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Introduction to Climate Change

Introduction to Climate Change. Wim Maaskant BGP Engineers – The Netherlands www.bgpengineers.com. Financial assessment of E mission Reduction investments. Wim Maaskant BGP Engineers – The Netherlands www.bgpengineers.com. Financing instruments.

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Introduction to Climate Change

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  1. Introduction to Climate Change Wim MaaskantBGP Engineers – The Netherlandswww.bgpengineers.com

  2. Financial assessment of Emission Reductioninvestments Wim MaaskantBGP Engineers – The Netherlandswww.bgpengineers.com

  3. Financing instruments Carbon Credits enhance the finances of your project: • Carbon credits: • It is new since approx.7 years when some European Governments have started to buy with purpose of meeting their Kyoto targets • The start of the European Emissions Trading Scheme in 2005 has accelerated the carbon market • Clean Development Mechanism (CDM) combines financial support with sustainable development and technology transfer • Reducing Emissions from Deforestation and Degradation (REDD) is new mechanism, but still under development, with particular interest for countries with tropical forests (Indonesia, Cameroun, Brazil etc.) and with possibilities for generating income

  4. Financing instruments Carbon Credits and credit cash flow, some key issues: • carbon credits: • enhancing return on equity • reducing debt leverage • comfort for lenders (investors, banks) • supporting debt service with carbon cash flows • securitising with ERPA CO2 reductions equity heat debt electricity

  5. Financing instruments Financial assessment: the basics (1) • The purpose of financial assessment is to obtain • insight and understanding about your budget; • Information about the profitability of your investment; • Insight into the financial risks of the project • Key parameter is the Internal Rate of Return (IRR). • We need to understand the time-value of money = a Rupia today is not the same as a Rupia after 10 years

  6. Financing instruments Financial assessment: the basics (2) Time-value of money

  7. Financing instruments Case studies Case study 1: Renewable energy in agricultural company (Cyprus) Case study 2: Energy efficiency in Textile industry (Macedonia) Case study 3: Landfill Gas Capture and Energy Generation (Indonesia)

  8. Case 1: Renewable energy from waste • Basic information: • The company is a animal farm • Its main production activities are • Breeding • Waste management • Energy production

  9. Case 1: Renewable energy from waste • Biogas and electricity: • Biogas is produced in digester • Biogas is used in gas engine / CHP-installation • CHP-installation produces electricity and heat • Heat is used for climate control in breeding farm • Electricity is supplied to public network biogas Diesel (10%) digester CHP Hot water electricity farm Public electricity network

  10. Financing instruments Case 1 – waste-to-energy: input data Biogas / Energy Yieldfrom Input Substrate% Org. Input t/yrBiogas Yield m3/tTotal Biogas Yield per Year PigManure 6 51,000 22 1,122,000 m3 Dairymanure 6 52,560 23 1,208,880 m3 Total 103,650 2,330,880 m3 Total per day 284 6,386 m3 Notes: 1 m3 of biogas can produce 6.0 KWh of Total Energy (Electrical and Thermal) 1 m3 of biogas can produce 2.0 KWh of electricity

  11. Financing instruments Case 1 – basic information Combined Heat & Power principle:

  12. Financing instruments Case 1 – basics of financial assessment • Financial assessment: • Must comprise all financial parameters relevant to the project • Cost information on: equipment and civil structures, utilities (gas, water, electricity etc.) • Must include financing parameters (“how will you pay for the investments?”) • Objective is to assess the revenues and the financial risks of the investment

  13. Financing instruments Case 1 – basics of financial assessment Financial assessment: We make EXCEL sheet for financial analysis (EXERCISE)

  14. Financing instruments Case 1 – approach of financial assessment • Approach: • Collect prices of equipment, works and services relevant to the project; validity of prices; payment terms • Collect price information on input flows and output flows; make price prognosis • Set-up EXCEL sheet • Make analysis of risks and price effects

  15. Case 1 – EXCEL - overview

  16. Financing instruments Case 1 – EXCEL – input data • Biogas production data • Performance data from CHP-installation (IN: gas, OUT: heat, electricity) • Life time of project • Cost of money (interest rate, non-islamic banking) • Currency (import or domestic equipment) • Prices of utilities (water, electricity, carbon credits etc.)

