Académique Documents
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BLthermal
)*EF
coal,CO
2
with:
BE
thermal CO
2
,y
Baseline emissions from heat displaced by the project activity during the year y; kgCO2e
EG
thermal,y,
Net quantity of steam/heat generated by the project activity during the year y; GJ
EF
coal,CO
2
CO2 emission factor of the coal currently used in the baseline plant
= 94.6 kgCO
2
/GJ (IPCC, 2003:23)
BL,thermal
Baseline efficiency of the boiler burning coal, in the absence of these project activities
=85% from plant data
Pomace is dried in a rotary drum drier that is heated by hot air from a brick furnace. Coal is
combusted in the brick furnace at a rate of 125 kg coal per ton of wet pomace. Therefore 810 tons
coal is burned to dry the 6480 tons pomace. This resulted in GHG emissions of 1 977 tCO
2e
per
annum, assuming a calorific value of 25.8 GJ/t and a default emission factor of 94.6 kgCO
2
/GJ for
bituminous coal (IPCCC, 2006:23).
Steam is generated on site using a 16 ton/hour coal fired boiler that delivers steam at 900 kPa,
175
0
C. The plant combusts 3900 tons of coal per year, which equated to 9 519 tCO
2e
per year.
Coal transport was based on a road freight distance of 1600 km. Trains are not being used due to
unavailability, and in any event the cost of using rail transport, if available, costs are equal to that of
road transport. The coal is therefore transported by truck from the mine pits to a depot, about 60
km from the processing facility and then delivered to site as required. For the road freight, the
emission factor of 0.77 kgCO
2e
/km (as used for the transportation of fruit waste) will be used. Coal
road transport GHG emissions were based on 3900 tons for the steam boiler and 930 tons for the
dryer and 24 tonnes coal per load. Emissions from coal transport were calculated as 248 tCO
2e
per
year which equated to 51.35 kgCO
2e
/t coal consumed.
Landfilling of the 2400 tons waste fruit results in methane gas released into the atmosphere. The
landfill site was considered a semi-aerobic managed solid waste disposal site due to the
composting and waste management that takes place. The multiphase model based on first order
decay was used to calculate the annual methane emissions (UNFCC, 2006e).
BE
CH4,20
=
(1-f)
GWP
CH4
(1-OX)
16
/
12
DOC
MCF
20
x=1
W
x
e
-k(y-x)
(1-e
-k
)
With,
BE
CH4,20
Calculated methane gas (tCO
2
e) released over the project period of 20 years
49
Model correction factor for uncertainty = 0.9
f Methane captured and otherwise utilised or flared = 0.5 given the partial composting
at the disposal site
GWP
CH4
Global warming potential of methane = 21
OX Oxidation factor = 0.1
F Methane fraction in emitted gas = 60%
DOC Degradable organic carbon fraction that can decompose = 17%
MCF Methane correction factor
Disposal site is considered a semi-aerobic managed solid waste disposal site = 0.5
20
x=1
W
x
Amount of waste [tonnes] disposed over the 20 years, assuming no project activity
k Decay rate = 0.185
Biomass is taken as fast decaying;
Region mean annual temperature (MAT) < 20
0
C;
Region mean annual precipitation (MAP) < Potential evapotranspiration (PET)
According to this model, the methane emissions averaged 879 tCO
2e
per year over the 20-year life
of the project (UNFCC, 2006e). No emissions for post-harvest fruit in the orchards were included
because this fruit rots under aerobic conditions. It was considered that other waste streams, such
as abattoir waste, are disposed of in an environmentally responsible manner.
The transportation of waste fruit to the landfill site is another anthropogenic activity where GHGs
are emitted and was based on the following:
100 km round trip per 16 tonne load
Fuel consumption of 0.24 kg
diesel
/km (Spalding-Fetcher, 2002)
Net calorific value (NCV) for diesel (NCV
diesel
) is 43.0 GJ/t (IPCC, 2006:18);
Emission factor (EF
diesel
) of 74 .1 kgCO
2e
/GJ (, IPCC, 2006:23)
The result was an emission factor of 0.77 kgCO
2e
/km per 16 tonne round trip. For the 2400 tonnes
and the 100km round trip, the GHG emission from the transport of waste fruit to landfill was
calculated at 11.5 tCO
2
per annum.
50
The annual emissions for the baseline were calculated as follows:
Activity tCO
2e
Electricity 3,058
Fruit waste landfill 879
Fruit waste transport 11.5
Coal (4830 tonnes) 11,744
Pomace drying 1,977
Steam boiler 9,519
Transport 248
Total 15,693
4.5.3. Anaerobic digestion
Two options for anaerobic digestion were considered. The first of the two capacity alternatives was
the case for digesting the biomass of 20 tonnes/day (6 tonnes dry per day) throughout the 135
day season and then 2 tonnes after the processing season. Plant utilisation of 80% was assumed,
in addition to a plant shut down of 20 days per annum for planned maintenance. It was assumed
that the electricity generated would be fed back into the electricity grid, while the thermal energy
would be fully utilised at the facility during the production season to supplement the steam currently
generated from the coal fired boiler.
In the first process step, waste fruit would be stored for a maximum of one or two days prior to
being digested. Hence no leakage for this decaying fruit was considered. The annual emissions
from the CHP plant was 534 tCO
2e
for the 346 day year, based on the emission factor of 54.6
kgCO
2e
/GJ for methane gas, with an anticipated methane gas yield of 1413 m
3
/day during the
season and 471 m
3
/day after the season and a calorific value for methane of 35.4 MJ/m
3
.
