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Renewable Energy 36 (2011) 1678e1684

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Renewable Energy
journal homepage: www.elsevier.com/locate/renene

Review

Analysis on the feasibility of biomass power plants adding to the electric power
system e Economic, regulatory and market aspects e State of Par, Brazil
Gonalo Rendeiro a, *, Emanuel N. Macedo a, Giorgiana Pinheiro b, Joo Pinho c
a

Energy Biomass Environment Group, Federal University of Par, Augusto Corra 1, 66075-110 Belm, Par, Brazil
Research and Development, Energy Efciency Department, Centrais Eletricas do Par, Augusto Montenegro, 66820-000 Belm, Par, Brazil
c
Group of Studies and Development of Energy Alternatives, Federal University of Par, Augusto Corra 1, 66075-110 Belm, Par, Brazil
b

a r t i c l e i n f o

a b s t r a c t

Article history:
Received 28 August 2010
Accepted 5 November 2010
Available online 9 December 2010

This paper presents an analysis of the feasibility of implementing biomass power plants, through thermoelectric power generation, and adding such plants to the electric system of the local electric utility by
means of independent power production. Economic, regulatory, and market issues are also addressed.
The biomass being considered is produced by the lumber sector, since that is one of the industrial
sectors generating the largest amount of residues in a concentrated manner in the region under study,
and also considering the fact that the disposal of such residues is currently difcult for the lumber
companies.
The locations with the largest production of residues, as well as the size of potential plants, are
identied, the generation costs of the plants calculated, and the feasibility for implementing the plants is
evaluated considering the market and the regulation of the Brazilian electric power sector.
2010 Elsevier Ltd. All rights reserved.

Keywords:
Renewable sources
Biomass
Residues
Costs
Viability

1. Introduction
Biomass made up of residues from industrial processes is one of
the alternatives considered for power generation through nonconventional sources and/or technologies. Agroindustry and the
forest industry, including the sugar cane, paper and pulp, and
lumber industries, are examples of sectors that produce residues
with an important potential for energy utilization in Brazil, through
direct ring of such residues in plants that generate power with
a technology based upon steam cycle.
In the Brazilian State of Par, the lumber sector, in particular,
generates a signicant amount of residues e approximately, 6 million
cubic meters of residues annually. Out of that volume, some 3.2 million
cubic meters have a potential for utilization in power generation [1].
In thermoelectric power plants, the residues produced in Par
State that can be utilized account for a potential of around 160 MW.
That potential is distributed throughout the States municipalities
in the many lumber companies, which are usually located near

Abbreviations: PIE, Independent Energy Producers; ACR, Regulated Contracting


Environment; ACL, Free Contract Environment; SIN, Integrate the National Interconnected System; VR, Reference Value; PROINFA, Alternative Electric Energy
Sources Incentive Program; VE, Economic Value; CCC, Fossil Fuel Consumption Bill;
NPV, Net present value; PB, Payback; GC, Generation cost.
* Corresponding author. Tel./fax: 55 09132017959.
E-mail address: rendeiro@ufpa.br (G. Rendeiro).
0960-1481/$ e see front matter 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.renene.2010.11.015

urban centers. Considering the maximum demand by the municipalities and the geographic distribution of potential generators,
such generation would have considerable penetration in some
regions of the State.
Since in the case of power generation using biomass residues the
transport costs may render a power plant unfeasible, implementing
the plant as near as possible to the location where the residue is
generated is desirable [2]. Since the residue-producing companies
are usually located near urban centers, and the power delivered by
those plants is small (between 500 kW and 10,000 kW), the power
plants may be connected to the electric system at medium voltage
level, with the generation being distributed in the municipalities [3].
Thus, the objective of this paper is to present an analysis on the
feasibility of using the biomass resulting from residues, in the
region where they are produced, for the generation of electric
power by thermoelectric power plants and adding them to the
electric system considering economic, regulatory and market
issues. It is also intended for a preliminary discussion of adjustments in the legislation, to better render such biomass utilization
feasible.
2. Residue biomass potential
This section presents the production of residues and its corresponding energy potential for the area under analysis e the State of
Par, Brazil (Fig. 1). In Par, the lumber sector is currently the main

G. Rendeiro et al. / Renewable Energy 36 (2011) 1678e1684

1679

Fig. 1. The State of Par, Brazil: the area under study.

