A feasibility study of a CDM compliant small-scale biomass gasification electricity generation project at a Western Cape wine cellar

Schumann, Dolf (2008-12)

Thesis (MBA)--Stellenbosch University, 2008.

Thesis

ENGLISH ABSTRACT: The goal of this study was to investigate the feasibility of a small-scale biomass gasification system within the context of a cooperative wine cellar operation in the Western Cape of South Africa. Central to this goal was the questions whether the time for the implementation of such small-scale renewable energy technologies in South Africa has arrived, in light of the status quo which has changed drastically from the days of abundant and cheap coal-based electricity, and whether the new opportunities afforded by the CDM can help foster financial feasibility. There are various macro-drivers contributing to the current-day emphasis on renewable energy and cogeneration projects. The first and most pressing driver is the global climate change imperative, while the others include the increased aspiration of countries towards energy security, the realization of the importance of sustainable development and the subsequent renewable energy policies that falls within the ambit of sustainable development. Small-scale biomass gasification technology still poses some challenges, particularly when it comes to the gasification of agricultural residues, as with grape residues in the case of this project. The most important technical feasibility problem to overcome is the low ash agglomeration temperature of grape residues reported in the literature. Although the local equipment manufacturer foresees no problem in this regard with their system design - since they have conducted tests on sunflower seed residues, which have similar ash properties, without experiencing any agglomeration problems - the seriousness of this aspect will be confirmed during pilot trials. In order to be eligible for emissions reduction trading under the CDM, the project must adequately demonstrate that the emissions reductions are additional to the business-as-usual scenario, in both the environmental and financial sense. The project will satisfy the environmental additionality requirement, since in its absence the wine cellar will continue its full reliance on coal-based electricity from the grid. Financial additionality, in its strictest sense, requires for the project to be infeasible if it does not pursue CDM participation, which the financial feasibility modeling results indicated to be true in this case. A feasibility model was developed to - subject to the input parameter values assumed and basic assumptions made - be able to assess the financial viability of the project. The main assumptions were that the private feed-in into the national electricity grid was available to all IPPs, in spite of the fact that in its Medium Term Power Purchase Program me (MTPPP) of May 2008 Eskom had only requested expressions of interest from IPPs that had a generating capacity of 5MW and higher to install private base load capacity. This assumption is commensurate with the country's renewable energy targets and the official government aim of achieving a 30% contribution from IPPs to the national electricity mix. The second assumption was that the 65 to lOOclkWh offered by Eskom in its MTPPP will be applicable to sub-SMWe IPPs as well (Creamer, 2008), and that this lower bound electricity price of 65clkWh can be applied over the whole project lifetime. Inherent to this assumption is the further supposition that the progressive decline of electricity prices to an eventual level of 35clkWh by 2018 foreseen by Eskom will not materialize, due both to the sustained pressure an expanding South African economy will put on the considerable but time-consuming supply-side initiatives launched by Eskom, and the likelihood for price premiums to be introduced for clean electricity in order to meet the country's renewable energy targets. From the assumed input parameter values the initial capital and COM expenditures, operating revenues and costs over the project lifetime were determined, and then used to calculate the net cash flows, where after the NPV was computed to serve as the deciding criterion on financial feasibility. A discount rate of 18% was assumed, corresponding with the subjectively judged risks that the project posed as a small-scale renewable energy system within the wine cellar operations. In the case where the project excluded all CDM aspects, the NPV was negative at - ZAR342 573, but this improved to ZAR325 193 if the project participated in the CDM. Thus it was concluded that the project will only be financially feasible if it includes CDM participation, and that this positive contribution can be leveraged by pursuing a programmatic CDM approach. This entails the development of this project as part of a larger program in which similar projects are implemented as they arise, up to the official UN limit of 15MWe in total to still qualify as a small-scale program. The nature of the assumptions that form the backbone of this study indicate that the positive financial feasibility result in the case where the project includes COM participation will become practically relevant only over the short- to medium-term as these assumptions become reality in South Africa. Therefore, although the time for such small-scale renewable energy projects has clearly not arrived as yet, it would seem that it is indeed around the corner.

