consumption (rail, road, etc.), incurring a major cost on transportation, which increase the overall fuel costs for the power plant. If the costs are too high, then the plant has to go for imported coal, which becomes economically viable only if the power plant is situated beyond 1000 Kms from the pit head.

Environmental Concerns: There has been an increase in the prices of coal globally, as a result of which the price per unit of power generation has shot up. This has forced the stakeholders to utilize the Indian coal which has a poor efficiency. Moreover, the ash content of the Indian coal makes it one of the most polluting agent, implying a higher environmental cost for the society.

Plant Shutdown: At the current level of T&D losses (approx. 30%), 1.5 units of power needs to be generated to supply the consumer with 1 unit of electricity. This makes the costs go further up to approximately Rs. 7/unit (imported coal) and Rs. 5/unit with domestic coal for non-pit head plants. The plants would become unviable if they would not be passing the costs to the consumers. This would not be agreeable with CERC, as it is looking to protect consumer welfare. This could ultimately lead to plant shutdown.

Going by the above de-merits of a TPP, it would be apt to say that there is no such difficulty posed by HEPP in terms of fuel requirements as it relies on water from river basins. Therefore, it is Inflation free, environmentally benign and is abundantly available.

Note: The level of power generation could go down (in case of an HEPP) if there is a drought or if the water freezes in the tributaries.

Hydro Vs. Thermal: Cost of Power Generation:

Table 5 represents the parameters analysed, subsequent calculations and resultant cost of generation per unit from a HEP and a TP (supercritical technology) Plant (both having 1000MW capacity)

Parameters Analysed

HEP Project

TP Project (Coal Based)

Per MW Cost (Rs. Cr.)

5.5

4.5

Plant Capacity (MW)

1000

1000

Total Project Cost (Rs. Cr.)

5500

4500

Plant Load Factor (%)

45%

85%

Gross Generation in MUs

3942

7446

Auxiliary Consumption (%)

0.5%

9.00%

Net Generation in MUs

3922.29

6775.86

Fuel Consumption (Coal in ton/year)

-

4839900

Fuel Cost (Rs. In Cr. / Year)

-

871.182

O & M Cost (Rs. Cr. per year)

82.5

160

O & M Cost (Rs. In Cr./ MU / year)

0.021

0.15

Planned Outage (Days/Year)

30

35

Forced Outage (days/year)

16-37

51

Completion Time Period (Months)

61

44

Life of the Plant (Years)

35

25

Return on Equity

16%

16%

Interest During Construction (Rs. Cr.)

1017

669

Cost of Generation (Rs./kWh)

1.84

2.86

Source: 2004, CERC Guidelines.

From the table it was concluded that:

Per MW cost for HEP plants varies from Rs. 5 to 6 Cr. (average cost of Rs.5.5 Cr./MW), whereas for a TP plant, it varies between Rs. 4 to 5 Cr (average cost of 4.5 Cr/MW) for a 1000 MW plant.

PLF is higher for TP plant (85%) as compared to HEP plant, which is at 45%.

Auxiliary consumption is 9% for a TP plant, whereas it is only 0.5% for the HEP plant.

For a TP plant the overall efficiency is approximately 40% (due to more number of conversion stages) as compared to the HEP plant where the efficiency level is approximately 80% - 90% due to lower number of conversion stages.

Fuel required (coal) for TP plant has been calculated assuming a Specific coal consumption of 0.65 Kg/kWh.

Interest during Construction (IDC) is calculated at Rs. 1017 Cr. in HEP Plant and Rs 669 Cr. For TP plant.

Return on Equity (RoE) has been assumed at 16% for both the cases, as per CERC guidelines.

As a result of the above assumptions and calculations, the levelled cost of generation comes out to be Rs 1.84/unit from HEP plant and Rs 2.86/unit for the TP plant.

Hence, we can say that HEP has a lower per unit cost of generation in comparison to a TP Plant. This could be attributed to high fuel cost of coal, high auxiliary consumption, higher level of O&M Cost and a lower life span in case of TP Plant.

Hydro Vs. Thermal: Revenue Collected from Certified Emission Reductions (CERs):

The analysis has been carried out for 1000MW HEP Plant vis-à-vis 1000MW TP Plant based on super critical technology.