From Table 4.1 (section 4.3.2), the thermal energy output for this capacity was 275 kW (or 23.8
GJ/day). This reduced to 198 kW, assuming 90% plant utilisation and system losses of 10% to the
point of application. The low quality heat would be used to heat the biomass feed from an ambient
temperature to the mesophilic temperatures between 35
0
C to 40
0
C. This equated to 10.03 GJ/day,
based on the maximum flow rate of 120 m
3
/day feedstock diluted with factory effluent to 5% solids.
The high quality heat is available to supplement the factorys steaming requirement over the
season of approximately 120 days. No steam energy was substituted for the remainder of the year
given that the boiler is operated on wood biomass due to the low steam demand outside the
processing period. This offset 243 tCO
2e
per year due to a reduced requirement of 99.5 tonnes of
coal. The emission reduction resulting from coal transporting was negligible.
51
Operating the renewable energy plant for 120 days at a rate of 300 kW and a utilisation factor of
90%, displaced 778 MWh of grid supplied electricity during the season and a further 488 MWh
electricity after the season. Thereby 1114 tCO
2e
was mitigated per annum, when basing the
calculation on an emission factor of 0.88 tCO
2e
/MWh for grid supplied electricity.
All the waste fruit sent to the landfill site will be processed, which meant that an average of 879
tCO
2e
per year was mitigated from landfill gas emissions and a further 11.5 tCO
2e
per year in
respect of transportation emissions. No emission abatement was considered for transportation of
additional waste biomass from the post-harvest supply of spoiled fruit or other possible sources. It
was assumed that the anthropogenic gases emitted from transporting the postharvest waste fruit to
the digesters would be offset against the emissions mitigation because waste fruit would not be
transported to the landfill site.
The biomass was assumed to digest easily, hence no residual emissions were considered for the
agricultural application as fertiliser or composting of the digestate. However the transport of this
digestate could not be ignored. It was assumed that the digestate would not be transported more
than 30 km to the point of application, with most of it being applied at orchards within a 20 km
radius. Therefore an average transport distance of 15 km was assumed. The digestate will be
transported as sludge after being dewatered, typically as 8 ton loads. Based on a mass balance
over the system, the digestate would be produced at a rate of 11 tonnes/day and 23% solids
content after dewatering. This resulted in 3 tCO
2e
emissions per year, given an emissions factor of
0.77 kgCO
2e
/km for road transport.
The components were summed to determine the mitigating effect of the project activity.
Process step Emission decrease / (increase) [tCO
2e
]
CHP plant (534)
Grid supplied electricity displaced 1114
Coal displacement (112 tonnes coal) 243 (coal combustion)
Fruit waste landfill gas 879 (decay) + 11.5 (waste fruit transport)
Digestate transport (3) ,(sludge transport)
Total emission mitigation per annum 1711 tCO
2e
/year
For the larger 24 tonnes dry capacity alternative, the same principles hold true for both the thermal
and electrical emissions offsets. Because this project activity does not require the pomace to be
dried, the baseline emissions for drying the pomace with coal and the emissions from transporting
this coal to site are abated. The emissions offset of 5138 tCO
2e
per annum was calculated as
shown below.
52
Process step Emission decrease / (increase) [tCO
2e
]
Season After season
CHP plant (1311) (206)
Grid supplied electricity displaced 2509 394
Boiler coal offset (365 tonnes) 892
Dryer coal offset (810 tonnes) 1977
Fruit waste landfill gas 891
Digestate transport (6)
Total emission mitigation per annum 5138 tCO
2e
/year
4.5.4. Fermentation and hydrolysis
This process will use the self generated energy, while emission mitigation will realise from the coal
offset from not drying the pomace and from methane abatement from fruit decay. The bioethanol
will replace diesel as a source of fuel. The emissions by the end consumer is not expected to
improve given the emissions factor for biodiesel of 70,800 to 79,000 kg-CO
2
/TJ vs the 74,100 kg-
CO
2
/TJ for diesel (IPCC, 2006:1.24). Therefore the emissions abatement schedule resulted in an
offset of 2 862 tCO
2e
per annum.
Process step Emission decrease / (increase) [tCO
2e
]
Dryer coal offset (810 tonnes) 1977
Fruit waste landfill gas 891
Digestate transport (6)
Total emission mitigation per annum 2 862 tCO
2e
/year
4.5.5. Monitoring
When substituting the burning of fossil fuels with thermal energy, the GHGs that are emitted at the
coal fired boiler and coal fired dryer may be partially abated. For every ton of coal that is not burnt,
a carbon dioxide equivalent (CO
2
e) of 2.44 tons is mitigated. For every MWh of electricity that is
substituted with renewable energy, a reduction in GHGs of 0.88 tCO
2e
was assumed.
4.5.6. CER revenue
Certified Emissions Reductions (CERs) are the carbon offset credits generated under the UN CDM
for emission reduction investment in developing countries.
53
The source of project funding plays an important role in determining the price that the project
activities CERs can achieve in the market. In forward contracts, the purchasing party commits
project funding in advance. In exchange for an increased risk arising from having to wait for the
carbon credits to realise, the purchaser typically enters into a forward contract agreement whereby
a CER price is determined in advance. Under the current economic climate, recent reports put this
forward price for CERs in emission reduction purchase agreements between 6.50 and 8.50
(Carbonpositive, 2009, PointCarbon, 2009). In 2007, China supplied 73% of the primary CERs into
the world market. In the alternative, a project activity can be self funded, with credits sold at spot
rates when they are realised. Despite the spot CER price falling to well below 10 earlier this year,
prices have improved, with future contracts for December 2009 delivery closing above 13 on the
European Climate Exchange in June 2009 (Pointcarbon, 2009).