  17. Financing instruments Case 1 – exercise • Analysis of optimization of investment (GROUP WORK + PRESENTATION): • Which are the key factors to increase the profitability of the investment project? • on input side • on operational side • on output side • 2) Which (additional) risks can you identify if: • the project life time is 6 years instead of 10 years? • the project life time is 15 years instead of 10 years? • (please look for internal risks (= inside of project) and external risks (= cannot be influenced by project)

  18. Case 2: Energy Efficiency in industry Basic information: Project Title: Energy Conservation Program at Tetex Textile Mill in Tetovo Teteks (est. 1951) is a large, vertically integrated, wool textile manufacturer in Tetovo, Macedonia. Itemploys 3,200 employees Its main production processes are 1,030 tons of yarn, 800,000 meters of fabric, 700,000 pieces for ready-made garments and 330,000 pieces for knitted apparel. The plant has two steam boilers and generates large quantities of steam for both process and heating purposes (approximately 83,000 tons/year). The Company paid approximately $1.37 million for heat and approximately $390,000 for electricity (approximately 9,300 MWh)

  19. Financing instruments Case 2: continued… Energy case: Purpose: to reduce costs Main object: two operating boilers that generate steam EE option: the coal-fired boiler has the capacity to generate 40 tons of steam per hour (25-bar). The heavy oil-fired boiler has the capacity to generate 10-15 tons of steam per hour (7-bar). According to a past survey, however, both boilers were operating at a much lower capacity and generated only 18 tons of steam per hour (7-bar) in total. Heat consumption was 2.5 times higher in the winter than during the rest of the year.

  20. Financing instruments Case 2: continued… Approach: 1) Feasibility study with assessment of options 2) “Quick fix” measures (short pay-back period) 3) More advanced measures (medium or long pay-back period)

  21. Financing instruments Case 2: continued… • Collect real data: • Boiler combustion measurements were taken using a combustion analyzer. • A thorough survey of the arrangement, sizing and insulation of the steam • distribution system was conducted to identify potential improvements. • A steam trap survey was conducted to identify and quantify failures and leaks and explore how condensation recovery and heat transfer efficiency could be optimized. • Hot water systems were inspected to evaluate heat recovery opportunities and identify physical requirements for making improvements. • Plant equipment was inspected to assess energy efficiency. Opportunities for consolidation to improve efficiency were identified and discussed with production managers.

  22. Financing instruments Case 2: continued… • The condition and thickness of building insulation and weatherproofing were inspected. A general lack of building insulation was noted. Numerousopenings in doors and windows were also observed. • Steam, air and water leak detection and maintenance practices were assessed. • The tracking and management system by which Teteks monitors and controls energyuse was assessed.

  23. Financing instruments Case 2: continued… Key information from study: Teteks consumes 83,143 tons of steam per year and 9,271 MWh of electricity in 2001. Steam represented approximately 60% of the total energy consumption per year while electricity consumption amounted to 35%. Compressed air made up the remaining five percent. (-> set priorities!) Based on the results, it were recommended several low and medium cost measures, as well as a few high cost measures. These measures required a total investment outlay of $1,587,000 with a simple payback period of approximately 24 months generating an annual cost savings of $772,683.

  24. Financing instruments Case 2: continued… • Results: see paper • Awareness increased • All management levels involved • Reduction of operational room • Management strategy is required

  25. Financing instruments Case 2: continued… • CO2-reduction: • In addition to these cost savings, environmental benefits were also generated. • Implementation of the improvement measures reduce carbon dioxide emissions by 20,000 tons per year • Kyoto-period (2008-2012) allows trading of Carbon Credits • If all measures are implemented in 2008, 4 years of Carbon Creditscanbeproduced, approx. 80,000 credits • Price of Carbon Credits is approx.12-15 euros • Therefore, the value of the emissionsreductionequals to approx. 1 million euro

  26. Financing instruments Case 3: Landfill gas capture and energy generation • Basic information: • The landfill is anexistingonewithsomepartsnot in operation and somepartswhere waste is disposed • The landfill was started 8 yearsago • The landfillneedsre-structuring (byshape and byorganisation) • Waste amounts are expected to increaseduring 2008-2012 • The upgrading plan foresees the construction of gas wells, flare, processing unit and generation of electricity • Case studywilldefine, calculate and assess the costs and benefits of the envisagedinvestment and the operations

  27. Financing instruments Case 3: the current picture

  28. Financing instruments Case 3: the current picture, continued…

  29. Financing instruments Case 3: the current picture, continued…

  30. Financing instruments Case 3: the future picture

  31. Financing instruments Case 3: the future picture, continued…

  32. Case 3: the future picture, continued…

  33. Financing instruments Case 3: the future picture, continued…

  34. Financing instruments Case 3: the future picture, continued…

  35. Case 3: Methane (1) • Methane Sources are: • Oil & gas industry (45%) • Waste sector (25%) • Agriculture (20%) • Natural sources (10%) Molecular structure Chemical formula

  36. Case 3: Methane (2) • Methane characteristics: • Odourless gas • Invisible gas • Very explosive (@ 5-15 vol% with air) • High energy content (38 MJ/Nm3) • Non toxic • Pure, no contaminants • Global warming potential = 21 • Nm3 = one cubic meter at standard conditions of 0 oC (273 oK)and 1 atmosphere pressure (105 Pa) • Energy content is defined as higher or lower thermal value Question: why is possible that we are able to smell landfill gas?