Fig. 2. Map showing the potential of Par State.

generator of residue biomass with possible utilization in power


production.
Lumber companies in the State produce roughly 3.2 million
cubic meters of residues per year with possible utilization for
power production [1]. That volume does not include the residues
used for process heat generation by the companies and only the
residues from companies operating with an environmental permit,
thus producing residues in a sustainable manner, are accounted for.
That gure was obtained from estimates that consider the volume
of processed lumber supplied by those companies and the typical
utilization rates in the region (55% in sawing, 70% in processing, and
65% in slicing) [1].
Out of the States 143 municipalities, 60% produce biomass, 10%
have isolated systems, and 50% make part of the Brazilian interconnected system.
One important aspect to be mentioned is that the residueproducing companies are generally located near cities, thus
allowing for biomass-based electric power generation to be fed to
the utilitys distribution grid [4].
Considering the alternative of direct ring that biomass in
thermoelectric power plants, the residues produced in Par State
that can be utilized, account for a potential of around 160 MW. That
potential was obtained on the basis of the typical characteristics
shown in Table 1 [5], and the specic consumption of the units
ranging from 2.5 to 5 kgbiomass/kW h.
Fig. 2 shows the energy potential distribution map for the
biomass from the residues produced in the State.
Fig. 3(a) and (b) show the typical potential ranges that were
identied in the companies as well as the total by municipality,
where it can be seen that the power plants are small but can be
representative, considering the small demands of several municipalities in the region. On average, the companies that were studied
showed an individual potential ranging from 100 to 400 kW, while

a large part of the municipalities presented a potential between


500 kW and 5000 kW.

3. Legal aspects
This section introduces overall comments on the legal aspects
regarding independent power production, incentives to renewable
sources, and market aspects of the Brazilian Electric Power Sector,
which will all be considered in the feasibility analysis for implementing the biomass-based power plants.
Table 2 shows the main changes in the Brazilian Electric Power
Sector in the past decade, which are also of relevant importance for
the feasibility of adding distributed power generation from
renewable sources to the electric power grid of the utilities.
Residue producers studied here may become self-producing or
Independent Energy Producers (Produtor Independente de
Energia e PIE) by trading the generation surplus or the entire
energy generated, if they are authorized to produce and trade
electric power [7].
Such PIEs will be able to sell energy in the Regulated Contracting
Environment (Ambiente de Contratao Regulada e ACR), where
the price of energy is regulated by the granting power through
auctions or calls for bids, if they are characterized as generation
distributed in the electric power distribution system [8]. In such
environment, MW h prices will be based on by the Brazilian
Reference Value (Valor de Referncia e VR), the adjusted value of
which, for contracts entered into in 2009, is US$ 75.57/MW h (on
the basis of June/2008). PIEs may also sell energy in the Free
Contract Environment (Ambiente de Contratao Livre e ACL) to
trading agents by means of free trade [9]. Considering that the

Table 1
Typical characteristics of the biomass used [5].
Biomass

Low heat value e LHV (kcal/kg)

Bulk density (kg/m3)

Immediate chemical analysis


Moisture (%)

Volatiles content (%)

Ash content (%)

Fixed carbon content (%)

Forest Residues

200

30

80

19

1680

G. Rendeiro et al. / Renewable Energy 36 (2011) 1678e1684

Fig. 3. Potential ranges by municipality (a); Potential ranges by company (b).

