INDUSTRY AND ENERGY DEPARTMENT WORKING PAPER ENERGY SERIES PAPER No. 5 Impact of Lower Oil Prices on Renewable Energy Technologies May 1988 The World Bank Industry and Energy Department, PPR The World Bank Industry and Energy Department, PPR ABS72ACT Th impacts of reduced oil prices on the economic viability of selected technologies which utilize solar, wind and biomass energy sources are examined. The technologies include dendrothermal power plants, bagasse, fuel alcohol, wind electric, biomass gasifiers, solar water heaters, biogas, photovoltaic pups and wind pumps. Specific projects In each of these categories which were established or planned when oil prices yore above $28/bbl are reviewed and their economic justifications recalculated at a range of lower oil prices. The findings indicate that the economic sensitivity of renewable energy technologies to chaiging oil prices is mainly a function of scale and location of the project. Renewable energy technologies that comaete directly in the modern sector as large-scale petroleum substitutes, such as dendrothermal power plants and fuel alcohol projects, are the most adversely affected by falling oil prices. Remote and rural applications are less affected because of their generally smaller sizes and, therefore, much lower proportion of fuel costs to total costs in the equivalent sized couventional alternative; the reduced availability and higher cost of petroleum fuels as compared to urban areas; and the lover cost of b'omasa fuels (eg wood for gsiLfiers) In rural areas. 1 Table of Conteuts TableofContents .............. . Lst ofTables . . . . . . . . . . . . . . . . . . . . . ii. LUst of Figures . . . . . . . . . . . . . . . . . . . . . .ii *. INTRDOCSTON: WUU OIL PRICES . . . . . . . . . . . . . . . . .1 Overview: Categories Of Renewable Energy Applications . . . 1 ActualOilPriceChanges ... 2 II. InPACT ON SELECTED RENEWABLE ENE&GY TECHNOLOGIES . . . . . . . 4 Dendrothermal Power Plants . . . . . . . . . . . . . . 4 Bagasse . . . . : . . . . . . . . . . . . . . . . . . . 6 Fuel Alcohol . . . . . . . . . . . . . . . . . . . . . 8 Wind Electricity Generation . . . . . . . . . . . . . . l) Biomass Gasifiers ..... . . ...... . . . . . . 12 Heat Gasifiers ..... . ....... . . . . . 12 Power Gasifiers .............. ... . 14 Solar Water Heating . . . . . . . . . . . . . . . . . . 16 Biogas ...... .. . .. 19 Photavoltaic and Wind Powered Water Pumping ..... . 20 In. CONCLUSIONS ..... . . . . . . . . . . . . . . . . . . . . 25 ECICAiA= .UN . . ........... . ... . 27 Retail Petrolem Price Qma41es . . .. ....... . 28 Fuel Alcohol Base Came Asumptions ..... . . ... 31 Wind Electricity " reati......... ... .... . 32 Bims Gasifis .......... . ... . 33 Solar Water eaing . . . . . . . . . . . . . . . . . . 35 Water Pumping Model Assumptin . . . . . . . . . . . . 37 £ List of Tables Table 1 Generation Costs at Various Fuel Oil Prices . . . . . . . . . S Table 2 Minimum Crude Price for Economic Viability of Anhydrous Ethanol Distilleries in Brazil . . . . . . 9 Retail Petroleum Price Changes . . . . . . . . . . . . . . . . . . . . 28 List of Figres Figure 1 Retail Price Changes in Current $US . . . . . . . . . . . . 3 Figure 2 Retail Price Changes in Constant Local Currency . . . . . . 3 Figure 3 Wind vs. Oil Thermal Generation Costs . . . . . . . . . . . 11 Figuro 4 Heat Gasifiers vs Fuel Oil Boiler Cot-s . . . . . . . . . . 13 Figure 5 Generation Costs of Gasifiers vs Diesel . . . . . . . . . . 15 Figure 6 SWH ERR: Fuel Oil Boiler Retrofit . . . . . . . . . . . . . I. Figure 7 SWH ERR: Electric Water Heater Retrofit . . . . . . . . . . 18 Figure 8 Village Water Supply Costs: PV, Wind, & Diesel . . . . . . . 22 Figure 9 Irrigation Water Costs: PV, Wind, & Diesel . . . . . . . . . 23 11 S. ZITRODUCTION: LOUM OIL PRICES 1. This paper examines the impacts of reduced oil prices on the economic viability of technologies which utilize solar, wind and biomass energy sources. The objective is to determine which technologies were 'hardest hit' by the advent of cheap oil, and what the Implications are for renewable energy policies of developing countries as well as those of the Bank. The analysis reviews the economic competitiveness of selected renewable energy technologies (RETs) with petroleum-based altarnatives a. various price levels. It also examines factors othar than oil prices wkich have equally important bearing on decisions to utilize specific RETs.l/ Overview: Categories Of Rnewable Energy Applications 2. Renewable energy applications cover numerous processes and technologies which use solar, wind and biomass resources. These range from small. relatively simple devices such as improved charcoal stoves to megawatt-level, complex solar thermal power plants. RETs also vary in commercial "readiness". A number of technologies can be considered fully developed (e.g. biogas systems, wood-fired power plants) while others are essentially still in the R & D stage (e.g., large solar power plants and ethanol production from woody biomass). For purposes of this report, the analysis will focus on RETs now in use in the field, although not necessarily "commercial" in the conventional sense. This implies that the technologies were, at least, economically competitive with conventional technologies at oil prices prevailing when the installation was originally assessed. 3. It is usekul to divide such technologies Into two end-use categories: a. those that compte directly in the modern sector as relatively large-scale petroleum substitutes; and b. those that serve to met small-scale, mainly rural energy needs.2 This distinction is important because - as will be shawn later - lower oll prices are more likely to affect the economic viability of RETs belongitg to the first category. Technologies in the first category, some of which hve been the subject of Bank lending or pre-investmen. activities, include fuel alcohol projects, 'dendrothermal" power 1/ This paper was prepared by Dr. Ernesto Terrado, Matthew Mendis and Kevin Fitzgerald of the Joint UNDP/Uorld Bank Energy Sector Mandgement Assistance Program. 2/ The scale refers to the size of individual installations, not potential aggregate national contributlon. 2 plnts, bagasse production and utilization schemes, biomass gaslfiers for process heat, 'wind farms and industrial solar water heating systems. Small-scale and/or rural applications include biogas, biomass gasifiers for engine use, photovoltaic and wind water pumps, solar crop dryers, and domestic solar water heaters. These technologies are essentially beyond the R&D stage and some, like wind pumps and domestic solar water heaters, are used extensively in many parts of the world. 