biomass chp

8/11/2019 Biomass Chp

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BIOMASS CHP

Vienna, January 2014

Student's name ID

Lovro Foretic (ERASMUS student) 1328301

Josipa Ljubicic(ERASMUS student)

1328302Marin Galic (ERASMUS student) 1328305



2

1. Homework (1-A): Biomass CHP

1.1. Problem

• Carry out a rough assessment of the economic feasibility of biomass CHP including

sensitivity analysis and identification of crucial parameters and assumptions

• Calculate net present value taking into account investment costs, O&M costs, fuel

costs, heat revenues, electricity revenues

• Collect required input data from the literature, internet or make reasonable

assumptions (to be properly documented!); document in particular biomass prices and

underlying assumptions.

Calculate NPV, taking into account:

• Investment costs,

• O&M (e.g. as a 3% share of Investment costs),

•

Fuel costs (taking into account biomass price scenario, full load hours and capacity

of the plant),

•

Heat revenues (taking into account the thermal efficiency and heat price

development),

• Electricity revenues (taking into account the electric efficiency and feed-in tariffs),

And:

• Discuss the results

• Add sensitivity analyses regarding interest rate, investment costs, biomass fuel

prices, heat revenues, etc.,

• Discuss uncertainties and practical barriers in particular, regarding biomass

availability and heat revenues.



3

1.2. Solution (Case 1)

In the February 2012. one Croatian company named Lika Energo Eko decided to open

new CHP power plant. The capacity of this power plant should be 5 MW and the fuel for

production of electricity and thermal energy should be pellets. Building this power plant,

company Lika Energo Eko decided to build a factory for pellet production too. The price of

whole project was determinate to 9 870 000 € and it was financed from the Republic of

Croatia [2].

Because of the lack of information, we assume that the electrical efficiency of this

power plant is 36% and that thermal efficiency is 44%. Total efficiency of this CHP power

plant is 80% [3]. Building a pellet factory right next to the CHP power plant, there is no need

to buy any fuel for energy production. Also, we assume that there are no significant costs in

fuel transport. According to [4] we also assume that production of fuel in this case is 0,10

€/kg what presents our fuel costs. O&M costs are 3% of total investment costs. All

information and assessments about this CHP power plant are given in the table below.

Table 1. Information and assessments of CHP power plant

Information and assessments of CHP power

plant

Power (P) 5 MW

fuel costs (pf ) 0,10 €/kg

full-load hours (t) 7 500 h

electrical efficiency (ƞel.) 36%

thermal efficiency (ƞth.) 44%

investment costs (I) 9 870 000 €

O&M costs (IO&M) 296 100 €

life time 20 years

feed-in tariff (pel)1 0,16 €/kWh

price of thermal en. (pth) 0,053 €/kWh

1 Price of electrical energy is determinate by Croatian law of Renewable Energy Sources

2 Price of thermal energy is determinate by Croatian law of Renewable Energy Sources



4

Knowing all data we need, we can now calculate electrical and thermal energy

production, annual costs, profit and money flow for each year of the life time.

We can calculate the annual production of electrical energy using power P, electrical

efficiency and full-load hours:

()

[] []

Using (1) and thermal efficiency coefficient instead electrical efficiency coefficient we

can calculate the production of thermal energy:

[] []

Knowing the energy production and energy prices, we can calculate the annual profits:

Total annual profit is given as a sum of these two profits:

Calculating the total energy, which is needed for this energy production, we will find

out how much fuel do we need for production and what are the total fuel costs for each year.

[] []



5

Using the formula for NCV3 of the fuel, we can calculate the annual fuel costs

according to fuel price [5].

( )

()

where: M – moisture content ( M pellets = 8%)

NCV 0 – 19 MJ/kg

Finally we have:

( )

If we know that pellet price is 0,10 €/kg and that the NCV pellet is 17,285 MJ/kg, we can

find out the price of pellets that we need to produce 1 GJ of energy:

Converting fuel energy (37 500 MWh) to GJ we will be able to calculate annual fuel

costs according to fuel prices for each year:

3 Net caloric value



6

Finally, annual fuel costs are:

We must say that this fuel price worth only for the first year of operating. We assume

that pellet price will rise in the future (shown in Table 2.).

