This is an extract from a recent report by Putra Adhiguna, Energy Analyst, Institute for Energy Economics and Financial Analysis which discusses the various opportunities, challenges and outlook for biomass cofiring in Indonesia.
Executive Summary
Over the past year, Indonesia’s energy policy teams have devoted new resources to a plan focused on efforts to extend the life of PT Perusahaan Listrik Negara’s (PLN’s) coal-fired power fleet by switching to biomass cofiring. The plan focuses on leveraging PLN’s existing 18 GW of coal-fired power plant capacity. The planners are betting that they can slowly increase biomass power generation by cofiring, a strategy that would potentially extend the life of older and under-utilized coal units while at the same time claiming credit for increasing the renewable energy mix.
PLN’s cofiring roadmap proposes to migrate its 114 existing coal-fired power plants to cofiring by 2024. The plan includes ‘feedstock increases’ between 2021 and 2023. The cofiring plan, advanced by the Ministry of Energy and Mineral Resources (MEMR), will require nothing less than the creation of a large- scale biomass industry, to provide a stable cofiring fuel supplies anywhere between 4 to 9 million tonnes annually.
IEEFA’s analysis shows that MEMR’s analytical framework for biomass cofiring should be adjusted to reflect both the technical and economic variables associated with biomass cofiring. It is also crucial to acknowledge the many market barriers to developing sustainable biomass feedstock supply chain.
At the market level, the viability of this plan will rest on the following considerations:
- Low ratio cofiring is a mature technology – yet its application globally remains small in comparison to other technology options. This raises the question of economic feasibility.Cofiring has been utilized since the late 1990s in a number of countries. The primary barriers to acceptance have remained largely unchanged over the past twenty years. This includes the premium price of biomass, the ability to establish stable feedstock supply chains, and a range of technical challenges—all of which need to be addressed clearly by the developers, PLN and MEMR. It is not clear that this technology can scale efficiently in Indonesia’s diverse geographies.
- Policy interventions and incentives have been instrumental to the development of cofiring elsewhere. Does PLN have the resources to support this initiative? Policy support such as Feed-in-Tariffs (FITs) and Renewable Portfolio Standards (RPS) have been critical in the development of cofiring in other countries. Currently, no planned policy incentives have been introduced which raises the question of whether PLN will be able to deliver cofiring without encountering technical and financial barriers.
- To understand the full costs of biomass cofiring, it is crucial to analyze the “total impact” of cofiring on PLN’s operational and financial results. Analysts know that cofiring cannot be evaluated just on the basis of fuel costs alone. Key stakeholders will need to evaluate the costs resulting from the way that cofiring will change the operational profile of coal-fired power plants, resulting in increased ash deposition, corrosion, and reduced fuel usage efficiency. Non-conventional wood biomass such as sawdust could offer a lower cost fuel, but feedstock options need to be anchored to a viable supply plan and a sound technical assessment. Proper examination of a waste-based refuse derived fuel (RDF) specification is even more critical given its potentially challenging properties for cofiring. Technical implications of using lower grade biomass should be fully considered to ensure that the performance of PLN’s coal-fired power plants is not ‘sacrificed’ in the process.
- Biomass cost should always be disclosed in an energy-adjusted way. The unit cost of biomass—IDR/USD per kg—comparison versus coal should be normalized to permit energy equivalent comparisons. It is clear that most of the biomass candidates have lower energy values and that operating in cofiring mode could degrade the performance of the coal-fired power plant units. PLN’s company policy has already incorporated this factor and public disclosure of cofiring plans should be delivered coherently with similar clarity.
- The recent growth in Indonesia’s wood-based biomass industry is a result of increased international demand for biomass based on premium pricing. Whether a market would develop to respond to the low-cost biomass demanded by PLN remains an open question. Traditional wood-based biomass such as wood pellets and Palm Kernel Shells (PKS) are likely ‘priced out’ with the intent to acquire biomass at a price lower than coal. Non-conventional biomass such as sawdust could be an option, but its viability and transportability will need to be critically examined with wood-based biomass largely confined to Sumatra and Kalimantan, where only 18% of PLN’s coal-fired power plants reside.