4. A summary of each renewable energy technology, including an assessment of the sensitivity of its economic viability to lower oil prices, is presented in Chapter 2. Conclusions and policy recommendations that can be drawn from this analysis are presented in Chapter 3. Before proceeding to this discussion, however, it is useful to outline what has actually happend in International and dmestic oil markets. Actual Oil Price Changes 5. From November 1985 4o July 1986 the average FOB price of crude oil on world markets slid from above US$ 28/bbl to below US$ 1l/bbl. Since mid 1986, crude oil FOB prices remained relatively stable between US$ 15/bbl and US$ 18/bbl. As crude oil prices are projected to continue within this range in the medium term, the general economic conclusions reached in this paper are expected to be valid for some time to come. 6. Data collected from almost 20 developing countries indicate that most countries made only slight retail price adjustments in response to tho -60% drop in international oil prices between November, 1985 and July, 1986.3/ In fact, a few countries actually zajgg nominal retail prices during this period. Figures 1 and 2 illustrate the magnitude of diesel and fuel oil retail ptice changes in three regions between late 1985 and mid-1986.4/ Measured in M=r=r TSIS eguivaIants, Figure 1 shows that retail prices dropped 15 to 20%, on average, from November 1985 to July 1986. Aq&L price reductions, shom In Figure 2, avraged 25 to 300 over the same period. There hayw bee two Important results from the pattern of only small reductions In local prices of Imported fuels: a. all petrolem product retall prices in the countries resarched were above estimted border prices and; 3/ Retail petroleum product price chages from late 1985 to mid 1986 in fourteen developin countries are tabulated in the appendix. 4/ue Figures based oan retail oil product price changes in fourteen countries (see Annex).. 3 b. fuel p=&Ices currnutly faced by investors ha-e changed little In nominal teOs. ONeel & Fuel Oil Retail Pnce Changes In Current US$ by Region iesel & Fuel Real Price hFaiges Oil O&M F O *i. i igurege Retail Price Cheges Cu Current $US io & Fuel Oi Real Price Changts oI Constant 198e Ctrech by Regie n r.Lt m A" 3NIa an 2the u economcs of revable enrytchnooges 4 u. * nACT 0 SSLCTED RENWABIE EfYT 7ECHOLoGaZS 8. In this chapter, renewable energy technologies that compete directly in the modern sector as relatively large-scale petroleum substitutes are discussed initially. Those that serve to meet small-scale, mainly rural energy needs are dis-usoed later. It will become readily apparent that the economics of RETs in the first group are far more sensitive to lower oil prices than those in the second. Deadrothermal Power Plants 9. A dendrothermal power (DTP) system consists of a wood burning power plant and a dedicated plantation of short-rotation tree species. The most recent DTP installations are in the Philippines, where the Government has established dendrothermal power plants in the 3 to 5 KW range as part of its rural electrification plan. Similar installations are contemplated in Thailand, India, Indonesia, Brazil, and other countries. No evaluation reports are available so far on the performance of the Philippine plants. Since wood burning plants use more or less conventional technology, few technical difficulties are expected on the power plant side. Problems have, however, been reported on the plantation side, related mainly to factors which influence biomass yield, such as choice of species and condition of the land. Analysis indicates that overall plant economics is likely to be sensitive to biomass yield, which dictates the size of the dedicated plantation and therefore the magnitdao of plantatior. development and maintenance costs. 10. la assessing the impact of reduced oil prices on DTP systems, there are two basic difficulties. First, plantation development, wood hauling and other costs are very site-specific. For a given plant size, DTP generation costs can vary widely with location. Therefore, any comparison with oll-based alternatives can only be made in a general way. As widely varying site-specific costs are coon to most renewable technologies analysed in this paper, the impacts of lower oil prices assessed throughout this papr are limited to general statements. second, it is not eay to identify the most appropriate alternativ system to whLch the DTP plant should be compared. If deployed as a unit contributing to the base load of a power grid, the criterion for comparison would be related to the minimum LBNC and the alternative to the DTP plant may very well be a non-oil based installation, such as a coal-fired or a hydro plant. 11. Nevertheless, it is possible to obtain some insight from a Bank study of the likely costs at various sizes of a generic DTP 5 plezt.5/ Based largely on Philippine data and at 1983/84 prices, the study calculated generation costs of about 12.1, 8.4 and 6.6c/kWh; b!se capital costs of 2,100, 1,700 and 1,300 $/kW Installed; and plantation areas of 2,000, 6,700 and 31,000 hectares for 3, 10 and 50 MW, respectively. The key assumptions include biomass yield at 10 bone-dry tonnes/ha/yr and fuel oil price of 20c/liter (roughly equivalent to a crude oil price of US$ 37/barrel which L. close to 1983/84 Far East border prices). 12. The study compared the above DTP plants with stand alone diesel systems using fuel oil. Even at a high 20c/liter, the electricity generation costs of a 3 MW diesel plant (7.7c/kWh) are substantially below the costs of a 3 MW DTP plant (12.1c/kWh). The generation costs are roughly comparable (around Sc/kWh) at the 10 MW level. Thus, under the assumed parameters, including a fuel oil price of 20e/lt, DTP systems in isolation, such as on a remote island or in an area not serviced by the grid, would be competitive with diesel systems at plant capacities above 10 1U. At lower fuel oil prices, the comparative generation costs are shown in Table 1. Table 1 Generation Costs at Various Fuel Oil Prtkces* c/kWh Oil Price Diesel Dendro6/ e/lt Plant Plant i, 20 7.9 c/kWh 8.40 c/kWh 15 6.6 8.34 10 5.4 8.27 5 4.1 8.20 * Costs for 10 MV plants operating 5500 brs/yr. 13. The substantial drop in diesel generation cost as fuel oil prices fell below 1983/84 levels haa the effect of limiting economic competitiveness to larger scale DTP plants, making this option mpractdical due to greatly Icreasd land area requiremets and low load factors associated with larger systems. In fact, in small island or. remote coommities not served by the nationl grid where DTP systems are likely to be most useful, 10 MV iS probably beyond 5/ World Bank, 'Technical and Cost Characteristics of Dendrotherml Power System", Eergy Dept. Paper No. 31, December 1985. 