For a 1000MW HEP Plant:

Power generated (MU) : 3942MU

CERS/MU: 810

Sale price/CER (in Euro): 12.5

INR/Euro: Rs 65

Rate/CER (in INR): 65*12.5 = Rs.812.50

Therefore,

Total CERs = Power Generated (MU)*CERs/MU

= 3942*810

= 3193030CERs

Revenue generated from CERs = Total CERs*Rate per CER

= 3193030*812.50

= Rs. 2594328750 = approx. ~Rs.2594.3Millions

Thus, Per MW CER Revenue for a HEP project amounts to Rs. 2.59 Million which is approximately Rs.0.25Cr/MW.

For a 1000MW TP project:

Gross Power generated (in MU) = 7446MU

Auxiliary Consumption (%) = 7%

Net Generation (in MU) = 6925MU

Sale price/CER (in Euros) =12.5

INR/Euro = 65

Rate/CER (in INR) = 65*12.5 = Rs.812.50

Calculations:

Revenue generated from CERs (in Millions) = Annual Emission reduction (tCO2)* Rate/CER

= 613,621 * 812.5 / 1,000,000

= Rs. 498.57 Million

Thus, Per MW CER Revenue for a TP project amounts to Rs. 0.498 Million which is approximately Rs.0.05Cr/MW.

This implies that CER earnings from HEP plant are nearly five times that if TP plant with equal installed capacity. This leads to dilution of the excess capital cost of a HEP plant. Moreover, no fuel cost in case of hydro power makes it an attractive option for the developers.

Assumptions:

Conversion factor from ml. to gram = 0.92

Specific consumption (ml.) = 1.0

Gross Calorific Value of Coal (kCal/Kg) = 3750

GCV of Secondary Fuel (kCal/Kg) = 10,000

Station Heat Rate (kCal/kWh) = 2320

Baseline emission factor (tCO2/MWh) 0.941

Carbon content in coal 0.38

Conversion factor from Carbon to CO2 3.67 (44/12)

Coefficient of emission factor 1.393 (0.38*3.67)

Calculations:

Annual Emission Reduction (tCO2)

= Baseline emission (tCO2) - Project emission (tCO2)

= 7,006,686 - 6,393,065

= 613,621

Baseline emission (tCO2)

= Baseline emission factor (tCO2/MWh) * Generation in MUs

= 0.941 * 7446

= 7,006,686

Project Emission (tCO2)

= Gross Coal Consumption (in MT) * Coefficient of emission factor

= 4,588,324 * 1.393

= 6,393,065

Gross Coal Consumption (in MT)

= Generation in MU * Primary Fuel Factor

= 7446*0.62

= 4,588,324 MT

Primary Fuel Factor (Kg/kWh)

= Heat by Primary Fuel (million kCal) / (GCV * Gross Generation in MU)

= 17,206,17.80 / (3750 * 7446)

= 0.62

Heat by Primary Fuel(Million kCal)

= Total Heat Generated - Heat from secondary fuel

= 17,206,17.80 Million kCal

Total Heat Generated (Million kCal)

= Station Heat Rate (kCal/kWh) * Gross Generation in MU

= 17,274,720 Million kCal

Heat from secondary fuel

= Specific consumption (ml.)* GCV *Conversion factor * Gross Generation in MU

= 68503.20 MM kCal

However, as per the 'New CERC guidelines' issued on January 19th, 2009 for tariff determination for the period from 2009 - 14, the CDM benefits have to be shared between the project developer and the beneficiaries as follows:

• 100% of the gross earnings by way of CDM to be retained by the developer in the 1st year after the date of commercial operation of the generating station or the transmission system.

• In the 2nd year, the beneficiaries' share shall be 10%, which shall be progressively increased by 10% every year until it reaches 50%, after which the earnings shall be shared in equal proportion by the generating company or the transmission licensee, and the beneficiaries.

Due to these new guidelines, the project feasibility and viability gets reduced due to lesser benefits to the developer and the equity IRR going down on account of this. And hence, the guidelines could play havoc to the development cycle of a sustainable source of energy.

Conclusion:

It can thus be concluded that the benefits scored by hydroelectric power plants over thermal power plants have environmental benefits - on account of HEP being a renewable and sustainable source of energy, financial benefits - due to low cost of generation, the developers will have an advantage especially since merchant power sales is allowed in open market, coupled with a reasonable return on equity of 16%, and social benefits - like development of local area, provision of electricity, along with other bundled benefits like irrigation facilities, tourism, along with rise in demand for other industries' products like cement, iron and steel, transport, etc. and assisting in the creation of a low carbon self-sustainable economy.

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