- Flexible cofiring reduces operational risks but raises market risks due to the potential of feedstock supply problems. The fuel flexibility offered by cofiring (the ability to switch back to coal) relieves PLN from biomass supply reliance—something that has dragged down many biomass power generation projects. Such flexibility, however, can discourage potential investors looking for a secure market opportunity. Long-term purchase contracts would likely be needed to help build a critical mass for the biomass industry. At the same time, if long-term contracts are required, it could result in the same type of “lock-in” risk that PLN already faces with coal and gas suppliers.
- PLN’s aggressive pursuit of cofiring should take into account the lessons learned from other countries. Currently PLN has outlined an aggressive plan to meet its cofiring targets by 2024. China and the U.S. have taken measured and prudent steps in adopting cofiring, despite their enormous biomass potential, large coal-fired power plant fleets, and strong power plant technological base. Comparison to biomass applications in other countries -such as UK- should also be treated with care. In 2019, policy-based support toward UK’s largest biomass power plant amounted to more than £700m. PLN and MEMR would benefit from studying lessons from other countries to ensure the viability of a cofiring program. The key problems have been financial risks due to poor fuel economics and operational constraints resulting from the challenging properties of biomass. The predominance of pulverized coal (PC) boilers in PLN’s coal fleet should also be evaluated as PC boilers have a narrower range of tolerance for fuel properties.
- Presenting a clear cofiring roadmap that addresses the market challenges will be crucial to gain trust from both public and private sector investors. Constructing a targeted priority plan would likely be more beneficial than casting a nation-wide net. Putting forward pilot cases which are heavily funded by grants and CSR funding also does not build confidence about the ability of cofiring to attract major investments. Transparency of the viable supply cost (which can be scaled up) is necessary, along with clarity of the demand centre, and demand forecasts. Establishment of a biomass specification standard has been suggested and is essential for establishing a viable biomass feedstock market.
Given the inflexibility of Indonesia’s generation mix, it is not surprising that cofiring could be viewed as one of the few technically feasible strategies for increasing bioenergy use. The challenge lies in its economic feasibility. The claim that biomass could be obtained at a price lower than coal is a commendable ambition, but it has generally not been possible in other countries which implement cofiring based on careful selection of biomass.
Optimal coal-fired power plant operation is dependent upon the utilization of higher-grade wood chips, pellets and (to a certain extent) palm kernel shells. IEEFA’s evaluation of both existing wood biomass and RDF pilot projects suggest substantial hurdles remain and that a clear roadmap which identifies how these challenges will be addressed may be needed to address viability. Launching a large-scale national program without addressing regional feedstock supply problems does not provide clarity for the road ahead.
Would cofiring be possible? Perhaps, but stakeholders should remain critical about the realistic scale at which it can be achieved in comparison to the bold targets proposed by MEMR. Reaching the scale required by the plan warrants a large industrial-scale investment to ensure stable long-term supply, as well as overcoming other outlined constraints. Furthermore, the projected rise of Independent Power Producers (IPP) and the decline of PLN power generation share in the coming decade would also need to be considered in evaluating the full impact.
IEEFA believes that a focused effort to prioritize particular regions could be more viable than chasing the dream of an ambitious nation-wide deployment plan. A targeted deployment plan focused on demonstrating commercial viability and PLN’s willingness to support long-term purchase agreements would send a stronger positive signal to attract major investments for the biomass industry. Indonesia has the potential to become a powerhouse for the biomass industry, and the cofiring ambition could be a starting point to spark its development. Such ambition, however, could only be established with sound planning and the transparency needed to support a stable long-term market.