6/ The smll reduction in DTP generating cost is due to reduced truck fuel cost for wood hauling. Distance from plantation- border to power plant is 10.5 km. 0 *iistlng and foreseeable pover demand. Because of this, it can be concluded that for cases AnoxiMaging the Darameters of the above study. current oil orices do not iustifv new investments in DTP 14. As with most other RETs. however, a full economic analysis based on the characteristics of the particular location is necessary before a definite conclusion could be made about the viability of a DTP project. The analysis would include shadow pricing of labor, which is a highly intense input on the plantation side, determination of the opportunity cost of land, and quantification of long-term employment benefits accruing to people in the area. When assessing the cost of alternatives, the economic or delivered cost of fuel oil at the site should also be determIned. This could be considerably more thon the international or border prices. Bagasse 15. In recent years, interest has been renewed in making cane sugar mills energy self-sufficient and, thus, to produce surplus bagasse (the fihrous residue from cane crushing) for generating :ectricity to tbe used internally and for sale to the grid. Cane .44gar mills .tzist in some 80 countries and most are not energy efficient: at best, they recover just enough energy from bagasse to meet milling season needs. The investments required in "bagasse projects are those which considerably improve process steam.economy and boiler efficiency, in effect obtaining the same amount of energy with less bagasse fuel. Bagasse dryers, concansing turbo-geovrators, efficient juice heaters and pre-evaporators cam increase thermal efViciency and decrease process stem consmption considerably. Moreover, balers, pelletlzors and briquetting equipment can be used to densify surplus bagasse to be stored and transported safely and conveniently. This is especially important for year-round electrical production where the markets for surplus energy are electrical utilities. 16. Davies lamakua Sugar pioneered In this field with their sills In gavaii. The F.U.L.L. sugar miLl in Nauritius has also installed, at the pilot level, equipment for generating and densifying surplus bagass., naabltng it to sll year-round powar to the grid. In 1985, the 8 Ik conducted prefeasibility studie In ¢uyaa and Zthiopia resulting in specific recommendations for bagasse project. in these 17. in a typical bagasse project, ecmic return is based on revenua from selling surplus power and savings In Internal use of petroleum fuels. In other cases such as the project proposed for Ithiopia, the surplus bagasse product was intended to displace fuelvood in homes and later, to substitute for imparted pulp and particle board feedstock. ' The impact of lower oil prices on project 7 7iability is fairly clear in the first case. It is less ¢lear in the second case where the commodity being displaced is not petroleum- based. The Guyana and Ethiopia studies illustrate the differing potential impacts quantitatively. 18. Guyana's public electricity supply is almost totally dependent on imported petroleum. At present it suffers from a lack of generating capacity and system inefficiencies. Enmore, one of the country's 10 sugar mills, was choaan for a bagasse pilot project to demonstrate the feasibility of making the mill independent of diesel which it now uses and, at the same time, generating surplus power from bagasse for feeding to the public grid. The investments total US$ 10.5 million, most of it by Guysuco for mill equipment and modifications, and partly by GEC for a 14 km transmission line, transformer, and control equipment. The benefits of the project would be savings by Guysuco in diesel fuel (about 830,000 lt/yr during the milling season) and avoided costs by GEC in diesel fuel for 24 GWh/yr of peaking power to be supplied by the Enmore mill. Calculated at the CTF value of diesel fuel at that time, which was US$ 42/barrel, the economic rate of return for thu project was an acceptable 21%. A drop in diesel fuel price by 25% reduces the ERR to 14% and, at half the 1985 price, the rate of return becomes only 5%. Thus, at. resent inernaional oil nlices. this particular oroe s the basis of fuel s A1on. 19. The Ethiopia project, proposed by an ESHAP study, consisted of investments in all three Ethiopian sugar mills to enable production of about 100,000 tonnes/yr of surplus bagasse. The current hydropower surplus and power tariff structure does not make export of bagasse- based energy to the grid a viable option. The highest value end-use for surplus bagasse in the immediate future was determined to be as densified fuel for households and industry. Financial innestments of US$ 12.2 million were required for the project which included dansification facilities in each mill. 20. Unlike the Guyana case, the Ethiopian mills are fairly efficient. Only one of the mills would obtain some internal savings In fuel oil. However, the most likely use of the densified bagasse would be as substitute for firewood, acute scarcity of which is being experienced by Etbiopian bousehold.. Therefore, the benefits are mailay due to projected sales of densified bagasse which, if priced at 80% of the firewood price (to compensate for its less familiar, harder to ignite form), is thought to have a ready market. Under these conditions, the fLiaUgeal rate of return is about 30%. 