For purposes of this study, a CER price of 10 was used and an exchange rate of R11.50/. The
CER potential for the anaerobic digestion, compared as follows:
Anaerobic Digestion (Excluding pomace) R 196 724 p.a.
Anaerobic Digestion (Including pomace) R 591 005 p.a.
Hydrolysis & Fermentation (Including pomace) R 329 067 p.a.
4.6. SUMMARY
The projects that hold potential were identified as CSTR anaerobic digestion and the production of
bioethanol. Feed rates and feedstock may vary with the options described below.
1. Anaerobic digestion of fruit waste from the processing facility. The biomass will be
supplemented with abattoir effluent when available. Biomass from the surrounding area will be
sourced to sustain a portion of the capacity after the processing season. The biomass feed rate
graphically shown in Figure 4.4 below illustrates the change in capacity of 6 dry tons per day of
waste fruit from the processing facility to the 2 dry tons per day after the processing season
when only spoilt fruit from the packhouse would be sourced.
54
0
6
12
18
24
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
O
c
t
N
o
v
D
e
c
F
e
e
d
R
a
t
e
(
d
r
y
-
t
o
n
/
d
a
y
)
Waste Fruit
Processing
Season
Off
Season
Figure 4.4. Biomass feed rate: AD - fruit waste only
2. Anaerobic digestion of fruit waste from the processing facility. The biomass will be
supplemented by abattoir effluent when available. Biomass from the surrounding region will be
sourced after the processing season and pomace that is dried during the processing season
will supplement this feedstock to maintain maximum plant capacity. Biomass feed rate is
graphically shown in Figure 4.5. shows how the spare capacity after the season is
supplemented with dry pomace at a rate of 4 dry tons per day.
0
6
12
18
24
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
O
c
t
N
o
v
D
e
c
F
e
e
d
R
a
t
e
(
d
r
y
-
t
o
n
/
d
a
y
)
Waste Fruit
Dry Pommace
Processing
Season
Off
Season
Figure 4.5. Biomass feed rate: AD - fruit waste & dry pomace
3. Anaerobic digestion of fruit waste and wet pomace from the processing facility. The biomass
will be supplemented by abattoir effluent when available. Biomass from the surrounding area
will be sourced to sustain a portion of the capacity after the processing season. Figure 4.5
highlights how the required capacity increases to 24 dry tons per day, resulting in merely
16.7% post-season capacity utilisation.
55
0
6
12
18
24
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
O
c
t
N
o
v
D
e
c
F
e
e
d
R
a
t
e
(
d
r
y
-
t
o
n
/
d
a
y
)
Waste Fruit
Wet Pomace
Processing
Season
Off
Season
Figure 4.6: Biomass feed rate: AD - fruit waste & wet pomace
4. Fermentation of fruit waste and wet pomace from the processing facility for the manufacture of
ethanol. The plant will be adequately sized to process the biomass during the processing
season as with the third option above.
Figure 4.7 compares the GHG emission reduction expressed as tons CO
2
per annum for each of
the options above as a reduction off the baseline of 15 693 t-CO
2e
.
CO
2
abated as compared
to the basline of 15 693 t-CO
2
2158 5138 2862 1711
0
5000
10000
15000
20000
1
.
A
D
_
F
r
u
i
t
o
n
l
y
2
.
A
D
_
F
r
u
i
t
&
W
e
t
_
P
o
m
a
c
e
3
.
A
D
_
F
r
u
i
t
&
D
r
y
_
P
o
m
a
c
e
4
.
B
i
o
E
t
O
H
t
o
n
s
C
O
2
p
.
a
.
Abatement
Residual
Figure 4.7: GHG emissions abatement for the project alternatives
The shaded bars represent the GHG abatement and the clear bar the residual GHG emissions.
The greatest reduction in GHG emissions of 5 138 tons (32.7%) was realised from the anaerobic
digestion of fruit waste and wet pomace during the season. GHGs were reduction for the other two
digestion capacities and federate was 2 158 tons (13.8%) for the digestion of waste fruit and dry
pomace fed post-season only and 2 158 tons (10.9%) for the digestion of waste fruit only. The
bioethanol option yields an 18.2% GHG reduction.
56
CHAPTER 5
FINANCIAL EVALUATION
5.1. INTRODUCTION
It was established that biomass can be converted to heat and electricity and this process will offset
carbon emissions directly at the processing facility through the displacement of coal and the
avoidance of methane emissions and also indirectly through supplementing electricity supplies to
the national electricity grid and in so doing displacing the need for dirtier coal generated electricity.
In the previous sections the projects that appeared to hold potential were identified as:
1. Anaerobic digestion of fruit waste from the processing facility only.
2. Anaerobic digestion of fruit waste and pomace from the processing facility.
3. Fermentation of fruit waste and wet pomace from the processing facility to yield bioethanol.
The financial feasibility of such opportunities were determined and thereafter a determination was
made to assess the additional financial benefit from CDM revenues. The financial assumptions
must firstly be well defined.