Background
In early 2020, the MEMR and PLN announced plans to implement cofiring in Indonesia’s coal-fired power plants (CFPP) by blending solid biomass as fuel along with coal. With the aim to increase the renewable energy mix, the ability to capitalize on PLN’s existing CFPP capacity was deemed an attractive opportunity for Indonesia with its 31 GW of CFPP in operation, comprising 50.3% of the country’s installed power generation capacity. The country’s total bioenergy generation capacity has stagnated below the 1.9 GW mark, largely comprised by captive power generation with less than 11% connected to the grid.
The pivot towards biomass does not come without viability risk, however. Power generation involving the biomass sector has had a long trail of challenges, both in economics and in securing feedstock supply, warranting a careful examination of how the cofiring initiative can be fully realized. PLN is spearheading the program with the grand ambition of using biomass cofiring across its 144 CFPPs, a goal which essentially requires the creation of a large-scale biomass industry across the country.
As a country with a sizeable agricultural and forestry industry, the utilization of residues in cofiring could help add economic value while municipal waste usage could alleviate the growing waste management challenge in urban areas. For clarity, the use of waste as an energy source in Indonesia is sometimes addressed as ‘biomass resource’ although the technical definition depends on the composition of the waste, which can vary from organic material to non-organics such as plastics.
To create momentum for the program, PLN announced in September 2020 that it had successfully completed a number of cofiring runs in several of its subsidiary power plants under PT Pembangkitan Jawa Bali (PJB) and PT Indonesia Power (IP). Depending on local sources, palm kernel shell, RDF waste pellets, wood pellets, wood chips and sawdust of varying ratios had been utilized in the trials.
Indonesia’s biomass plans were confirmed earlier in the year when the Indonesian National Energy Plan (RUEN) projected a prominent role for bioenergy in the power sector. RUEN outlined a target of 5.5 GW by 2025 while the 2019-2028 Electricity Supply Business Plan (RUPTL) outlined a lower target of 2.6 GW. With a current bioenergy capacity of 1.9 GW, cofiring presents a potential avenue to close the realization gap. The plan rests on MEMR and PLN’s target of 900 MW of a bioenergy mix to be achieved through 5% cofiring across all of PLN’s CFPPs. This plan acknowledges the fact that private IPPs would be excluded from any biomass cofiring plan. This reflects the fact that contractual PPA terms with existing take-or- pay fuel supply contracts would not support an ad hoc shift to new fuels or amended operating conditions.
Based on our analysis of the biomass cofiring plan and the experience of other countries that have pursued biomass energy, we believe that policymakers and market players should focus on the following program fundamentals to assess viability.
Low-Ratio Cofiring Is a Mature Technology – Its Application Has Largely Been a Question of Economics
What Is It?
Cofiring involves the combustion of solid biomass which could be obtained from forestry or wood industry residues, agricultural residues, municipal solid wastes, and dedicated energy crops. Cofiring offers the benefits of lower capital costs, improved economies of scale, and the higher efficiency of large CFPP compared to smaller pure-biomass power plants which lack scale.
For PLN, the capital investment cost will be reduced by using existing CFPP. However, new investment will be required if the units need to be retrofitted depending on the type of biomass and cofiring ratio planned. Given the vast variety of biomass feedstock properties which can differ widely compared to coal properties, proper evaluation of biomass fuel is essential. Stable feedstock supply, high cost of biomass, and technical challenges such as ash deposition and accelerated boiler corrosion are common problems that can degrade facilities and would need to be addressed upfront to ensure a successful and sustainable cofiring program.
Why Do It?
The key driver behind cofiring adoption in many countries has been the aim to reduce greenhouse gas (GHG) emissions by replacing coal use with biomass. Traditional pollutants such as SOx and NOx also decrease with the different properties and lower sulphur content of most biomass fuels.
