Monday, April 6, 2015

Cost of geothermal power (1)

In my last blog post, I mentioned I’ve been reading an authoritative report by the Frankfurt School – UNEP Centre and Bloomberg New Energy Finance on the renewable industry around the world.  The report is full of interesting information, including details of a major geothermal project in Indonesia, which is the topic of today’s post.

Indonesia is reckoned to have more than 29 GW of geothermal generation potential (equivalent to 40% of the global geothermal resource base), although only 1.3 GW is currently installed.  Once completed, the 320 MW Sarulla geothermal project will be the largest such power project in the world.

This report by the Asian Development Bank and other agencies provides an excellent overview of the Sarulla geothermal project.  The project is located in the North Sumatra province of the Republic of Indonesia.  Financial arrangements for the USD 1.6 billion project were signed off on 28 March 2014.  Key project sponsors are Itochu Corporation (25%), Kyushu Electric Power Company (25%), PT Medco Power Indonesia (37.5%) and Ormat International (12.75%).  Funds were arranged through a consortium of about 10 banks, mainly Japanese, but also including Société Générale and National Australia Bank.

From a technological point of view, geothermal heat will drive conventional Rankine-cycle steam turbines.  Halliburton will do the drilling to access the geothermal energy, Hyundai Engineering is responsible for procurement and construction, Toshiba will provide the turbines and Ormat Technologies will provide power converters.

The cost of the project is known (USD 1.6 billion), but what about the annual output?  Again I have to resort to an estimate. 

On the one hand, the project is said to provide baseload power.  If the Capacity Factor is 50% (perhaps a lowball estimate?), then the annual output will be 0.5 × 320 × 365 × 24 MWh or 1,402,000 MWh approximately.

On the other hand, the cited report says the project will save on 1.3 million tonnes of CO2 emissions per year.  Indonesia does not have the most modern fleet of power stations, so let’s assume an emissions intensity of 0.95 tonne CO2 per MWh.  That implies an approximate annual output of 1,368,000 MWh.  I’m inclined to accept that figure.

We can now proceed to analyse the LCOE using my standard assumptions:
  • there is no inflation,
  • taxation implications are neglected,
  • projects are funded entirely by debt,
  • all projects have the same interest rate (8%) and payback period (25 years), which means that the required rate of capital return is 9.4%,
  • all projects have the same annual maintenance and operating costs (2% of the total project cost), and
  • government subsidies are neglected.


For further commentary on my LCOE methodology, see posts on Real cost of coal-fired power, LEC – the accountant’s view, Cost of solar power (10) and (especially) Yet more on LEC.  Note that I am now using annual maintenance costs of 2% rather than 3% as in posts during 2011.

The results for the Sarulla project are as follows:

Cost per peak Watt              USD 5.00/Wp
LCOE                                     USD 133/MWh

The components of the LCOE are:
Capital           {0.094 × USD 1.6×109}/{1,368,000 MWhr} = USD 110/MWhr
O&M              {0.020 × USD 1.6×109}/{1,368,000 MWhr} = USD 23/MWhr

Conclusion

My LCOE graphic enables you to compare this geothermal result with the LCOE for various solar projects around the world.  I would say the Sarulla geothermal LCOE result is broadly comparable to current best practice in solar PV projects.


You might also be interested in a comparison with tidal power.  In February 2014, I analysed the LCOE for the Swansea Tidal Lagoon.  That LCOE, based on the same methodology, was USD 326 per MWh, some 2.45 times higher than that for Sarulla geothermal project.  The main reason for this discrepancy in LCOE is the Capacity Factor (rather than the capital cost).

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