21. The economic value of lirewood in Ethiopia is difficult to quantify but, considering the serious ecoloSical impacts of massive deforestation which hls occurred in the country, is likely to be very high. Assuming that this value is at least as high as imported kerosene, the economic rate of return at 1985 prices would be a high 90%. Even wiith a 50% drop in kerosene import price, the ERR would 8 still be 43%. Therefore, for thin 2ArticUlar nro ia ipact -of internaionl oil nie oiglet viability LA instiiae Fuel Alcohol 22. Ethyl alcohol (ethanol) is commonly produced by a fermentation/distillation process using sugar cane juice or molasses (a by product of sugar refining) as feedstock. While other feedstocks, such as cassava, can be used, the technology for produ:ing ethanol from cane or molasses is better developed and more attractiva economically because the cane by-product, bagasse, can be used as process fuel. ELayl alcohol (ethanol) can be used as motor fuel in various ways. As nearly water-free or "anhydrous" ethanol, it can be blended with gasoline up to about 20% without -decreasing the mileage yield of the gasohol product and without modifying normal gasoline engines. As hydrous ethanol, it can be used as a straight fuel in specially designed alcohol engines or modified gasoline engines. The mileage yield of straight alcohol is about 75% that of gasoline. Presently, straight alcohol vehicles are used only in Brazil where an ambitious ethanol program has been firmly established. 23. Since 1980, a number of countries have implemented fuel alcohol programs. The largest is that of Brazil where 10 billion liters of ethanol is currently produced for mse as a blend and in straight alcohol cars. In Africa, plants in Malawi, Zimbabwe, Kenya, and Mali produce ethanol from molasses to substitute for 3-15% of doe stic gasoline demand. The IFC supported the Malawi project and submitted a proposal for a plant in Zambia while the small annexed distij,ery in Mali was financed with a World lank loan. A recent BanK paper / recommended further assessment of proposed ethanol programs for Thailand and the Philippines. 24. In general, the viability of a fuel alcohol program increases when it is possible to use lower econormic value molasses rather than cane as feedetock, the sugar mill is far from the coast, thereby reducing the value of molasses as an export commodity, and wben the distillery can be annexd to the suga mill so that surplus bagasse cam provide process energy for othanol production. As the primary economic benefit of ethanol production is the displawement of imported gasolins, the economic rate .of return of an othanol project rl:ses dLrectly with the econaomic price of gasoline. Exchange rates also affect economic viability, but less robustly because a strengthening local currency will reduce both gasoline import costs and export values of molasses and sugar. Additional benefits that should be accounted for in a full economic analysis include: 7/ Ody, A;, "Prospects for Ethanol in Developing Countries', NDD2 Office Memorandum, 21 Febrtary 1985, World Bank. 9 employment, foreign exchange savings, and security of access to an indigenous transportation fuel. 25. To illustrate the impact of lower oil prices on fuel alcohol projects, it will be sufficient to consider the case of anhydrous alcohol production from molasses (i.e., if project justification is lost for this case, so would it be for ethanol from cane). As with dendrothermal power above, the economics of et.hanol projects are very site specific. Hence, two representative projects will be analyzed: a proposal in Swaziland recently reviewed by the Bank and the Brazilian ethanol program. 26. Three proposals for ethanol production in Swaziland were analyzed as part of the Swaziland Energy Assessment. The most promising proposal (by CDC/PEA for 65,000 lpd annexed distillery at the Hhlume sugar mill) is designed to produce ethanol at 21C/liter to meet 20% of a growing national gasoline demand until 1995 (details in Annex). If savings on imported gasoline are the only benefits counted in the economic analysis. the 22% drop in the actual landed price of gasoline3/, from 30¢/1 in mid-1985 to 240/1 in July 1986, is enough to cut the project economic rate of return from 28.5% to 18%. 27. The approximate minimum real crude oil prices needed to justify the Brazilian anhydrous ethanol program in economic terms are shown in Table 2 below9/. Minimum crude oil break-even prices for hydrous import substitution and export of hydrous ethanol average 25% and 50% higher. Table 2 Niiu;mum Crude Price for Economic Viability of Anhydrous Ethanol Distillcries In Brazil In Constant 1984 US$/barrel Sdh PLU1Q rhet Build New Distillery 23-28 24-34 Operate Existing Distillery 17-23 20-28 26. The CIF price of crude In November 1985 in Santos, Brazil was US$ 29.40/bbl. The C!? Santos price had fallen below U1S$ l5/bbl by August, 1986 and was nealy US$ 17/bbl in February, 1988. Hence, 8/ The FOB price of gasolin, in the Middle East market dropped 50% from October 1985 to July 1986, while due to high transportation costs and other levies, the landed cost of gasoline at Eatsapha, Swaziland dropped only 22% oaver the same period. 9/ Draft Public Sector Investment Review: Brazil, October 1986, LC2BR, World Bank. 10 since mid 1986, the ethanol program in Brazil could be only marginally justified in a strict economic sense. Because of this the Government of Brazil has announced a suspension of further expansion in fuel alcohol distilling capacity. 29. As anhydrous ethanol substitutes for imported gasoline, the economic viability of ethanol production is robustly sensitive to the eost of imported gasoline. The Swaziland proposal stuarized above is for a plant designed to produce ethanol at roughly 21¢/liter, while representative production costs in Brazil range between 18C and 264/liter.10/ If the economic cost of gasoline remains above these prices, all else being equal, ethanol production makes good economic sense. Many proposed ethanol installations have been at locations far inland, where the transport component of gasoline costs are high and the export value of molasses is low or nil. Consequently, at such installations (as in Swaziland), the actual landed cost of gasoline will not have-dropped as much as the drop in international FOB prices. Hence, the hlume oroooaL still acocars viable using actual summer '86 gasoline imoort i_ricea as delivered to Matsapha. while certain ingtallations in Brazil are on the marain of econo iustification. Wind Electricity Generation 30. To properly assess the place of wind electricity generation capacity in an electrical grid, planners must consider the uncertainty of wind power supply, daily and seasonal wind profiles and how they match load profiles, fuel savings due to use of wind turbines, as well as possible deferrals of future capital investment in conventional generation capacity. Hence, the economic value of wind power is determined not so much by average cost considerations as by long run marginal cost and wind time distribution characteristics. 