Table 2
Models of the Brazilian electric power sector [6].
Old model (until 1995)

Free market model (1995 through 2003)

New model (after 2004)

Financing through public resources


Verticalized companies

Financing through public and private resources


Companies divided by activity:
generation, transmission,
distribution and sales
Opening and emphasis
in privatizing the companies
Competition in power generation and sales
Free and captive consumers
Freely-traded prices in generation and sales

Financing through public and private resources


Companies divided by activity: generation, transmission,
distribution, sales, importing and exporting

Predominantly state-owned companies


Monopolies e inexistent competition
Captive consumers
Tariffs regulated in all segments

Regulated market
Determinative planning e electrical
systems planning coordination group
Purchase: 100% from the market

Free market
Indicative planning by the National
Council for Energy Policies (CNPE)
Purchase: 85% from the market (until Aug./2003)
and 95% from the market (until Dec./2004)
Surplus/decit of the energy balance settled
at the wholesale electric energy market

Surplus/decit of the energy


balance apportioned among buyers

electricity trading agents can buy energy through bilateral


contracts entered into in the ACL and sell the power to distributors
at ACR auctions, it can be said that in ACL the price of the MWh
would be partially inuenced by the VR. In todays free market, the
energy is sold at a price that is roughly 10% lower than that in the
regulated market, according to a survey by the Brazilian Association
of Large Industrial Power Consumers and Free Consumers
(ABRACE). The residue producers located in the municipalities that
Integrate the National Interconnected System (Sistema Interligado
Nacional e SIN) may alternatively become Independent Power
Producers (PIE) [10], whose power production has incentives from
the Alternative Electric Energy Sources Incentive Program (Programa de Incentivo as Fontes Alternativas e PROINFA), which
guarantees the purchase by Eletrobras of the energy generated at

Table 3
Economic analysis e premises.
Items
Biomass cost
Taxes
Discount rate
Depreciation time
Preventive/corrective
maintenance
Salary of operators
Nr. of operators
Nr. of annual
operating hours
Losses

Price

Unit

Notes

US$

PIE generates biomass


in its production process
e
e
e
3% of the amount
for the investment
e
Four shifts and one
relief worker, 2 per shift
120 h for annual
maintenance
e

0.34
14.00
25.00
3.00

%
% pa
Year
%

996.82
10.00

US$
e

8640.00

Hour

10.00

Coexistence between state-owned and private companies

Competition in power generation and sales


Free and captive consumers
In the free environment: Freely-traded prices in generation
and sales. In the regulated environment: auction
and bidding for the lowest tariff
Coexistence between free and regulated markets
Planning by the energy research company
Purchase: 100% from the market reserve
Surplus/decit of the energy balance settled at the CCEE
(Power Commercialization Chamber). Surplus and decit
offset mechanism for the distribution companies

the Economic Value (Valor Econmico e VE) corresponding to the


specic technology for each source e for the biomass from wood
residues, the VE is US$ 72.83/MW h [11] (based on the September/
2008 price).
It is important to notice that the residue generators located in
the municipalities taking part in the isolated system shall benet
from the apportionment of the Fossil Fuel Consumption Bill (Conta
de Consumo de Combustveis Fsseis e CCC), which is paid on
a monthly basis and levied upon the share of energy that is
commercialized, being such payment limited to year 2022 [12]. It
must account for a maximum of 75% of the share of investment
proven to have promoted the reduction of the expenditure of the
CCC [13]. The CCC is a subsidy that covers the fossil fuel costs of the
Brazilian isolated system [14]. As to the commercialization of the
energy in the isolated system, it can also be carried out in the ACR
and in the ACL, the reference value for the generation cost in the
ACR corresponding to US$ 72.89/MW h.

4. Economic feasibility analysis


This item presents the economic analysis of biomass-based
power generation plants using the Rankine cycle with steam

Table 4
Unit costs for the investment.
Power (kW)

Unit cost (US$/kW)

50
200
>1000

11,640.21
5291.00
1587.30

G. Rendeiro et al. / Renewable Energy 36 (2011) 1678e1684

1681

Table 5
Economic parameters for enterprises in the isolated system.
Parameters

Plant power (kW)

NPV (US$)
Trade price (US$/MW h)
Payback (years)
Generation cost (US$/MW h)

50

200

1000

5000

10,000

20,000

50,000

277,909.47
764.55
8.04
764.03

502,106.11
284.13
8.07
284.19

761,428.31
77.78
8.02
77.64

3,738,208.88
65.08
8.1
65.20

7,646,803.72
64.02
8
63.83

15,088,755.15
62.96
8.06
62.96

37,602,228.57
62.43
8.08
62.47

Table 6
Economic parameters for enterprises in the interconnected system.
Parameters

Plant power (kW)