AFRIKAANSE OPSOMMING: Die mikpunt van die navorsing was om die lewensvatbaarheid van 'n klein-skaal biomassa vergassing sisteem binne die konteks van 'n kooperatiewe wynkelder in die Wes-Kaap van Suid-Afrika te ondersoek. 'n Sentrale aspek was die vrae of die tyd aangebreek het om klein-skaal volhouhare energie projekte in Suid-Afrika tot uitvoering te bring, gesien in die lig van 'n status quo wat drasties weg beweeg het van die tydperk toe elektrisiteit volop en goedkoop was, en of die geleentheid wat die CDM bied sulke projekte finansieel lewensvatbaar kan maak. Daar is verskeie eksterne makro-drywers wat bydrae tot die huidige fokus op sulke volhoubare energie projekte. Hieronder tel globale klimaatsverandering as die dringendste drywer, terwyl die res onder andere die hernuwe strewe van lande tot verbeterde energie-sekuriteit, die besef van die belangrikheid van volhoubare ontwikkeling en die daaropvolgende volhoubare energie beleid stappe insluit. Daar bestaan nog etlike tegniese uitdagings tot die toepassing van klein-skaal biomassa vergassing tegnologie, spesifiek met betrekking tot die vergassing van afval landbou byprodukte, soos wat die geval is met druiwe afval in hierdie projek. Die belangrikste tegniese uitvoerbaarheids-aspek wat aandag verg is die lae smeltpunt van druifafval-as wat in die literatuur rapporteer word. Alhoewel die plaaslike toerustings-vervaardiger nie enige probleme in hierdie verhand voorsien nie, aangesien toetse met sonneblom afval - met as-eienskappe rofweg identies aan die van druiwe-afval - geen smelting van die as getoon het nie, sal dit tog nogsteeds aan verdere toetse onderwerp word. Vir die projek om te kwalifiseer as geskik vir verhandeling in kweekhuisgas vermindering deur middel van die COM, moet dit voldoende bewys kan word dat alle uitlaatgas vermindering addisioneel is tot wat die geval sou wees in die gewone gang van besigheid. Hierdie addisionaliteit is relevant in beide 'n omgewings- en finansiele sin. Hierdie projek sal orngewings-addisionaliteit bevredig deurdat die wynkelder in sy afwesigheid volkome afhanklik van die steenkool-gebaseerde elektrisiteit vanaf die nasionale netwerk sou bly, terwyl finansiele addisionaliteit bewys is deur die finansiele lewensvatbaarheids-model wat getoon het dat die projek slegs ekonomies uitvoerbaar sal wees indien dit CDM deelname insluit. Die lewensvatbaarheids-model is ontwikkel om die ekonomiese uitvoerbaarheid van die projek te evalueer, onderworpe aan die aangenome inset parameter waardes en basiese aannames in die studie. Die hoof-aanname was naamlik dat privaat terugvoer in die nasionale elektrisiteits-netwerk vir alle grootte IPPs moontlik is, ten spyte van die feit dat Eskom se MTPPP van Mei 2008 slegs kapasiteite van 5MW en groter aanvaar bet. Hierdie aanname is gebaseer op Suid-Afrika se volhoubare energie teikens en die regering se offisiele mikpunt om 30% van alle krag-voorsiening vanaf IPPs te bekom. Die tweede hoof-aanname was dat die 65 tot 100clkWh wat Eskom in sy MTPPP aangebied het, ook van toepassing sal wees op sub-SMW IPPs (Creamer, 2008), en dat die laer prys-limiet van 65c/kWb oor die hele projek-leeftyd toegepas kon word. Inherent tot hierdie aanname is die verdere veronderstelling dat die progressiewe daling in elektrisiteits-pryse tot 'n eventuele vlak van 35clkWh voorsien deur Eskom nie sal realiseer nie, beide as gevolg van die volgehoue druk wat die groeiende Suid-Afrikaanse ekonomie op die aansieniike, maar tydrowende, opwekkings-kapasiteit uitbreidings van Eskom behoort te plaas, en ook die hoe waarskynlikheid dat prys premiums vir skoon elektrisiteit ingestel word sodat Suid-Afrika sy volboubare energie telkens kan bereik. Die aanvanklike kapitaal en CDM uitgawes, en bedryfsuitgawes en - inkomstes oor die projekleeftyd is vanaf die aangenome inset parameter waardes afgelei, waarop die NPV van die projek uitgewerk is om te dien as die beslissende maatstaf van ekonomiese haalbaarheid. 'n Diskontokoers van 18% is gebruik, ooreenstemmend met die subjektief beraamde risikos wat die projek inhou as 'n klein-skaal volhoubare energie sisteem. Die resultate van die finansiele lewensvatbaarheids-model het getoon dat in die geval waar die projek geen CDM aspekte bevat nie, die NPV hoogs negatief sou wees met 'n waarde van -ZAR342 573, terwyl dit verbeter na ZAR325 193 as die projek CDM deelname insluit. Die gevolgtrekking is dus gemaak dat die spesifieke projek slegs ekonomies haalbaar sal wees indien dit wel CDM deelname insluit, en dat hierdie positiewe finansiele bydrae van die CDM geoptimaliseer kan word deur 'n programmatiese CDM benadering te volg. Dit behels die ontwikkeling van die projek as deel van 'n groter program waarin soortgelyke projekte mettertyd geimplementeer word soos hulle ontstaan, tot by die offisiele VN limiet van 15MWe om sodoende nog te kwalifiseer as 'n algehele klein-skaalse program. Die aard van die hoof-aannames in hierdie studie is indikatief dat die positiewe finansiele lewensvatbaarheid in die geval waar die projek CDM deelname insluit, eers oor die kort- tot medium-termyn prakties relevant sal word soos die aannames bevredig word. Dus, alhoewel die era van klein-skaalse volhoubare energie projekte nog nie aangebreek het in Suid-Afrika nie, lyk dit tog asof dit om die draai is.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/14633
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