31. With this caveat in mind, a rough order of magnitude" analysis can be c-nducted on electricity generation costs of wind vs. thermal. The results of such an analysis are shown in Figure 3 in which representative generation costs over a range of oil prices for a hypothetical grid, supplied exclusively by lrge base load fuel oil atesm plants and smaller diesel oil gas turbine paking plants, are compared to estimated wind electricity generation costs. l/ Though actual costs can vary considerably, these generic cost estimates show 10/ SAl: Brazil Alcohol Rationalization and Efficiency Project; Industry Department, World Bank, 1985. Quoted costs are average 1983. costs of alcohol production in constant 1984 US$. 11/ Detailed assumptions are tabulated in the Annex. Wind electricity costs are based on actual costs from California wind farms. 1. that lower oil prices can significantly change goneration costs. A 50% drop in representative 1985 import prices of diesel oil (from 300/1 to 154/1) and fuel oil (from US$ 30/bbl to US$ 15/bbl) could reduce electricity generation costs so0e 30%, from 8.3¢ to 5.8c/kwh. Of course, if a significant share of total demand is met by coal, gas, nuclear, or hydro capacity, the actual change in system generation costs due to lover oil prices will be less than that depicted in Figure 3. Grid-Connected Wind Turbine Economics Avg Cost: Wind vs. Fuel Oil Generation conta/kWh -6m/sec - 8 . NON-ECONOMIC 7. -7m/sec - 6 / ~~~ECONOb11C S7J tl 5215 630 Fuel Oil Price ($/bbl) 8mm. 8, . Figure 3 Wind vs. Oil Thina.L Generation Costs 32. The wind electricity costs presented in Figure 3 are rough estimates, based on the actual costs of 100W wind turbines in California wind farms, for a good wind regim (annual averags windspeed of 6m/sec) and two excellent regimes (7 and Sm/sec). It is evidoet that electricity generated with an annusl average windspeed of 6m/sec, *et unlike the resource in the mountain passes of California, would cost as ac'h as electricity generated by an *griallv rm oil. b *d astm3 under estimted 1985 economic fuel prices of US$ 30/bbl fuel oil and 30C/liter diesel fuel. At lower oil prices, only rare wind resources remain economically competitive with oil-based generation on an gage cost basis. 12 33. (orsover, as amply demonstrated in a recent Bank LEergy Department Paper, 2/ unless the wind resource and demand peaks are closely matched, wind turbines displace primarily low cost intermediate and base load capacity. Clearly, in an environment of economic oil prices below US$ 15/bbl, wind-to-grid electricity genoration would not be cost effective unless average annual windspeeds exceed 6m/sec an the wind profile tightly corresponds to demand peaks. Biomass uasifiers 34. In biomass gasifiers, solid combustible biomass materials like wood, charcoal, rice husks, or coconut shells, are thermochemically broken down into a combustible gas. Though the energy content of this "producer gas" (4 to 7 WJ/m4) is usually far less than that of natural gas (35 HL/m3), the economics of gasification were attractive enough throughout the early 1980's for industrial and commercial process heat applications to become common in Brazil, Southeast Asia, and the South Pacific. Heat gasifiers, primarily large systems replacing ful oil in industrial applications, are commonly located in urban or peri-urban areas. Conversely, many rural applications are found for power gasifiers that burn the gas in internal combustion engines. These applications primarily replace d±as9l oil in small engines used to generate electricity, pump water, or mill grain. Given these basic differences, the impact of changing oil prices on the economic viability of these systems must be viewed independently. Reat Gasifiers 35. Biomass heat gsifiers are presently used to provide proess heat in a wide variety of applications Including: tea, grain, and lumber drying; glass, tile, and brick anufact; cement production, food processing, and greenhouse beating. pet gasifier *systems, conisting essentilly of a fuel feed system, reactor chamber, and gas burner, ar. commercially available, In sizes from 10OkW to 1O01. The smaller, manually batch fed, systems are coummorly used for crop drying, baking or other similar applications. The larger systems are automatically fed ind are used to provide heat for industrial kilns, boilers, driers and furnacus. As heat gas ifiers can usually be retrofit to existing oil or natural gas burning equipment, the potential umber of applications is extremely large. The main 12/ Moreno, R., uide lines Assessin; Wind arsz 2tential, Energy Department Paper #34, World Bank, January 1987. 13 constraint to wide scale use of biomass heat gasifiers is posed by their requirement of an economic and reliable source of biowass fuel. Heat Gasifier Retrofit Economics Heat Gasifiers vs Fuel Oil Boiler Costs cosm of steam (85) Fuel off Price (WIb 20 ~I Economic Zone 41.- 3 4 30 4- 6 10 11S 20 26 30 31S 40 46 tO 20 I- Non-Economic Zone S10 o a 10 16 20 25 30 36 40 46 60 56 60 Wood Price (S/tonne) SASFIIER COSTS - .000 a GJ/Iht ' '-,000 per OJt Bourn. See Amus Figure 4 Neat Gasifiers vs Fuel Oil Boiler Costs 36. AS with fuel alcohol programs above, the primary economic benefits of heat gasifiers accrue from savings in imported petroleum fuels. Given the wide range of possible beat gasifier applications, it is difficult to generalize on the economics of these systems. Nonetheless, a brief cost analysis of a generic beat gasifier retrofit to an oil-fired boiler illustrates the sensitivity of this technology to lover oil price". Flgure 4 shows the economic sensitivity of such a system to changes In oil prices, wood fuel prices, and gasifier capital cost estmates. 3 For a drop in fuel oil price from US$ 30/bbl to US$ 15/bbll4/ the break-even fuelvood price for a moderately 13/ Souree: Foley, 0. and Barnard, C., Biomass Gasification in Developing Countries, Karthscsa, 1983. Gasifier cost estimates sumerized in Annex. 