Table 2. Fuel costs for each year

year pellet price [€/GJ ] total annual fuel costs [€ ]

1 5,78 780 300

2 5,8 783 000

3 5,82 785 700

4 5,87 792 450

5 5,9 796 500

6 5,92 799 200

7 5,92 799 200

8 5,95 803 2509 5,97 805 950

10 5,98 807 300

11 6,01 811 350

12 6,07 819 450

13 6,1 823 500

14 6,13 827 550

15 6,15 830 250

16 6,13 827 550

17 6,19 835 650

18 6,21 838 350

19 6,23 841 050

20 6,25 843 750



7

Picture 1. Fuel (pellet) price *€/GJ+

Pictur e 1. shows estimated fuel price during the 20 years period. We assumed that the

fuel price (pellet price) is growing up as the time flows.

Picture 2. Annual fuel price *€+

Pictur e 2. shows fuel costs in every year according to the fuel prices shown in Picture

1. and Table 2. As the pellet price grows, the annual fuel costs grow too. These costs effects

on the total costs and final money flow.

5.5

5.6

5.7

5.8

5.9

6

6.1

6.2

6.3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

f u l e p r i c e [ € / G

J ]

time [yr]

fuel price

740000

750000

760000

770000

780000

790000

800000

810000

820000

830000

840000

850000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

f u e l p r i c e [ € ]

time [yr]

Annual fuel price



8

The assumption is that O&M costs are the same for every year (I O&M = 296 100 €).

The production of electrical and thermal energy is also the same for each year ( ).

Table 3. shows all costs, profits and money flow for each year:

Table 3. All costs, profits and money flow for each year

year

O&M costs

[€ ]

fuel costs

[€ ]

Total

costs [€ ]

El. en.

profit [€ ]

Th. en.

profit [€ ]

Total

profit [€ ]

Money

flow [€ ]

1 296 100 780 300 1 076 400 2 160 000 880 000 3 040 000 1 963 600

2 296 100 783 000 1 079 100 2 160 000 880 000 3 040 000 1 960 900

3 296 100 785 700 1 081 800 2 160 000 880 000 3 040 000 1 958 200

4 296 100 792 450 1 088 550 2 160 000 880 000 3 040 000 1 951 450

5 296 100 796 500 1 092 600 2 160 000 880 000 3 040 000 1 947 400

6 296 100 799 200 1 095 300 2 160 000 880 000 3 040 000 1 944 700

7 296 100 799 200 1 095 300 2 160 000 880 000 3 040 000 1 944 700

8 296 100 803 250 1 099 350 2 160 000 880 000 3 040 000 1 940 650

9 296 100 805 950 1 102 050 2 160 000 880 000 3 040 000 1 937 950

10 296 100 807 300 1 103 400 2 160 000 880 000 3 040 000 1 936 600

11 296 100 811 350 1 107 450 2 160 000 880 000 3 040 000 1 932 550

12 296 100 819 450 1 115 550 2 160 000 880 000 3 040 000 1 924 450

13 296 100 823 500 1 119 600 2 160 000 880 000 3 040 000 1 920 400

14 296 100 827 550 1 123 650 2 160 000 880 000 3 040 000 1 916 350

15 296 100 830 250 1 126 350 2 160 000 880 000 3 040 000 1 913 650

16 296 100 827 550 1 123 650 2 160 000 880 000 3 040 000 1 916 350

17 296 100 835 650 1 131 750 2 160 000 880 000 3 040 000 1 908 250

18 296 100 838 350 1 134 450 2 160 000 880 000 3 040 000 1 905 550

19 296 100 841 050 1 137 150 2 160 000 880 000 3 040 000 1 902 850

20 296 100 843 750 1 139 850 2 160 000 880 000 3 040 000 1 900 150



9

1.3. Case 1: Calculation of money flow according to different interest rates “i”

In finance, the net present value (NPV) or net present worth (NPW) of a time series of

cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of

the individual cash flows of the same entity.