NPV (US$)
Trade price (US$/MWh)
Payback (years)
Generation cost (US$/MWh)

50

200

1000

5000

10,000

20,000

50,000

274,405.64
925.93
8.1
763.36

500,852.39
358.20
8.08
284.13

759,547.73
100.00
8.03
77.62

3,822,615.56
87.83
8
65.36

7,627,997.95
86.24
8.01
63.80

15,051,143.60
85.19
8.07
62.94

37,508,199.69
84.66
8.09
62.46

turbines. The main objective is to determine the cost of generation, as well as the trade price for a payback time of around
eight years, a period considered reasonable for biomass-based
power generation plants [15] and, thus, to verify the feasibility
of implementing biomass-based plants of several sizes, taking
into consideration the costs of investment, maintenance and
operation, and the legislation for trading energy in effect in the
electrical sector. Economic parameters presented here to
provide the grounds for the analysis are the Net Present Value
(NPV) and the Payback (PB). It was also calculated the generation cost (GC), and determined a trade price for approximately
eight years payback.
The economic analysis was performed using the Eqs. (1)e(7)
[16] as follows.

NPV I CNU

n
X

VPa

(1)

j1

Where: I initial investment; CNU costs not uniform in present,


VPa present value associated with an annuity.

CNU

Cn
1
in
n1

(2)

Where: Cn Cash Flow made in period n, n number of periods,


i interest rate to current period n equal to minimum attractiveness rate.

VPa

a1 in 1
i1 in

(3)

Where: a Values of temporal types of limited duration, with all


terms equal to and payable from the rst period.


Payback KCLneg

jCLneg j


CLpos CLneg 


(4)

Where: KCLneg period of nal negative net cash; CLneg Value of


the nal negative net cash; CLpos Value of the rst positive net
cash.

GC

CCVa
fc Pc Dt

(5)

Where: GC Generation cost, fc Load factor, Dt one year period;


Pc nominal power of charge, CCVa Cost Annualized life cycle.



CCVa I CRp VPa

MAR1 MARn
1 MARn 1

(6)

Where: CRp replacement costs in present; MAR minimum


attractiveness rate.

CRp

Rj
k
X
X

Ij

j1 m1

1 MARTj

Fig. 4. Trade price for the isolated system.

!
(7)

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G. Rendeiro et al. / Renewable Energy 36 (2011) 1678e1684

Fig. 5. Trade price for the interconnected system.

Fig. 6. Return on investment e isolated system.

Where: k Number of system components; Rj Number of


component replacements during the examination period n;
Ij Cost of component j, Tj Useful life of the component j.
Initially, the results are presented considering that the entire
biomass residues will be produced by the generator itself and,
therefore, the cost is zero, and such generators will join the electrical system as independent power producers selling all of the
energy that is generated.
Table 3 shows the premises adopted for the conducted analysis.
The unit cost considered was based upon quotes for equipment
and services related to the implementation of power plants in 2009,
as per Table 4 below:

The analyses included power plants ranging from 50 kW to


10 MW, considering the potential of possible generators. Costs for
the investment refer to those power plants with 1 generation unit,
since systems based on direct biomass ring using steam turbines
have no modularity [17].
Evaluations were conducted separately for the companies in
isolated system, as well as those in the interconnected system, since
the incentives are different for either case [18]. The price of the MW
for commercialization that was used as the basis in the feasibility
study was the Annual Reference Value e VR, for enterprises in the
isolated and interconnected systems, and the energy commercialization prices were obtained for a payback of approximately 8 years.
Additionally, for the isolated system the benets of CCC subrogation up to 75% of the investment value, as dened in the relevant
legislation, were considered [13].

Fig. 7. Return on investment e interconnected system.

Fig. 8. Maximum biomass unit cost e isolated system.

G. Rendeiro et al. / Renewable Energy 36 (2011) 1678e1684

Fig. 9. Maximum biomass unit cost of e interconnected system.