5.1.1. Discount rate
A project will be feasible if the net present value (NPV) of the investment is positive. Therefore
future expenses and revenues need to be discounted back to present values at a predetermined
rate. This discount rate will be set at a premium above the risk-free-rate for an investment. The
risk-free rate will be based on the yield of a 10 year bond, which is currently 8.6% (Reservebank,
2009). The risk of the project will determine the premium above the risk-free rate. Potential
investors appetite for risk will affect this premium.
The REFIT guidelines set out by NERSA set the discount rate at 12% to determine the levelised
REFIT tariffs (NERSA, 2009:27). Schman (2008:45) suggests a rate of 18% for a renewable
energy project using biomass from wine cellar waste, which is in line with the current policy at the
processor when investing in a proven technology. The processor increases this rate by at least 6%
for unproven technology. A discount rate of 18% was therefore be used to determine the NPV
(termed NPV
18
hereafter) for projects using proven technology. The NPV (termed NPV
24
hereafter)
for projects that have only been proven on laboratory scale was discounted at 24%.
57
5.1.2. Project life cycle
The unpredictable future of a project beyond 10 years usually implies that forecasting is not done
past a 10 year horizon, unless specific conditions justify an extension of the forecast period.
NERSA takes a renewable energy project life to be 20 years and this period was used to determine
the REFIT, which is fixed for the full period. The renewable energy project was therefore also
calculated over the full 20 year period, given this increased predictability of the future and to
simplify comparisons between projects.
5.1.3. Capital
The cost for the small and large scale facilities were used to fix the boundary costs for the smallest
and largest facilities that were evaluated. A linear regression was applied to interpolate the capital
requirements for plant capacities between these boundaries. Figure 5.1 illustrates the Intrapolated
results of using the capital costs given in Table 4.1. As an example, a plant capacity of 12 dry tons
per day, costs R13 333 333 with an electrical output of 567 kW
e
and thermal output of 1.87 GJ/h
(519.4 MW).
13333333
567
1870
10 000 000
12 500 000
15 000 000
17 500 000
20 000 000
6 8 10 12 14 16 18 20 22 24
Capacity [dry tons per day]
C
a
p
i
t
a
l
c
o
s
t
[
R
]
0
500
1000
1500
2000
2500
3000
3500
4000
k
W
e
Capital Electrical Thermal
M
J
/
h
Figure 5.1: Intrapolated anaerobic digester capacities
Equipment was depreciated against the project so that the benefit of the tax shield was taken into
account. The 2009 tax rate for business in South Africa of 29% was used.
Tax incentives for renewable energy allows for an accelerated depreciation over three years at a
rate of 50%, 30% and 20% (refer section 2.2.1).
58
5.1.4. CDM revenue
The market price for CERs and the transaction costs to register a CDM project needed to be
established. The forward price for carbon credits has decreased significantly after the onset of the
world recession in late 2008. This price of 10/CER in the second part of 2009 was used in the
study. It is debatable whether this price would decrease further, but given the uncertainty of carbon
mitigation targets after 2012 it would be unwise to assume a price greater than the 1 year futures
price. The cross rate between the Rand and the Euro was taken as R11.50/. As this rate
preceded a bullish performance by the Rand, it was assumed that the Rand was unlikely to
appreciate further in the long term. This lead to the estimated carbon emissions revenue of
R115/CER. Tax was not deducted from CDM revenue, given that the sale of CERs qualifies for a
tax exemption (refer to section 3.5.1).
The transaction costs were assumed to be R320 000, based on Schmans study of a renewable
energy CDM project which anticipated generating 200kWe from winery biomass (Schman,
2008:49).
5.1.5. Operating parameters
The smallest plant capacity was modelled on a capacity of 6 dry tons per day and the largest at a
capacity of 20 dry tons per day. The processing season was taken as 135 days while the full year
was considered to be 346 days. This gave 20 days per year for maintenance. The plant capacity
utilisation was determined by the feed rate of the biomass. Plant availability was assumed to be
90%, as it is a reasonably simple operation.
The coal price increased sharply over the past 18 months. Although the price has stabilised, there
have been no significant reductions that suggest that this price is unrealistically high. It was
anticipated that the demand for coal will increase as the world economy recovers, which in turn
would result in a concomitant increase in the price of the coal. This price is of significance for the
savings that should be realised by generating steam and, where pomace is used, if coal is not
used to dry the pomace. The 2009 price of R1150/ton delivered to site was used and provision was
made for an annual increase of 10%.
Pomace is a by-product and its price is determined by the coal price, given that coal contributes
80% of the input costs. The price for pomace was set at R560 per air dried ton for the 2010
processing season. It was assumed that the market will be able to absorb the price increases
determined by the processor. The annual increase was set at a rate of 10%, although it is
understood that pomace serves as a substitute for yellow maize as animal feed. The average
South African futures exchange (SAFEX) prices suggests that the maize price will remain
59
reasonably constant over the next four years and only show an upward trend thereafter (BFAP,
2008:12). Increasing the price at a lower rate will increase the project attractiveness, given that the
price of pomace is an opportunity cost that is forfeited when digesting the pomace instead of
selling it as animal feed.
It was assumed that 80% of the heat from the CHP plant will be utilised for preheating the air to the
coal fired boiler at the fruit processing facility.
Currently the waste fruit is transported to a landfill site where it serves as a feedstock for
composting. The all-inclusive cost for this removal was R101.50/ton for the 2009 season. This cost
is strongly dependent on the fuel price and was be increased at a rate of 10% annually.