In the case when all future cash flows are incoming (such as coupons and principal of

a bond) and the only outflow of cash is the purchase price, the NPV is simply the PV of future

cash flows minus the purchase price (which is its own PV). NPV is a central tool in

discounted cash flow (DCF) analysis and is a standard method for using the time value of

money to appraise long-term projects. Used for capital budgeting and widely used throughout

economics, finance, and accounting, it measures the excess or shortfall of cash flows, in

present value terms, above the cost of funds [1].

( ) ∑ ( ) ()

where:

• R – difference between profits and losses

• t – year

• i – interest rate

Table 4. shows the real money flow for each year with different interest rates:



10

Table 4. Real money flow according to different values of interest rates

year

money flow

(i = 5%) [€]

money flow

(i = 10%) [€]

money flow

(i = 15%) [€]

money flow

(i = 20%) [€]

1 1 870 095 1 785091 1 707 478 1636 333

2 1 778 594 1 620579 1 482 722 1361 7363 1 691 567 1 471225 1 287 548 1133 218

4 1 605 463 1 332867 1 115 748 941 092,8

5 1 525 839 1 209182 968 202 782 616,4

6 1 451 165 1 097732 840 747,5 651 276,1

7 1 382 062 997 938,6 731 084,8 542 730,1

8 1 313 508 905 327,5 634 401,9 451 333,2

9 1 249 220 821 880 550 886,3 375 587,7

10 1 188 904 746 643,1 478 697,9 312 771,7

11 1 129 922 677 347 415 388,5 260 098

12 1 071 606 613 189,1 359 693,5 215 839,9

13 1 018 429 556 271,5 312 118,7 179 48814 967 887 504 634,8 270 835,2 149 257,9

15 920 498,4 458 112,6 235 177 124 206,4

16 877 902 417 053,6 204 790,3 103 651,3

17 832 563,2 377 537,1 177 325,8 860 11,02

18 791 795,4 342 729,9 153 978,2 71 574,43

19 753 022,4 311 131,2 133 704,4 59 560,85

20 716 146,6 282 445,2 116 099,7 49 563,61

TOTAL: 24 136 189 16 528 917 12 176 628 9 487 946TOTAL

(includinginvestment

costs):

14 266 189 6 658 917 2 306 628 -382 054

Picture 3. Money flow during 20-years-period with i=5%

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

m o n e y f l o w

[ € ]

time [yr]

Money flow with i = 5%



11

Calculating the total money flow with interest rate of 5% during the period of 20

years, we can see that welfare is falling down during this period. Total welfare after 20 years

is 24 136 189 € what can be seen in Table 4 .

Picture 4. Money flow during 20-years-period with i=10%

Changing the interest rate from 5% to 10%, we can see that total profit is now lower

than in case before. Total welfare is now equal to 16 528 917 €. We can also notice that

money flow curve is now falling much more faster then in case with i=5%. As the years

passing by, total annual profit is getting lower.

Picture 5. Money flow with i=15%

0

200000

400000600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

m

o n e y f l o w

[ € ]

time [yr]


0

200000

400000

600000

800000

10000001200000

1400000

1600000

1800000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

m o n e y f l o w

[ € ]

time [yr]




12

Picture 6. Money flow with i=20%

Pictur e 5. and Pictur e 6. show total money flow with interest rates 15% and 20%. As

we can see, total profits are now even more lower. Total welfare in case with i=15% is 12 176

628 €, and with i=20% is 9 487 946 €.

Pictur e 7. shows comparison of welfares for all interest rates.

Picture 7. Money flow with different interest rates

0

200000

400000

600000

800000

1000000

1200000

14000001600000

1800000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

m o n e y f l o w [ € ]

time [yr]


0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

m o n e y f l o w

[ € ]

Money flow with different interest rates [€]

i = 5%

i = 10%

i = 15%

i = 20%



13

Picture 8. Total profit in all four cases (without investment costs) *€+

Pictur e 8. shows comparison of total profits for each case at the end of power plant

lifetime. The highest profit is in the case with i=5%. As the interest rate growth, the total

profit falls.

Pictur e 9. shows comparison of total welfares for each case including investment

costs. As we can see, total profit in case with i=20% has a negative value ( -382 054 €) what

means that this project (CHP and pellet factory) in not profitable. All values of total profitsare given in Table 4 .