Not all biomass fuels are created equal, however, and the extent of the environmental benefit is highly sensitive to the biomass feedstock origin and the supply chain process involved. With the growth in global biomass consumption, increasing public attention has been drawn on biomass feedstock sustainability, especially with subsidies having to be provided to many biomass power projects.
The aggressive ambition to increase biomass contribution to meet RUEN and Indonesia’s NDC of 29% GHG emission reduction by 2030 is commendable, but the viability of the plan warrants a careful examination. The current plan outlined by PLN and the government suggests that a sizeable portion of the biomass would be sourced from existing forestry/agriculture residues and municipal solid waste (MSW) materials, which could arguably still be generated in the absence of a cofiring plan. This could mitigate associated environmental and land conversion risks. In addition, there could be questions to address regarding whether biomass cofiring could increase net emissions if it were to have the effect of extending the life of CFPP due for retirement.
A Mature Technology
Cofiring at a low ratio has long been considered a mature technology and its adoption has primarily been a question of economics and feedstock availability, rather than a question of technology. It was adopted primarily in Europe in the late 1990s and early 2000s in accord with increased attention on low carbon energy. Policy interventions and incentives have been required to support cofiring and not all countries decided to pursue the route given the challenging economics and certain technical complexities it can entail. Both the U.S. and China have not developed sizeable cofiring operations despite their enormous biomass potential, large CFPP fleets, and strong power plant technological bases.
With the growth of other renewable energy options, cofiring has seen a decline in certain European countries with policy incentives being redirected toward other renewable energy technologies, which become increasingly more competitive. Cofiring has, however, gained traction in some Asian countries, such as Japan and South Korea, assisted by policy support to reach their respective energy mix targets, as we will examine in a later section.
Cofiring in the Indonesian Context
Indonesia’s current plan suggests the use of direct cofiring which involves combustion of the biomass within the same boiler as the coal. It is the most common and least costly cofiring method and is likely a suitable option for the intended goals of low-cost and low ratio cofiring. Other methods, such as indirect cofiring, involve gasification of the biomass. This is more costly but can be the preferred option in situations where a greater control of the biomass is required.
Investment Costs
While cofiring at a higher ratio of more than 50% (on an energy basis) is technically feasible, cofiring operations are more commonly performed below the 5% ratio on a continued basis. Cofiring implementation entails potential costs that are inherently site-specific. The amount of capital investment required is dependent on the type and ratio of biomass, the planned cofiring method, and specific CFPP conditions. Modifications to fuel handling and storage systems are potentially required given the different properties of biomass, although larger modifications of a power plant may not be required when the cofiring ratio is limited to a low level. Different biomass properties such as particle sizing, storage requirements, chemical properties, and calorific content all need to be considered when evaluating cofiring implementation.
The International Renewable Energy Agency (IRENA) has suggested that the Operations & Maintenance (O&M) cost for cofiring is likely comparable to the CFPP operation, but actual costs will inevitably be influenced by the quality and the ratio of the biomass.
PLN has reported that cofiring has occurred at its Paiton 2x400MW CFPP with the existing coal boiler, that is, without significant modification. Nevertheless, a policy document related to PLN’s cofiring policy -Peraturan Direksi PT PLN No.001/P/DIR/2020- appears to suggest that an 0.85 ‘infrastructure addition/modification factor’ could be applied to the biomass purchase price. This correction factor shows that PLN acknowledges the increased complexity of cofiring caused by (amongst others) the lower bulk density, higher moisture, and greater water-affinity properties of biomass. The PLN cofiring policy further emphasizes its aim to procure biomass at a price lower than coal.
Biomass Selection and Pre-treatments
Biomass feedstock quality can vary greatly, and proper selection of biomass fuel is essential. In addition to influencing CFPP modification requirements, different pre- treatment processes may be required to ensure suitability for cofiring. Pre- treatment processes typically involve drying, densification, and pelletization of the raw biomass to improve the fuel properties.
