The development of a business framework and techno-financial model for biomass power plants

Abstract

Renewable Energy (RE) was included in the 8th Malaysia Plan to ensure a sustainable energy growth for the country. An initial target of 600MW grid connected power plants, fuelled by RE sources, was set by the year 2005. However, their planting up have been sluggish. Only a few of the 62 approvals have taken off indicating, invariably, the need to revamp the 5th fuel policy for the forthcoming 9th Malaysia Plan (2006-2010). The objective of this Research Project is, therefore, to structure a business framework for the implementation of a technically feasible RE project and the construction of a Techno-Financial Model to determine its financial viability. The methodology of the research was, firstly, a research survey to identify the critical factors that ensure successful implementation of such a project and also the financial parameters that determine its viability. These data, from actual projects, were then used to design the business framework and the Techno-Financial Model. The business framework in the implementation of a biomass power project comprises the implementation, technical and financial structures. The implementation structure involves putting all the “players� and their linkages in place; the technical structure considers the technology to be employed; and the financial structure involves structuring the (financial) viability of the project. The research project delved in-depth the construction of a Techno (sic) - Financial Model (TFM) which amalgamates all the crucial “technical� and “financial� components inter-reacting iteratively to provide a cost-efficient investment. The TFM constructed also acts as a “negotiating� and “enabling� tool which was used successfully during negotiation of the electricity tariff with the Utilities and rising of funds with the Bankers. Analysis using the TFM on a Biomass Power Plant reveals that the electricity tariff of RMsen 17 per kWh yielding an Internal Rate of Return of 12.12% with a payback period of 7 years is not lucrative enough to attract RE Developers. The Research thus concluded that grid connected RE power generation in Malaysia is not a viable proposition, except in cogenerations for captive consumers. Therefore, these initiatives must be localised: localised feedstock; localised RE Technology; and localised distribution. It is recommended that the determination of RE generated electricity tariff by a Renewable Energy Development Board be based on a-case-by-case basis to ensure its viability and success