Picture 9.Total profit including investment costs *€+ (I= 9 870 000 €)

0

5000000

10000000

15000000

20000000

25000000

30000000

i = 5% i = 10% i = 15% i = 20%

Total profit [€]

-2000000

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

i = 5% i = 10% i = 15% i = 20%

p r o f i t [ € ]

Total profit according to investment costs [€]



14

1.3. Case 2: Calculation of money flow with new fuel prices

We decided to put new fuel prices in the calculation to see how the money flow will

react on higher pellets prices. New prices are 10% higher than before. These prices and total

fuel prices for each year are given in the table below.

Table 5. New fuel prices (10% higher than before)

year pellet price [€/GJ ] total annual fuel costs [€ ]

16,34 855 900

26,38 861 300

36,4 864 000

46,46 872 100

56,49 876 150

66,51 878 850

76,51 878 850

86,55 884 250

96,57 886 950

10

6,61 892 350116,61 892 350

126,68 901 800

136,71 905 850

146,74 909 900

156,76 912 600

166,74 909 900

176,81 919 350

186,83 922 050

196,85 924 750

206,86 926 100



15

Table 6. Money flow with different interest rates and new fuel prices

year money flow

(i = 5%) [€]

money flow

(i = 10%) [€]

money flow

(i = 15%) [€]

money flow

(i = 20%) [€]

1 1 798 095 1 716364 1 641739 1 573 333

2 1 707 574 1 555868 1 423516 1 307 3613 1 623 928 1 412397 1 236065 1 087 905

4 1 539 934 1 278465 1 070208 902 681,3

5 1 463 431 1 159726 928 601,8 750 606,8

6 1 391 729 1 052772 806 312,6 624 601,5

7 1 325 456 957 065,5 701 141,4 520 501,2

8 1 258 684 867 540,4 607 922,9 432 495,2

9 1 197 007 787 528,1 527 861,1 359 889,4

10 1 136 691 713 852,7 457 674,8 299 035,7

11 1 082 563 648 957 397 978,1 249 196,4

12 1 025 750 586 949,8 344 301,7 206 603,8

13 974 757,2 532 417,6 298 734,5 171 791,314 926 294,6 482 949,5 259 196,8 142 844

15 880 886,6 438 398,7 225 056,7 118 861,4

16 840 176,5 399 131,8 195 990 99 197,2

17 796 045,1 360 977,5 169 547,9 82 238,39

18 757 016,3 327 675,7 147 214,8 68 430,57

19 719 899,4 297 445,6 127 823,2 56 940,97

20 685 109,7 270 204,4 111 068,1 47 415,59

TOTAL: 23 131 029 15 846 685 11 677 954 9 101 930TOTAL

(includinginvestment

costs): 13 261 029 5 976 685 1 807 954 -768 070

Picture 10. Total profit with different interest rates and new fuel prices

0

5000000

10000000

15000000

20000000

25000000

i = 5% i = 10% i = 15% i = 20%

Total profit [€]



16

Picture 11. Total profit including investment costs

Picture 12. Comparison of total welfares including investment cost

As we could expect, total welfares are now lower then in case with old fuel prices.

Differences in total welfares for both cases (old and new fuel prices) are shown in Pictur e 12 .

Money flows and welfares are shown in Table 6 .

Looking at the case with interest rate i=20%, we can see that total welfare has even

higher negative value (Picture 12.).

-2000000

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

i = 5% i = 10% i = 15% i = 20%

Total profit including investment costs [€]

-2000000

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

i = 5% i = 10% i = 15% i = 20%

Comparison of total welfares including investment cost

old fuel price

new fuel price



18

Table 8. Welfares for each time period and different interest rates

t Welfare NPV(i=5%) NPV(i=10%) NPV(i=15%) NPV(i=20%)

0 -9 870 000 0 0 0 0

1 1 690 600 1 610 095 1 536909 1 470 087 1 408 833

2 1 685 200 1 528 526 1 392727 1 274 253 1 170 2783 1 682 500 1 453 407 1 264087 1 106 271 973 669

