CONVERTING POWER PLANTS TO COAL

MUHAMMAD REHAN
(feedback@pgeconomist.com)

July 9 - 15, 20
12

Energy prices are increasing rapidly that is why world is seeking cheaper sources of electricity. It's a great cause of concern that Pakistan, despite having cheaper sources of energy, is using expensive energy options. During the last year, 35 per cent of total electricity was produced on oil.

Pakistan has large reserves of coal along with enormous potential of wind and solar energy. Presently, major electricity production is on furnace oil, which is available at Rs80,000 per ton that comes to Rs2,105 per million British thermal units (MMBtu). While the coal is available at Rs700 per MMBtu, about three times cheaper than furnace oil.

Now, government has decided to convert existing plants of 4,000 MW from oil to coal firing. This project will serve as a lifeline for the economy of Pakistan. The project will have a saving of 12.4 rupees per unit (kWh). The coal reserves in the country are not ready to use. Time is required to make them useable after creating coalmines. Initially, these plants can be converted to coal and run on imported coal.

The total project will cost around $4,000 million as almost US$1 is required to convert one megawatt installed capacity from oil to coal. The efficiency of existing plants will also decrease by two per cent due to increase in auxiliary load. The dispatch will also decrease because the auxiliary (house) load of thermal power plant is normally 6 to 7 per cent, which will increase to 10 per cent after conversion to coal.

The variable operations and maintenance cost will also be doubled that is normally 0.20 to 0.30 rupees per unit for conventional thermal plants. The 4,000 MW coal converted power plants will generate 18,922 GWH of electricity in a year at a capacity factor of 60 per cent.

There will be two types of tariffs for power plants: variable and fixed. Total variable cost for the each unit will be 7.2 rupees including the fuel cost and variable operations and maintenance cost; and the additional fixed charges will be 3.87 rupees per unit that will include insurance, return on equity (ROE) and loan repayment. After 10 years of loan repayment, these fixed charges will reduce to 0.93 rupees per unit.

After the successful execution of this project, fuel import bill will reduce by Rs238 billion annually. The government will have to pay Rs17.6 billion for ROE and insurance, Rs55.6 billion for loan repayment and Rs3.8 billion for additional variable operations and maintenance cost. After paying all these additional costs, net saving for the government will be Rs161 billion. Hence, the circular debt will reduce permanently after the successful completion of project. The project is very good for the country and now we will discuss some of the real issues that need to be addressed before or during the execution of the project:

* To determine the potential of coal handling facilities at seaport and develop a plan to upgrade it to manage the load of increased coal

* Evaluate and develop a plan to transport coal from seaport to railways yard or establish a new railways loading facility at seaport

* Evaluate and construct a place at seaport or railways yard where the coal can be stored safely until its dispatch

* Calculate the requirement of special purpose railways wagons and engines for the transportation of coal

* Determine the maintenance requirement of existing wagons and engines and their maintenance cycle for future reliability

* Analyze the need to buy new special purpose wagons and engines and approve their cost in next budget

* Determine the time requirement to transport coal from seaport to different plant sites

* Evaluate the existing unloading facilities available at different plant sites for oil unloading and make a plan to upgrade these for coal handling

* Ensure the quality and quantity of coal during transportation

* Determine whether railways will be able to manage transportation of this bulk quantity of coal or private sector will need to be called for this job

* If private sector is required then companies should be called for establish their system on build-own-operate basis and take the freight charges as rupees per ton of coal for transportation from seaport to respective plant site

The annual coal consumption for this project will be 8.021 million tons instead of 4.6 million tons of oil. This will badly affect our environment. The CO2 emission by this project will be 11.969 million tons as compared to 8.978 million tons with existing oil fired plants that implies that 2.991 million tons of CO2 emission will increase. In addition to this, the production of SOx and NOx will also increase. Following measures will be needed to overcome these issues:

* There will be need to plant three million trees every year as the one tree absorbs one ton of CO2 during its complete life.

* Installation of flue gases treatment plant that will remove SOx from flue gases before emitting them to the atmosphere.