  37. Case 3: Methane (3) Methane is very important reason for Global Warming

  38. Financing instruments Case 3: Global Warming Potential Global warming potential (GWP) is a measure of how much a given mass of greenhouse gas is estimated to contribute to global warming. It is a relative scale which compares the gas in question to that of the same mass of carbon dioxide (whose GWP is by definition 1). A GWP is calculated over a specific time interval and the value of this must be stated whenever a GWP is quoted or else the value is meaningless. Carbon dioxide has a GWP of exactly 1 (since it is the baseline unit to which all other greenhouse gases are compared). Methane has a GWP of 21

  39. Financing instruments Case 3: Landfill gas • Landfill gas characteristics: • Smelly gas • Invisible gas • Very explosive (@ 10-30 vol% with air) • High energy content (18-20 MJ/Nm3) • Main components are CH4, CO2, N2, H2S and organic compounds • Toxic • It contains contaminants

  40. Financing instruments Case 3: Landfill gas capture and energy generation, continued… • Basic calculation: • The landfill is anexistingonewithsomepartsnot in operation and somepartswhere waste is disposed • The landfill was started 8 yearsago • The landfillneedsre-structuring (byshape and byorganisation) • Waste amounts are expected to increaseduring 2008-2012 • The upgrading plan foresees the construction of gas wells, flare, processing unit and generation of electricity • Case studywilldefine, calculate and assess the costs and benefits of the envisagedinvestment and the operations

  41. Financing instruments Case 3: Landfill gas capture and energy generation • Basic information, more facts: • Release of methane (landfill gas) has been observed • There is insufficientstructure in landfillactivities • Approx. 50 people live nearoron top of the landfill • Define the immediateproblemswhichyou have and present approach to preparing landfill gas extraction project (SHORT GROUP WORK) • Make 3-4 bullet point foreachquestion

  42. Financing instruments Case 3: The value of landfill gas • Basic information, key data: • Weight of methane: 0.72 kg/Nm3 • Global warming potential = 21 • Landfill gas: high energy content (18-20 MJ/Nm3) – 50% of landfill gas = CH4 • Calculated production of landfill gas = 50 Nm3 per hour • Landfill gas equipmentwillbeoperationalduring 8,000 hours per year • Landfill gas is utilizedby gas engine forproducingelectricity (efficiency = 35% from gas to electricity) • Energy conversion: 1 MJ = 0.27 kWh • Value of Carbon Credit = 9 Euro • Exercise: • Howmuch of global warming potential is achieved per year? (express in tonnes) • Howmuchelectricty is produced per year? (express in MWh) • Howmuch is value of emissionsreduction per year? (express in Euro)

  43. Biogas production is calculated at 50 Nm3/h Number of hours = 8,600 hours per year (simplified) => 50 x 8,600 = 430,000 Nm3 biogas per year Methane content of biogas = 50% of volume => 0.50 x 430,000 = 215,000 Nm3 CH4/year Weight of methane gas = 0.72 kg/Nm3 => 0.72 x 215,000 = 154,000 kg CH4/year = 154 ton CH4/year GWP of Methane = 21 ton CO2-equivalent per ton CH4 => 21 x 154 = 3250.8 ton CO2-equivalent Number of operational hours = 8,000 per year (600 hours for maintenance) Emission Reduction = 8000 hours/8600 hours x 3250.8 = 3,024 ton CO2-equivalent Remains: 3250.8 -/- 3024 = 226.8 ton CO2-equivalent Exercise: calculate value of landfill gas

  44. Electricity: Biogas production is calculated at 50 Nm3/h Number of operational hours = 8,000 per year => 50 x 8,000 = 400,000 Nm3/year => the gas goes to gas engine Energy content of landfill gas = 20 MJ/Nm3 => Energy production: 20 x 400,000 = 8,000,000 MJ/year Efficiency of gas engine = 35% => 8,000,000 x 0.35= 2,800,000 MJ/year electricity production Conversion factor = 0.27 kWh/MJ => 0.27 x 2,800,000 = 756,000 kWh/year = 756 MWh/year Price of kWh = 500 Rp/kWh => 378,000,000 Rp/year = 35,000 Euro/year CER = 3024/year x 9 euro = 27,216 Euro/year Exercise: calculate value of landfill gas

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