Operating costs for maintenance and a process controller were assumed to be R220 000 p.a. for
the smaller 6 dry tonnes per day plant and R440 000 p.a. for the larger 24 dry tonnes per day
plant.
Finally, it was assumed that some inventory for spares will be kept. Using a rule of thumb of about
1% of capital spend, this was valued at R100 000 and was be included as net working capital in
year 0.
5.1.6. Digestate
The digestate is well suited as an organic fertiliser. The selling price of the fertiliser should easily
cover the cost of transport. No profit or cost was therefore included for this by-product.
5.1.7. Ethanol
The ethanol price was expected to follow the oil price, given that ethanol serves as substitute for oil
and that there is currently no policy that mandates blending rates in biofuels in South Africa. The
100% fuel levy exemption is applicable, hence it is anticipated that the ethanol price should trade
slightly lower than the petrol price. The ethanol price was forecast to increase by 8% p.a. (BFAP,
2008:28).
5.2. FEASIBILITY EXCLUDING CDM
The nominal internal rate of return (IRR) was calculated to measure the profitability of the project.
The net present value (NPV) was also determined to afford further comparison between the project
alternatives. The alternatives were firstly considered as if the project were not registered as a CDM
project activity.
60
5.2.1. Anaerobic digestion of fruit waste
The feed rate to the anaerobic digester was kept at a capacity of 6 dry tons biomass during the
operating season and reduced to 2 dry tons per day after the season. The results from the analysis
are tabled below in Table 5.1.
Table 5.1: Anaerobic digestion of waste fruit
In-season After season Year 1 [R]
Capital for capacity Waste fruit: 6t
dry
/day Waste fruit: 2t
dry
/day (10 500 000)
Revenue
Electricity revenue 778 MWh 488 MWh 1 215 130
CERs - - 0
Cost Reductions
Boiler coal offset 99.5 ton - 114 380
Dryer coal offset 0
Biomass disposal 2400 ton - 365 400
Costs
Pomace revenue - - 0
Operating costs (220 000)
Depreciation (5 250 000)
Profit before interest & tax (3 775 091)
The early losses were due to the inflated tax shield afforded by the accelerated depreciation.
Despite these losses, the operating cash flow was positive. The early losses also quickly turned
into profits in the fourth year, but not sufficiently to compensate for the R10 500 000 capital outlay.
Based on a discount rate of 18%, the project was out of the money with an NPV
18
of -R1 925 668.
The internal rate of return (IRR) was 13.9% was above the risk-free rate and NERSAs rate of 12%.
5.2.2. Anaerobic digestion of fruit waste & dry pomace
The design rate of the anaerobic digester was kept at 6 dry tons biomass. However pomace dried
during the processing season is digested after the season to optimise the capacity of the
renewable energy plant. The results from the analysis are tabled below:
61
Table 5.2: Anaerobic digestion of waste fruit & dry pomace
In-season After season Year 1 [R]
Capital for capacity Waste fruit: 6t
dry
/day Waste fruit: 2t
dry
/day
Dry pomace: 4t
dry
/day
(10 500 000)
Revenue
Electricity revenue 778 MWh 1 464 MWh 2 152 397
CERs - - 0
Cost Reductions
Boiler coal offset 99.5 ton - 114 380
Dryer coal offset - - 0
Biomass disposal 2400 ton - 365 400
Costs
Pomace revenue - 1 004 ton
dry
(562 489)
Operating costs (220 000)
Depreciation (5 250 000)
Profit before interest & tax (3 400 313)
The project was even further out of the money with an NPV
18
of -R2 129 704. At first this may
appear counterintuitive, but as it was assumed that the price of pomace increases annually, while
the electricity revenue does not, a point was reached where the opportunity cost of not selling the
pomace as animal feed exceeded the profits from generating electricity. The 1116 air dry tons
(1004 tons O.D.) pomace generated 976 MWh
e
after the processing season, hence 1 ton air dry
pomace that could be sold at R560/ton in the first year generated a revenue of R1036.80 from the
electricity sold per air dry ton of pomace. The price of pomace was anticipated to increase at a rate
of 10% p.a so it would no longer be feasible to use dried pomace when 560(1+10%)
n
>1036.80
held, with n being the number of years after the project is commissioned. This was calculated to be
6.46 years, and therefore pomace should only be used for the first six years. Thereafter it needed
be removed from the model, on the basis that it should be more profitable to sell the pomace as
animal feed at that time.
The project NPV
18
then increased to -R1 314 224, and yielded an IRR of 15.1%, which means this
option would still be rejected.
From this analysis, it appeared that there may be merit in increasing the renewable energy plant
capacity to digest all the pomace. This could be approached in one of two ways either by digesting
the wet pomace during the season before drying, or by digesting a fraction of the pomace wet,
while drying the remainder, to be digested after the processing season.