* Make sure to have latest design that can reduce NOx emission like installation of gas recirculation fans (GRF) at boilers

It is good that government has taken a step to overcome the energy crises by converting existing oil-run plants to coal. Hopefully, this project will be complete after resolving all the issues.

The writer is an MBA & LLB, working for a law company and managing corporate and banking cases.

PROPOSED TARIFF TABLE FOR CONVERSION TO EXISTING PLANTS TO COAL (AS A FUEL)

Installed Capacity 4,000 MW . Existing Plant Efficiency 37% .
Net Capacity 3,600 MW HFO CV (LHV) 38,000 Btu/Kg
Project Cost 4,000 US$ Million HFO Requirement 242.7 gm/kWh
1 US$ 92 Rs HFO Price 80,000 Rs/Ton
ROE 16% . Fuel Cost on HFO 19.4 Rs/kWh
Debt 3,200 US$ Million Efficiency at Coal 35% .
Equity 800 US$ Million Coal CV (LHV) 23,000 Btu/Kg
Insurance 1.50% of total project cost Coal Requirement 423.9 gm/kWh
Annual Generation 18,922 GWH at 60% CF Coal Price 175.00 US$/Ton
Interest Rate 14% . Fuel Cost on Coal 6.8 Rs/kWh

NEW AGREEMENT YEAR

ENERGY CHARGES (RS/KWH)

ADDITIONAL CAPACITY CHARGES (RS/KWH) @ 60% CF

FUEL VOM TOTAL INSURANCE ROE LOAN PAYMENT INTEREST CHARGES TOTAL
1 6.8 0.40 7.2 0.29 0.64 0.79 2.15 3.87
2 6.8 0.40 7.2 0.29 0.64 0.90 2.04 3.87
3 6.8 0.40 7.2 0.29 0.64 1.03 1.91 3.87
4 6.8 0.40 7.2 0.29 0.64 1.18 1.76 3.87
5 6.8 0.40 7.2 0.29 0.64 1.35 1.59 3.87
6 6.8 0.40 7.2 0.29 0.64 1.55 1.39 3.87
7 6.8 0.40 7.2 0.29 0.64 1.77 1.17 3.87
8 6.8 0.40 7.2 0.29 0.64 2.03 0.91 3.87
9 6.8 0.40 7.2 0.29 0.64 2.32 0.62 3.87
10 6.8 0.40 7.2 0.29 0.64 2.66 0.28 3.87
11 6.8 0.40 7.2 0.29 0.64 - - 0.93
12 6.8 0.40 7.2 0.29 0.64 - - 0.93
13 6.8 0.40 7.2 0.29 0.64 - - 0.93
14 6.8 0.40 7.2 0.29 0.64 - - 0.93
15 6.8 0.40 7.2 0.29 0.64 - - 0.93
16 6.8 0.40 7.2 0.29 0.64 - - 0.93
17 6.8 0.40 7.2 0.29 0.64 - - 0.93
18 6.8 0.40 7.2 0.29 0.64 - - 0.93
19 6.8 0.40 7.2 0.29 0.64 - - 0.93
20 6.8 0.40 7.2 0.29 0.64 - - 0.93
21 6.8 0.40 7.2 0.29 0.64 - - 0.93
22 6.8 0.40 7.2 0.29 0.64 - - 0.93
23 6.8 0.40 7.2 0.29 0.64 - - 0.93
24 6.8 0.40 7.2 0.29 0.64 - - 0.93
25 6.8 0.40 7.2 0.29 0.64 - - 0.93

ANNUAL SAVING FOR GOVERNMENT
. Fuel Saving 12.6 Rs/kWh . Additional Capacity Payment 73.2 Billion Rs
Annual Generation 18,922 GWH Additional VOM @ Rs.0.20/kWh 3.8 Billion Rs
Annual Fuel Saving 238.3 Billion Rs Total Additional Payment 77.0 Billion Rs
Net Saving for WAPDA 161.3 Billion Rs Payback Period 2.28 Years