4 1 674 400 1 377 533 1 143638 957 343,6 807 484,6

5 1 670 350 1 308 763 1 037156 830 459,2 671 276,2

6 1 667 650 1 244 426 941 344,9 720 971,1 558 492,6

7 1 667 650 1 185 168 855 768,1 626 931,4 465 410,5

8 1 662 250 1 125 076 775 451,9 543 392,5 386 586,2

9 1 659 550 1 069 761 703 811,2 471 747,7 321 631,9

10 1 654 150 1 015 505 637 746,4 408 880,6 267 154,5

11 1 654 150 967 147,2 579 769,5 355 548,3 222 628,7

12 1 644 700 915 830,5 524 052,1 307 406,2 184 464,1

13 2 785 650 1 477 290 806 903,6 452 746 260 357,714 2 781 600 1 404 897 732 482,2 393 119,8 216 649,3

15 2 778 900 1 336 698 665 246,6 341 511,5 180 365,8

16 2 781 600 1 274 283 605 357,2 297 255 150 450,9

17 2 772 150 1 209 480 548 455,1 257 604,5 124 949,8

18 2 769 450 1 150 764 498 109,9 223 785,7 104 023,4

19 2 766 750 1 094 897 452 385,7 194 406,6 86 601,67

20 2 765 400 1 042 250 411 059,1 168 966,7 72 132,84

Total: 69 960 000 24 791 796 16 112 461 11 402 688 8 633 441Total

(including

investment

costs): 60 090 000 14 921 796 6 242 461 1 532 688 -1 236 559

Picture 13. Total welfare for each interest rate

-4000000

-2000000

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

i=5% i=10% i=15% i=20%

total welfare for each interest rate [€]



19

Table 8. and Pictur e 13. are showing total welfare and welfares for each time period

for different interest rates also including the investment costs. As shown in the same table, we

can see that most profitable case is the case with i=5%. Negative value for the i=20% presents

unprofitable case.

Pictur e 14. shows the comparison of all three cases with different interest rates.

Picture 14. Comparison of total welfares for all three cases with different interest rates

Picture 15. Welfare change after the feed-in tariff change

-4000000

-2000000

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

i=5% i=10% i=15% i=20%

Comparison of total welfares for all three cases and each

interest rate

Case 1

Case 2

Case 3

0

500000

1000000

1500000

2000000

2500000

3000000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

w

e l f a r e [ € ]

time [year]

Welfare change after changing feed-in tariff



20

Pictur e 15. shows the welfare change after we changed feed-in tariff (from 0,16

€/kWh to 0,20 €/kWh) and thermal energy price (from 0,053 €/kWh to 0,09 €/kWh) . It is

important to say that feed-in tariff is still relative low in Croatia. But it is realistic to expect

their growth.



21

Conclusion

All three cases show profitable projects for interest rates 5%, 10% and 15%. Also

every of these cases is unprofitable for interest rate of 20%. Comparing different fuel prices,

feed-in tariff, thermal energy prices and O&M costs we presented the sensitivities of

profitability for this project.

All results are given in pictures and tables with short explanations. All possible

misunderstandings and questions can be discussed during the oral exam.



22

Literature

[1] Wikipedia, „ Net present value“, http://en.wikipedia.org/wiki/Net_present_value,

27.12. 2013.

[2] Josip Dundović, “Kogeneracija LIKA ENERGO EKO d.o.o. Udbina”,

http://www.urh.hr/5Dundovic_SB.pdf , 27.12.2013.

[3] Wikipedia, “Kogeneracija”, http://hr.wikipedia.org/wiki/Kogeneracija, 29.12.2013.

[4] “Selected Topics in Energy Economics and Environment, Exercise VU „Selected

Topics“ on „Heating Costs””, December 2013.

[5] Lukas Kranzl, Energy Economics Group (EEG) at the Institute of Energy Systems

and Electrical Drives, “ Bioenergy - a key option within all energy sectors”, December 2013.

http://en.wikipedia.org/wiki/Net_present_value


http://www.urh.hr/5Dundovic_SB.pdf


http://hr.wikipedia.org/wiki/Kogeneracija






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