62
5.2.3. Anaerobic digestion of fruit waste & wet pomace
The capacity of the renewable energy plant was increased to be able to digest all the pomace
during the operating season. This eliminated the need to dry the pomace, but necessitated the
larger renewable energy plant design with a capital cost of R20 000 000. This approach is tabled
below:
Table 5.3: Anaerobic digestion of waste fruit and wet pomace
In-season After season Year 1 [R]
Capital for capacity Waste fruit: 6 t
dry
/day
Wet pomace: 18 t
dry
/day
Waste fruit: 2 t
dry
/day
(20 000 000)
Revenue
Electricity revenue 2851 MWh 447 MWh 3 166 733
CERs - - 0
Cost Reductions
Boiler coal offset 365 ton - 420 085
Dryer coal offset 810 ton - 931 500
Biomass disposal 2400 ton - 365 400
Lost revenue/
Opportunity cost
Pomace revenue 2000 ton
dry
- (1 120 000)
Operating costs (440 000)
Depreciation (10 000 000)
Profit before interest & tax (6 900 282)
The opportunity cost of not selling the pomace was again offset against the revenue received from
the sale of electricity, but also from the savings realised by not burning coal in the dryer. The
pomace and coal prices were assumed to increase at the same rate of 10% and given that the
price of pomace is 44.33% greater than the coal price, it was not feasible to feed pomace from the
20
th
year of the project. Discounting this marginal difference back to the present made very little
difference to the result, but to remain consistent for purposes of comparison, it was assumed that
pomace would be sold as animal feed in year 20.
The NPV
18
of the project of -R4 099 183 and IRR of 12.8% show that the additional capital spend
did not offset the additional electricity revenue and the savings made by not burning coal to dry the
pomace.
63
5.2.4. Anaerobic digestion of wet and dry pomace and fruit waste
The question arose whether there is an optimum plant capacity that is designed to digest the waste
fruit and a part of the wet pomace during the season, while digesting dried pomace after the
processing season. Interpolating plant capacities and digesting pomace when more feasible,
yielded NPV and IRR values are plotted in Figure 5.2 below.
Project feasibility with intrapolated capacities
-4 500
-4 000
-3 500
-3 000
-2 500
-2 000
-1 500
-1 000
-500
0
6 8 10 12 14 16 18 20 22 24
Capacity [t
dry
/day]
N
P
V
[
R
'
0
0
0
]
12%
13%
14%
15%
16%
17%
18%
I
R
R
NPV
IRR
Figure 5.2: Feasibility of anaerobic digestion project activities without CDM
The initial increase in plant capacity to 11 dry tons per day marginally improved the project IRR to
15.2% based on a capital cost of R13 138 889, but it had a negative effect on the NPV
18
, which
decreased further to -R1 498 616. At this capacity, some wet pomace is digested during the
processing season and dry pomace post-season for the first 5 years. Thereafter the opportunity
cost from pomace revenue and the increased cost to dry the pomace outweighed the revenue from
the electricity and hence only wet pomace is used during the processing season. Plant capacities
above 11 dry tons per day became increasingly unattractive as the cost of capital increased,
without the benefit of increased revenue after the processing season.
5.2.5. Bioethanol - Fermentation & hydrolysis
The schedule of the revenue, savings and costs is set out below. Like anaerobic digestion, the
project was not feasible with an NPV
24
of -R1 296 057 (discount rate of 24%) and an IRR of 20.8%
which was 3.2 % below the discount rate
64
Table 5.4: Bioethanol: Fermentation and hydrolysis
In-season Year 1 [R]
Capital for capacity Waste fruit: 6 t
dry
/day
Wet pomace: 18 t
dry
/day
(9 000 000)
Revenue
Ethanol revenue 403 800 litres (318.598 tons) 1 615 200
CERs - 0
Cost Reductions
Dryer coal offset 810 ton 931 500
Biomass disposal 2400 ton 365 400
Lost revenue/
Opportunity cost
Pomace revenue 2000 ton
dry
(1 120 000)
Operating costs (497 280)
Depreciation (4 500 000)
Profit before interest & tax (2 876 113)
5.3. FEASIBILITY INCLUDING CDM
The fermentation of waste fruit and pomace to ethanol, would have had a positive NPV at a
discount rate of 18%, but no plant was identified that converts apple pomace into bioethanol,. This
raised the discount rate to 24%, which took the project out of the money. None of the projects were
in the money, thus all the projects evaluated would qualify as CDM project activities, and CDM
revenue could be generated from these projects.
5.3.1. Anaerobic digestion
the additional cost of R320 000 and the revenue from the sale of the CERs were included for this
case where the anaerobic digestion project is registered as a CDM project activity. The results for
supplementing the waste fruit with wet & dry pomace are graphed in Figure 5.3 below and the
various options are compared in Table 5.5 for the various capacities and against the scenario
where the project was not registered as a CDM project activity.
65
Project feasibility with intrapolated capacities
-1 500
-1 000
-500
0
500
6 8 10 12 14 16 18 20 22 24
Capacity [t
dry
/day]
N
P
V
[
R
'
0
0
0
]
15%
16%
17%
18%
19%
NPV
IRR
Figure 5.3: Feasibility of anaerobic digestion project activities with CDM
The CER revenue improved the feasibility of the project, such that the NPV
18
was positive for the
anaerobic digester designed at 10-12 dry tons per day, with an optimum NPV
18
for a capacity of 11
dry tons per day.
Table 5.5: Anaerobic digestion feasibility without CDM and with CDM
Project Activity No CDM As CDM project
NPV
18
IRR NPV
18
IRR
Anaerobic digestion of fruit waste only - R1 925 668 13.9% - R1 192 653 15.5%
Anaerobic digestion of fruit waste
& dry pomace
- R1 314 224 15.1% - R398 181 17.1%
Anaerobic digestion of waste fruit &
Wet pomace (24 ton/day capacity)
- R4 099 183 12.8% - R1 255 054 16.5%
Anaerobic digestion of wet & dry pomace &
waste fruit capacity 11 dry tons/day
-R1 498 616 15.2% R156 483 18.3%
5.3.2. Hydrolysis and fermentation
The cost of registering the higher risk bioethanol project was anticipated to be the same as for
anaerobic digestion of R320 000. The CER revenue due from the coal offset by not drying the
pomace and methane emissions from waste fruit decay was duly added. Table 5.6 compares the
results against the unregistered project.