The following considerations should be taken into account when incorporating biomass:
- Lower energy density, with higher moisture content and lower Calorific Value (CV, energy content per mass unit typically stated in kcal/kg) biomass cofiring could potentially affect power plant operations and efficiency to generate the same amount of electricity. The greater amount of fuel would increase the burden on CFPP fuel handling systems.
- Lower transportability. Biomass predominantly has lower bulk energy density, requiring greater volume to be transported and increasing transportation costs. This is further compounded by the water-affinity of biomass posing further challenges for long-haul transport.
- Physical and chemical properties suitability for CFPP. The impact of biomass on CFPP operations should be scrutinized in detail, including requirements for boiler operations such as physical and chemical properties, as well as specific handling and storage requirements. Different types of boilers would also influence the selection given the different fuel tolerances.
The goal of proper selection and correct pre-treatment is to ensure that the use of biomass does not compromise CFPP operations. Advanced pre-treatment methods such as torrefaction (which involves thermochemical process to improve biomass properties) are available but are costly and likely unsuitable for the current Indonesian context.
Given the vast variety of biomass materials potentially involved in PLN cofiring across the country, a clear biomass specification standard is essential for both PLN and potential biomass industry investors. The physical and chemical properties of the biomass is strongly correlated with the success of cofiring, particularly those involving RDF derived from a variety of waste materials. Biomass standards such as ISO 17225-1 and EN15359 have helped provide a general corridor for fuel specifications which is essential to ensure optimum CFPP performance and supporting industry establishment. Such standards can also help evaluate the potential environmental impact of biomass use. It has been suggested that a plan for the establishment of a domestic biomass standard is in progress involving the Indonesian National Standard (SNI).
Technical Challenges
CFPPs are essentially designed to burn a specific type of fuel, i.e. coal, and expanding its use to accommodate a wider array of biomass fuel properties would require comprehensive evaluation. Among the challenges of cofiring is the higher potassium or chlorine contained in some biomass which can lead to accelerated corrosion in boiler components. This effect is particularly notable in the use of straw-based agricultural residues. Furthermore, cofiring is likely to induce increased slagging and fouling (the deposition of ash within the CFPP boiler) which would reduce the boiler efficiency and can negatively impact CFPP performance. The extent of these challenges is a function of the amount and the type of biomass utilized. In addition to these challenges, technical support from the OEM (Original Equipment Manufacturer) of CFPP components is also a concern which should be sufficiently addressed.
We should note that 85% of PLN CFPP capacity is comprised of pulverized coal (PC) boilers that have a narrower tolerance for the fuel’s physical properties which needs to be more readily pulverized, such as wood pellets. With the tighter restriction in fuel properties, the predominance of PC boilers essentially limits the available fuel options. Palm kernel shell for example, despite being Indonesia’s key biomass export, is likely unsuitable for PC boilers and is more suitable toward CFB boilers operation. This limitation is also evident in the ongoing cofiring trials, with PKS use largely limited to CFB boilers. Pre-treatment of the biomass to adapt to PC boiler specification could be possible, but with a considerable increase in cost.
The use of RDF waste pellets poses further challenges as their composition relies on the waste input and can vary over time. RDF is produced from various wastes such as municipal solid waste (MSW). Raw waste is essentially unusable for combustion, separation, shredding, and drying, and the densification process is required to improve RDF properties. RDF typically has greater ash content compared to coal which increases the ash-handling challenge. Furthermore, the presence of substantial inorganic components could induce particle agglomeration within CFB boilers. These technical challenges associated with different types of biomass fuel mean that stakeholders should focus on the ‘total impact’ costs of cofiring and not just the tonnage costs of biomass fuel.
Policy Incentives Have Been Instrumental in Cofiring Development Elsewhere
Can PLN’s Model Succeed Without Incentives?
The use of biomass for power generation across the world has traditionally required strong government support through policy interventions such as FIT or RPS requirements, and cofiring is no exception.