14/ Averag, border prices for fuel oil dropped from $30-$35/bbl in November 1985 to $10-$1e/bbl in July 1986 for countries with or near a port. 14 priced heat gasifier system (US$ 25,OO/GJ/hs) drops from US$ 30/tonne to near zero. 37. As the market for large scale heat aasifiers is generally in populated urban or rural areas, where fuel oil is counonly available and alternate demandL for wood fuels exist, the fuelwood price is usually above US$ 20/tonne. Moreover, as large scale heat gasifiers t.'nd to be fully mechanized, they commonly have capital costs at the *nigh end of the range shown in Figure 4. Conversely, snail scale heat easifier systems, such as those used for tea and copra drying, are usually located in more remote areas where the economic cost of fuel oil is relatively high while the economic price of wood and biomass fuels can approach zero. In addition, small scale beat gasifiers are amongst the lowest cost systems shown in Figure 4 because they are often manually fed. For these reasons, the economic feasibility of large scale heat gasifi-ers will be affected first by decreasing petroleum prices. Small scale installations in remote areas may continue to be competitive because of access to and reliability of low cost biomass fuel supply and high transport costs of petroleum fuels. Power as if iers 38. Biomass power gasifiers from 5 kW to lMW are commercially available. A power gasifier system consists of a manual or automatic feed system, a reactor chamber, a gas clean up system and either a diesel or spark ignition engine. If a diesel engine is used, some diesel fuel still mst be used to induce ignition. Most commercially available power gasifiers are designed to operate with A specific bloass fuel: wood, charcoal, rice husks or coconut husks. The analysis below focuses on wood and charcoal power gasifiers as these are the most commo. 39. The economics of power gasifiers hinges on the savings that ean be realized by switching from high cost liquid fuels (i.e., diesel) to low cost biomas fuels. These fuel cost savings must be weigbed against the additional capital costs of the gasifier, the licrease in operation and aintennecosts, and the reduced relLability of the system. One way to evaluate the tradeoff between capital costs and OEK costs is to comWpare the levelized costs of electricity generated by each systes. This has been done In an ongoing IENHZ study which compares goneric V0i sand charcoal gasifiers to diesel stand-alone systeas from 5kW to lAW 40. The IDHI study has evaluated commercially available power gasifiers in the following ranges: 15/ Assumptions used in the study are presented in the Annex. 15 a, Eanully fed charcoal gasifiers from 5 kW to 200 kW, b. Manually fed wood gasifiers from 5 kW to 200 kW, and; c. Automatic feed wood gasifiers from 100 kW to 1 MW. Figure 5 presents some of the principle findings of this study. The analysis indicates that gowar, galifier economics is most stronid v affear,ed by system aize and by the relative2 gost, of getroleum and bioasus fuels. Costs of Electricity Production Small Stand-Alone Systems EIeoroty Coast (6/KW K h _ _ __ _ _ _ __ _ _ _ 0.8 - C-ON WkWh - -I 0.7 1_ TT_POWER MURNCE 0.7 DIOSOI ~~~~~~4- 01s 400/1 0.6 -U@ 01d e 200a11. 0. @ wb~~~~~~fodousm s20/Mt 0.4 0.3II 9 10 100 1000 INSTALLED CAFATY (kW) Saws~. Sue . ........ Figur 5 GeC aetio Costs of G Ifters vs Diesel 41. Under baselin price assumptions (diesel Q 40/1, charcoal @ US$ 80/ut, ad fuelvood Q US$ 20/mt), the full range of charcoal gasifiers, manually fed wood gasifiers abov 30kW. and automatically fed wood gasifaers above 300kW are economically competitive with diesel systems. In this analysis, a 50% fall In diesel prices, to 20e/1, would make electricity generation by diesel cheaper than either charcoal or wood power gasifiers over the entire range of analysis. 42. With decreasing petroleum prices, it is clear that power gasifiers, like small-scale heat gasifiers, willl have a niche only in remote applications where the economic cost of diesel is high due to 16 transport costs, whereO diesel supply is unreliable, and where there is a surplus of biomass fuels. Solar Water Heating 43. The basic principle behind solar water hoating (SUH) is simple: by passing a cool fluid through small pipes imbedded in a black collector plate, exposed to the sun and housed in transparent glass, thermal energy is captured in the heated fluid. SWH designs depend on the end use (industrial process heat, restaurant, hotel, or domestic hot water), load and solar resource profiles (daily and seasonal), and water temperature requirements. The solar collector itself is the most expensive system component, commonly constituting over 50% of installed system cost. As most end uses require additional components, such as circulating pumps, temperature controllers, storage tanks, and heat exchangers, the cost of solar water heating can vary significantly with each application. 44. Many developing countries have active solar water heating industries. Solar water heaters for residential and .nall commercial L stallastj are manufactured locally in Israel and Jordan where as many as 1 in 5 homes use solar water heating. The SUH industries in Morocco, Tunisia, Egypt, Senegal, and Zimbabwe fabricate as well as import some collector components. Both India and Nepal have sound SWH industries supplying residential and cotmercial systems. Australia, Israel, France, USA, and Japan are major exporters of SUR technology and large domestic markets exist in both Australia and the USA. 45. tndustrial an=lications of solar water heating in developing countries are limited to a few large pilot plants in the Middle-East and a few other countries. The brief analysis below, based on an ESMAP study of the potential for solar water heating in Kenya, illustrates that low oil prices can severely curtail the economic advantages of industrial SUm. 46. An LSNAP SUE study for Kenya, originally assessed at 1985 fuel prices, was recently reevaluated at border prices of August, 1986.X6 The border price of fuel oil fell from US$ 16.75 to US$ 11.25/bbl over this period. Becase all of the industrial SE installations originally proposed were only mar lly viable, this drop cosed over 90% to lose economic viability. I/ Conversely, even 16/ Joint UNDP/World Bank ESMAP Solar Water Heating Study, Kenya, December 1986. Assumptions and results of this report are summarized in the Annex. 17/ For purRoses of this paper, installations with an economic rate of return above 15% are considered economically viable. 17 though the. cost of electricity supply in Kenya. fell from 5.50/kWh in October 1985 to 4.40/kWh in Autust 1986, all residential installations proposed in the original report (exclusively for the displacement of electric water heating in upper income urban homes) wers still foun-4 to be economically viable. Induistrial Sector SWH Application IRR: Kenya Brewery Fuel Oil Retrofit SWH Internal Rats of Retun 30%- 20%- 10 1 20 26 30 36 40 46 60 Fuel Oil Economic Price ($/bbl) SWAMm GM. Aine Figure 6 SW DR: fuel O±1 Soiler Retrofit 47. The economic sensitivity to fuel prices of two representative SW installations In the Kenya study are displayed in Figures 6 and 7. Under the assumptios used In the Kenya report, 18/ htca e .e112ra3113 staned that if OM cooi urcea of disulaced fuels reMdLan bov USS 15O/TO! fUMS 25/bbL&ul oIL_ 4Cd -. r S 50/m vod~Lstae-of-the-=r SW installato I octoswt god ea be cosat ffQGide. As the landed cost of fuel oil 18/ - Economic rates of return were calculated by comparing the economic value of displaced fuels to SWE system costs (including Imported collectors and. locally made balance of system components) calculated @ $103/m2 of collector area for industrial applications and $126/m2 for all others over a 15 year lifetime at 10% discount rate. 2.8 dropped to around US$ 10/bbl in July 1986 and are below US$ 15/bbl as of February. 