66
Table 5.6: Hydrolysis and fermentation without CDM and with CDM
No CDM As CDM project
NPV
24
IRR NPV
24
IRR
Hydrolysis & fermentation of waste fruit & wet
pomace
- R1 296 057 20.8% - R263 507 23.4%
The additional CER revenue improved the feasibility of the project, but only to the point where it
was still marginally out of the money, given the high threshold level required.
5.4. SENSITIVITY ANALYSIS
The input parameters were based on assumptions, hence it as important to understand the effect
these parameters have on the feasibility of the projects.
5.4.1. Anaerobic digestion
The anaerobic digester project was not deep in the money, with small adjustments to the input
parameters having a meaningful change in the project NPV. The results are illustrated below in
Figure 5.4 and summarised in Table 5.7.
Anaerobic digestion sensitivity analysis
-6000.000
-4000.000
-2000.000
0.000
2000.000
4000.000
6000.000
50% 75% 100% 125% 150% 175% 200%
Percentage of base
N
P
V
[
R
'
0
0
0
]
CER Price
Capital
Inflation
REFIT
Figure 5.4: Sensitivity analysis Anaerobic Digestion: 11 t
d
/day capacity
67
Table 5.7: Basis of sensitivity analysis Anaerobic Digestion: 11 t
d
/day capacity
Parameter Base scenario
Levelised electricity tariff R0.96 /kWh
CER R115
Capital expenditure R13,138,889
Inflation of coal, pomace, maintenance 10%
As would be expected, the REFIT for the electricity played the most significant role in determining
the feasibility of the project. The feasibility of the project therefore suddenly change if amendments
were to be made to the REFIT tariff during NERSAs annual review of these guidelines.
The slope of the CER line was relatively flat in comparison with the REFIT, suggesting that it may
have a limited effect. Ironically the revenue received from the carbon credits was required to make
the case study feasible, taking the NPV from a negative to a positive.
It may be difficult to reduce the capital costs further and in such a way make the project attractive.
The strong effect of the capital cost on the NPV emphasises the downside risk if the project were
to be overspent due to increases in material costs or otherwise.
The inflation of coal prices specifically is of particular significance. Increases in coal price greater
than 10% per year have occurred recently. Such increases would increase the attractiveness of the
project.
The sensitivity of the discount rate was not tested because the IRR for each project was
determined. It was clear that with the project IRR = 18.3% for the base scenario, the project was
marginally feasible. The slightest variation of any of the assumed inputs can cause the project to
be out of the money.
5.4.2. Hydrolysis and fermentation
Although the production of bioethanol yielded a negative NPV, it had a higher rate of return than
the anaerobic digestion. It was therefore sensible to establish under which conditions this project
would be feasible. Figure 5.5 illustrated the results.
68
Bioethanol sensitivity analysis
-6000.000
-4000.000
-2000.000
0.000
2000.000
4000.000
6000.000
50% 75% 100% 125% 150% 175% 200%
Percentage of base
N
P
V
[
R
'
0
0
0
]
BioEtOH Price
Capital
Inflation
Yield
Figure 5.5: Bioethanol sensitivity analysis
The project was most sensitive to the price of the bioethanol and the cost of capital, but was nearly
as sensitive to the effect of inflation and the ethanol yield. The greater sensitivity to inflation versus
the anaerobic digestion project was due to revenue from bioethanol increasing with inflation, while
the price of the electricity revenue was fixed for the project duration. Taking the inflation closer to
the South African government target of 4-6% had a negative impact on the feasibility of the project.
What was unclear is whether all of these input parameters would increase at the same rate. Table
5.8 compares the base values with the conditions required for the project to be feasible.
Table 5.8: Basis of sensitivity analysis Bioethanol
Parameter Base scenario NPV > 0
Bioethanol price R4.00/l R4.14/l
Ethanol yield: Fruit & Pomace 50 l/t & 30 l/t 52.56 l/t & 31.53 l/t
Capital expenditure R9,000,000 R8,668,987
Inflation 10% 10.8%
69
CHAPTER 6
SUMMARY, CONCLUSION AND RECOMMENDATIONS
6.1 INTRODUCTION
The research report set out to establish whether a small-scale renewable energy project that uses
waste fruit and pomace as the predominant feedstock could be a feasible CDM project in South
Africa.
The most feasible technology was the anaerobic digestion of the biomass in a continuous stirred
tank reactor (CSTR) that generates biogas. The methane rich biogas is fed into a CHP unit that
delivers heat to the processing facility and the electricity into the national electricity grid. Waste fruit
and wet pomace would be co-digested with abattoir waste during the operating season. Dried
pomace, abattoir waste, waste fruit and any other non-woody biomass would be digested after the
season to optimize the utilisation of the plant capacity. A capacity of 11 dry tons per day for the
case study at a cost of R13 138 889 yielded a net present value (NPV) of -R1 ,498 616 and an IRR
of 15.2% when excluding revenue from the sale of carbon emission reduction equivalents (CERs).
If the project were registered as a CDM project activity, the revenue from the sale of CERs would
increase the NPV to R156 483 and the IRR to 18.3%. This 20.4% increase in IRR compared poorly
against the increase of 36-65% as reported by King (refer section 3.4). Given that the waste fruit is
used for composting and the pomace is consumed as animal feed, the anthropogenic gas emission
reduction for this study is lower than that cited by King resulting in a reduction of revenue from the
sale of CERs.