1683

It can be noticed that for output powers higher than 1000 kW,
the biomass cost that renders the business unfeasible drops
considerably in relation to smaller power plants. That is due to the
large amount of biomass required for operating the larger power
plants, if compared to smaller plants, and the value remains
virtually constant, around US$ 3.44/ton, both for the isolated and
the interconnected systems.
Such values were obtained by considering that all the biomass
required for the power plant would be purchased, that the specic
consumption is 2.5 kgbiomass/kW h for powers higher than 1000 kW,
and 5 kgbiomass/kW h for powers lower than 1000 kW [15], and they
represent the total costs including biomass transport to the power
plant.
Figs. 10 and 11 show the commercialization prices required to
continue with an 8-year payback. When all the biomass is
purchased at its maximum price, the generation cost increases by
about 10%e20%.
5. Conclusions

Fig. 10. Trade price including purchase of biomass e isolated system.

Tables 5 and 6 show the results obtained, for several power


rates, considering both the isolated and interconnected systems.
Figs. 4 and 5 show a graphic representation of the trade prices
when the payback is set at eight years [14] for each plant size in
relation to the VR.
Figs. 6 and 7 show the payback when the trade price is set equal
to the VR in relation to the payback initially desirable for this type
of enterprise (8 years).
Next, the analysis of the results is presented, considering the
biomass at no zero cost. In this analysis, the trade price obtained for
an 8-year payback [15] with biomass at zero cost was maintained,
and the maximum biomass unit price for each power plant size was
veried. Unfeasibility was dened when the 12.5-year payback was
reached, taking into account that such period of time accounts for
half the lifetime of the equipment [15].
Figs. 8 and 9 show the maximum unit costs at which biomass
can be purchased without rendering the project unfeasible.

Fig. 11. Trade price including purchase of biomass e interconnected system.

Analyses indicated, in the case of the interconnected system, the


feasibility for plants with output power higher than 5000 kW to sell
energy as an Independent Energy Producer (PIE) at the cost of the
Reference Value (VR). For powers lower than that, the return on
investment is greater than the 25-year span in the study. Considering the VR as the energy trade price, the payback for the
companies was around 11 years for those enterprises with output
power higher than 5000 kW.
As for the isolated system, the analyses indicated feasibility for
plants with output power higher than 1000 kW to sell energy as an
Independent Energy Producer (PIE) at the cost of the Reference
Value (VR).
Considering the VR as the trade price for energy, the payback for
the enterprises was around 7 years for the plants with output
power of 1000 kW. For output powers lower than that, the return
on investment is greater than the 25-year span in the study.
From the results obtained, it can be veried that in the interconnected system the energy sales contracts between the PIEs and
the distribution agents or commercialization agents in the ACR,
having the VR as the limit-value, do not allow for a payback as
expected by possible investors; the same applies to those energy
sales contracts within the scope of the PROINFA, with energy price
limited by the Economic Value (VE). This fact impairs the introduction of possible biomass-based Independent Producers to the
interconnected system, seen that such producers would be limited
to selling energy in the ACL to free consumers or commercialization
agents e the contracts with free consumers usually tend to have
shorter terms than those with power distribution companies, and
this makes it difcult to obtain nancing for implanting new power
plants using residue biomass in direct-ring systems. Thus, in order
to stimulate the addition of such possible generators, the reference
values should be higher.
In the isolated system, the addition of independent producers is
rendered feasible by the possibility of obtaining CCC subrogation,
and that should be considered specically in those municipalities
outside the new lumber frontiers, taking into account the environmental issues pertaining to such new frontiers.
The power plants with an output lower than 1000 kW are not
feasible due to the high investment cost, considering the gains of
scale when the power in the plants is increased.
Considering what was explained above, it can be said that the
more feasible biomass use alternative in Par is the independent
production when the output is higher than 1000 kW. This way,
although several companies do produce residues, it would not be
feasible to invest in power generation due to the output power of

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G. Rendeiro et al. / Renewable Energy 36 (2011) 1678e1684

some plants being lower than 1000 kW. The utilization of the
biomass that is produced becomes more feasible for higher output
powers, which can be obtained by concentrating the residue
production of one municipality or region for power generation in
a single plant. And for that to be possible, the cost of transport and
purchase of biomass, and the fuel (biomass) at no zero cost
anymore, must be considered, whereby the business is only feasible
with biomass costs of up to US$ 3.44/ton.

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