1988 for most countries with a port and the price of fuelvood rarely exceeds US$ 50/mt, SWH installatious that displace these fuels may not be cost effective unless cheaper, doziestically produced SWH systems are available. Residential Sector SWH Application IRR: Electric Water Heater Retrofit SWH Interna Rae of Return * 0% 60% 40%- 20% 2 a 4 a 6 7 6 9 10 tI 12 Economiic Cost of Electricity (c/kWh) SGaG See AiMs Figure 7 SWE RI: Electric Water Neater Retrofit 48. Uhile the actual dr,-, In fuel ol1 prices In Kenya has severely curtailed the economic viability of SUE systems that displace fuel oil, systems that displace electricity were barely affected because generation costs did not change markedly and the economics of SUN retrofits for electric water heaters are robust. State-of-the-art solar water heating systems sized for Kenyan conditions cost about 40 per kUh displaced. As elgee=tr-ity syste Lot omol rang. frm 3rc-10/kUh far hva-iiowr to 5C-2!OCAdkh for. therMa ggMenrign,_=U systemm a delive ht waLtek for domASti uses At owr cost ta eetrical wate htin nMgt olaces with a 2ood soa0 rsur1 Non6theless, this does not Imply that SUH is the lowest cost water heating technology. Comparing SUH system costs to those of electric vater heaters does not assure SUH a market niche if. fuel oil boiler retrofitting is cheaper. 19 Biogas 49. Biogas is the gaseous product (mainly methane) obtained in the anaerobic (oxygen-free) digestion of dung and other biomass v'tstes About 6-7 million biogas digesters have been built in Ch.ina,i9/ about half a million in India, and a few thousands in other developing countries. A majority of the digesters use cattle or pig muaLae as feedstock. Most of the digesters now in operation are "family size", each unit yielding about 2 m3 of biogas daily and requiring dung from at least 3 cattle or 6 pigs. The larger digesters are often built for institutions (schools, prisons, etc.), industries (slaughterhouses, breweries) and communities, where gas from a big digester is piped to the kitchens of several families. 50. The costs of establishing and operating a biogas digester include capital investment for the digester, gasholder, pipes, and accessories; labor for construction,, dung collection, and system operation; and the costs of water, land (for the installation), and the dung itself. Some of these items require cash outlays, others do not. The family-sized KVIC system in India, for example, has a capital cost of about Rs 4250. 51. The first principal benefit is the fuel value of the gas. If used for cooking, it may displace kerosene, fuelwood, or dried dung. For lighting with a mantle lamp, it usually substitu.tes for kerosene. As fuel for an internal combustion engine to obtain direct shaft power for flour milling, water pumping, or electricity goenration, it displaces diesel fuel, gasoline, or grid electricity. TMe slurry or dried sludge represents the second principal benefit 'n terms of its value as fertilizer or "soil conditioner". The value of the sludge is often assessed as equal to or even greater than the fuel value of the gas, depending on the particular installation. 52. In the financial analysis, the flow of costs and benefits is evaluated over the digester lifetime of 15-20 years. The value of gas In terms of substituted fuels is fairly esQy to determine. However, valuation of sludge or slurry as fertilizer substitute has always bee an it.. of disagreoent. Although the viability of a biogas installation can only be assessed on a case by case basis, it is possible to make some general statements. Without subsidies, it is virtually impossible to make a system financially viable on the basis of the fuel value of the gas alone. Counting the fertilizer value of the sludge, there fan be some instances where acceptable financial rates of returns may be achieved. It may also be generally said that 19/ Taylor, R.P., Decnali blg Energv DeMsIoM t i Chinaoi The State of the Art, World Bank Staff Working Paper #535, 1982. - 20 due to the scale factor, family-size systems are generally less viable than coumm-ity-sized biegas systems. These statements are drawn from recent analyses done by many authors when petroleum product prices were high. -Clearly, at current (1986) oil prices, the financial viability of biogas systems in general has either remained the same or worsened. 53. It must be kept in mind, however, that national policies for dissemn:Uating biogas systets are adopted not only on the basis of fuel substitution goals. There are indaed other economic benefits, including: destruction of pathogens in the raw dung, health benefits to households from using a smokeless fuel, reduction of pressure on the forests from fuelwood collection, ewployment generation, reduction of uncertainty in fuel supply, and reliance on indigenous rather than imported energy.20/ For obvious reasons, there have been no general agreements on how these externalities should be quantified and incorporated into the economic analysis of biogas projects. 