The hydrolysis and fermentation of waste fruit and wet pomace to produce ethanol was not
feasible, even when registering the project as a CDM project due to the higher threshold rate of
return of 24%. At this rate, the project yielded an NPV of -R263 507 and an IRR of 23.4%, while
mitigating 2861 tons of CO
2e
per annum.
70
6.2 CONCLUSIONS
1. Is the biomass renewable energy project suitable for CDM registration?
All the alternatives are eligible for CDM registration as a small scale renewable energy project
activity, because none of the projects exceeded the power cap of 15MW. Additionality held true,
given that the projects yielded an NPV < 0 without the CER revenue.
CDM participation is feasible in South Africa, despite the low number of registered projects. No
barriers were identified that would prevent the registration of this project activity as a CDM project.
The process may be onerous and this may possibly delay the registration of the project.
2. What is the feasibility of existing biomass energy technologies for this project when not
including CDM revenue?
Not all the technologies considered were technically feasible. Gasification of the biomass was
technically not feasible due to the moisture content requirement of less than 20% against that of
the biomass of 70-80% and due to the low bulk density of the biomass of 250 kg/m
3
versus the
required minimum of 500kg/m
3
.
Firing the biogas in a dual fired boiler to offset the use of coal in the processing facility was not a
feasible alternative because the revenue for electricity of R096/kWh is six fold the coal offset cost
of R0.16/kWh and the heat is only required during the processing season.
The fermentation and hydrolysis of the biomass into bioethanol yielded a rate of return of 23.4%
and an NPV of -R263 507 at a discount rate of 24%.
The digestion of waste fruit and pomace co-digested with abattoir waste in an 11 dry tonnes per
day anaerobic CSTR followed by a CHP unit that delivers heat to the processing facility and
electricity into the national electricity grid, yielded a NPV of R156 616 based on a discount rate of
18%, when excluding CER revenue.
The seasonality of the industry lead to the high capital cost in relation to total energy generated, as
the renewable energy plant must be designed to accommodate the bulk of the biomass over 5
months of the year. This leads to poor utilization of capacity. It was for this reason that the optimum
solution for the anaerobic digestion coincided with a capacity that was optimised to the extent that
waste fruit and part of the pomace is co-digested during the operating season, while the remainder
71
of the pomace was dried and digested after the season. The disadvantage of this option was the
high energy costs of drying the pomace for the later digesting.
3. Does CDM revenue improve any of the projects net present values (NVPs)?
Based on the assumptions made in the study, none of the technologies were feasible without the
additional revenue from the sale of CERs. The optimum solution which co-digests waste fruit and
pomace with abattoir waste in an anaerobic CSTR was feasible when including CDM revenue, with
the IRR increasing from 15.2% to 18.3%, i.e. a 20.4% improvement and the NPV improving from
-R1 498 616 to R156 483. This compared less favourably with King (2005:16) whom reports a 36-
65%improvement in IRR. The main reason for this difference was that the current practice of
composting the waste fruit and using the pomace as animal feed already mitigates carbon
emissions from biomass decay.
4. What boundary conditions make this project feasible?
The sensitivity analysis showed that although the optimum solution was feasible, the marginal
changes in any of the input variables made the project unattractive. A conservative approach was
taken and it is anticipated, should some of the assumptions not hold true, that it should be to the
benefit of the projects and may result in the bioethanol project being feasible. For example,
inflation of the pomace price was set equal to that of coal. Pomace is however a substitute for
maize, hence it may be more realistic to assume that the rise in the coal price would be greater
than that of maize and subsequently pomace. This would imply that a point would be reached
within the near future where it would no longer be profitable to sell dry pomace and new markets
would have to be found for the pomace. In terms of the project this implies that the opportunity cost
for not selling the pomace may be overstated.
The levelised electricity tariff of R0.96/kWh was attractive when compared to the average of
R0.35/kWh currently paid for grid supplied electricity. But it could be assumed that the price paid
for electricity may continue to rise sharply at the current rate of 34% per annum for the next three
years, after which the rate increases at 6% per annum, which is currently the upper inflation target
level of the South African Reserve Bank. This yielded a present value (PV) of R0.360/kWh,
assuming the annual kWh generated remained constant and one applies the discount rate of 12%,
as used by NERSA to determine the REFIT tariff. This was not substantially different from the PV
of R0.359/kWh for the levelised tariff.
72
6.3 FURTHER RESEARCH
Sourcing biomass to optimise the post-season capacity should be further pursued. In this study, an
underutilised farm of 50 ha, currently being used for irrigating effluent over the grasslands, could
be better utilised to grow an energy crop such as sugar beet or sugar cane. Currently no crop is
grown on the farm, given that irrigating the crop with treated effluent creates a health risk if the
crop were to be harvested for human consumption. A crop such as sugar beet would provide a
yield within its first year and, given the warmer South African climate, could be sown in Spring and
be harvested in Autumn. This makes the harvest available after the processing season, thereby
increasing plant utilization.
Alternative methods to preserve the pomace (other than drying) should be investigated so that it
becomes more feasible to store this feedstock for processing when more convenient.
The application of fruit waste and pomace to produce bioethanol or gel fuel should be studied to
establish whether the assumptions made in this study are true. Once this technology is
established, it may become the most feasible solution, even to a point where the additional
revenue from CERs are not required.
73
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