Historically, the development of biomass power generation in Indonesia has largely been focused on remote locations relying on diesel power generation or remote industries with rich biomass resources such as palm plantations and the pulp and paper industry. While biomass power could be viable when alternative fuels are more costly, it has been largely inconceivable to compare biomass against the economics of coal.
Traditional biomass fuel such as wood pellets (WP) and PKS regularly command premium prices of $70 to more than $120/tonne (Free On Board) in the Asian market. In contrast, the lower-rank coals, which are more predominant in the Indonesian domestic power market, have been hovering well below $70/tonne – a price that has been kept artificially low through government regulation. The price premium commanded by biomass is primarily associated with the cost of collecting, processing, and transporting the biomass, although the raw feedstock material may have relatively low economic value.
The lower energy density of biomass commonly translates to higher transportation costs and constrains biomass usage for power generation within the vicinity of the resources, typically within a 30-50 km boundary of the power plant. Both the energy density in terms of weight, and the bulk (volumetric) density matters for transport considerations. Buyers residing in countries with strong biomass policy incentives, nevertheless, would still be willing to pay premium prices to ship biomass fuel from overseas. With this in mind, the biomass market should therefore be understood both as a local and a global commodity, depending on the context. PLN’s policies appear to suggest its aim is to acquire biomass at a lower price than coal, even after normalizing for the lower Calorific Value (CV) of biomass. Such an objective would likely be necessary for PLN as the government has not disclosed any plans for incentives to support cofiring initiatives while PLN is required to keep its electricity production costs (BPP) under control. This is in contrast to cofiring in other countries which are heavily reliant on policy incentives.
Projecting the Right Signal: Credible Acknowledgement of Challenges
The claim that biomass could be obtained at a price lower than coal is a commendable ambition. It has largely been unachievable in other countries that have implemented cofiring with the careful selection of biomass. Utilization of higher-grade wood pellets, chips, and PKS are based upon sound technical reasoning to preserve optimal CFPP operation. The use of non-conventional biomass cofiring fuel such as sawdust could present an opportunity, but one which needs to be anchored to a viable supply plan and a sound technical assessment. A thorough evaluation of the technical implications of using lower grade biomass is a must to ensure that the performance of PLN CFPPs is not ‘sacrificed’ in the process.
Indonesia’s ability to create a stable low-cost market for biomass remains an open question. The domestic wood-biomass industry has only developed recently in response to increased international demand for premium priced biomass. With PLN aiming to procure biomass at a price lower than coal on an equivalent energy basis, it remains to be seen whether a market would develop to respond. An evaluation of both existing wood-biomass and RDF pilot projects has suggested that substantial hurdles remain. A clear roadmap that acknowledges these challenges would be welcomed. Shrouding the challenges behind an aggregated nation-wide biomass potential does not provide clarity on the road ahead.
Would cofiring be possible? Perhaps, but stakeholders need to critically examine the scale at which it could realistically be achieved with respect to the bold targets proposed by MEMR. Reaching the scale required by the plan warrants industrial- scale investment to ensure stable long-term supply, as well as overcoming other outlined constraints. Furthermore, the projected rise of IPPs and the decline of PLN power generation share in the coming decade would also need to be considered in evaluating the full impact of the cofiring program.
IEEFA believes that a focused effort to prioritize particular target regions could be more viable than casting an ambitious nation-wide deployment plan. A scaled-down deployment plan with evidence of viable commercial projects and PLN’s willingness to offer long-term commitments will send a stronger positive signal to attract major investments for the biomass industry. At the same time, policymakers also need to calculate both the potential upside and risks that could result from locking-in long- term purchase commitments, particularly as other new technologies continue to be developed. Indonesia has the potential to become a powerhouse for the biomass industry, and the cofiring ambition could be a starting point to spark its development. Such development, however, could only be established with sound planning and the transparency necessary to support a stable long-term market.
The complete report can be accessed here