54. It is beyond the scope of the present analysis to make a judgement on the economic desirability of biogas technology. The only task is to assess the potential impacts of lower prices of competing petroleum fuels. As the preceding discussion clearly indicates, it has been difficult to justify biogas systems on the fuel value of the gas alone even when oil product prices were high. Therefore, lower oil prices would cause very little change in the financial viability of biogas systems. Photovoltaic and Wind Powered Water Pumping for VllSe Water Supply and Irrigation 55. Wind power has been used for grinding grain for centuries. Water pumping by windmills played a major role in the agricultural development of the American West and land reclamation in Holland. Relative to the history of wind power, photovoltaic technology or PV has just been born. Today's photovoltaics (solar cells) convert about 10% to 14% of the energy in incident sunlight into electricity. Falling production costs have recently mads direct solar electric conversion competitive with diesel as a power source for remote power supply applications. While PV pumping systems require power conditioning equipmeut to convert direct current electric power into rotating mechan4cal power for the pump, most windpumps transfer the rotary motion of the blads directly to the pump via a mebiknical shaft. Tell designed wind machines can convert 25-40% of the power in 20/ Conversely, equity and distributional concerns are raised by biogas technology: affluent households have more opportunities. to build biogas digesters than poorer people who would be deprived of dung otherwise avatlable to them for conversion to drie4 fuel. 21 the wind into rotary power. In remote locations with mean monthly windspeed in excess of 3 m/sec, wind can be the most economic power source for water pumping. 56. Simne 1979, significant operating experience with PV pumping has been gained through UNP a.nd USAID funded otrlaicts. N(ajor projects include the Mali Aqua Viva Program, Desert Development in Egypt, Solar Pumping in Botswana, Remote Village Water Supply in India, and the UNDP Pump Test Project. Small PV pumping systems are in plaeo throughout the Carribean, Africa, South and Southeast Asia. 57. In the developing world, wind pumps are produced in Kenya, Ethiopia, Mali, South Africa, India, Pakistan, China, Thailand, Philippines, Peru, Argentina and Brazil. Data on installed windpump capacity has not boon gathered on a global scale. Nonetheless, as over 50 komn windpump menuturers were operating globally in 1983 (20 for more than 20 years), it is evident that the industry serves a significant global market. 58. Both wind and solar electric pumps convert low density power flows into pumped water. Conversely, a diesel pumpset is designed to convert a donse form of potential energy into a relatively large mechanical torque on demand. The smallest diesel engines deliver about 2.5 kW of power at rated load, while many small-scale pumping applications could be satisfied with less than 500 Watts of power, four hours daily. Consequently, in many small village water supply and irrigation applications, diesel pumpsets supply only a fraction -of the water they are rated to deliver over their lifetimes. Because of the technical lower limit to diesel pumpset size, photovoltaic and windpumping technologies carve out an economically competitive niche In small scale mechanized water supply. 59. Figure 8 shows representative village water supply costs ar 40m head provided by diesel, photovoltaic, and wind energy sources.22/ Because fuel accounts for only 5-20% of total water costs, the diesel cost curves are largely insensitive to fuel price changes. In comparison to PV pumpsets and windpumps, the hypothetical 67% drop in diesel fuel price from 450 to 150/liter makes diesel pumping economically competitive with PY and wind at 12% and 21% smaller village populations. 21/ IT Power LTD, Wind TZhnalomv Assesmn.nt Study, Vol 1, pp 16, February, 1983. 22/ Water cost curese generated by the World Bank Handpump Nodel, Urban Jater Supply Department. Water costs include annualized costs of each puipset, the well, and storage. Assumptions for village. water supply and irrigation models are presented in the Annex. 22 Village Water Supply Power Source Costs 20 Liters/capita, head a 40m Power source costs only ($/m3) .~~~~~~~im . .of -~-Wind e 3wmie -4- Wind e 4Miee 0.9 >\ X- PV 0 41kWfM2 o.s °- PY * 4kWhim* 0.8 100 300 600 700 900 1100 Village Population Figure 8 Village Water Supply Costs: PV, Wind, & Diescl 60. Irrigation water costs at Sm head are shown in Figure 9. As above, a 67% drop in diesel fuel cost would make diesel economically competitive with PV add wind at 6% and .16% smaller rrigated plots. Clearly, the economic tradeoff between power sources for either water pumping application is not sigificatly changed by- a la.zp drop in oil prices. 23 Irrigation Water Costs 34 m3/ha/day Head * 8m Power source costs only ($/m3) \~~~~~~~~~~Wn o X t* *ss 0.5 Olsfelc 0.Q1 0 -l. Witd c o*isei XPY 0 4ktWIUMI 0.3 - I: Pe 0 GkWivhm 0.2 0~~~~~~~~~~~ 0.1 0 0.5 I 1.8 2 lITigated Area (hectares) 1igwre 9 Irrigation, Vater Costs: PY, Wind, & Diesel. 61. In, actuality, the landed cost of diesel fuel in remote regions where these technologies are cost effective has not changed nearly as much as international prices because of significant overland transport costs.23/ In addition, the operators of village water supply systems or small pumps for irrigation often face retail fuel prices well ab-ve economic prices due to lack of regulation in outlying areas. 14/ For these reasons, the actual impact of lower international oil prices on village water supply bas been far less 23/ Recent Bank reports cite a transportation margin on diesel fuel of up to 180/liter for a 1500 kI overland haul in Zaire and transport costs of 0C/liter for 1120 kI overland transport in Uganda. This indicates an average overland transportation cost of roughly bc/tonem-lu. 24/ Retall prices of sall quantity purchases is often uncontrolled in remote regions. For example, the official retail price of kerosene was 5CC/liter below the actual market price in Kano City, Nigeria in 1980 (Fishwick, .19811. 24 than the extreme case assumed above of a 67% price drop for diesel fuel. 62. Moreover, the final choice of pumping system is commonly based on more than just A.mual water costs. Other factors such as reliability, fuel availability, and ease of maintenance can rank as important as water costs. In areas where the supply of diesel fuel may be erratic or spare parts and skille l mechanics are scarce, photovoltaic and wind power systems may be the most reliable power sources. However, the need for financing can be significantly greater for PV and wind pumps. Hence, access to credit can become a major issue in the tradeoff between diesel and renewable technologies for water pumping. 63. In sum, the impact of lower diesel fuel prices on the viability of PV and wind power for water pumping is relatively smll because: a. fuel costs constitute only a fraction of annualized water costs for small diesel pumpsets, and so, a large fuel price decrease results in only a small drop in annual water cost for diesel pumped water; b. large price decreases have not occurred in rem'ote areas because falling import costs constitute a small part of the final diesel fuel price when long overland transport is required, and; ;. other factors. such as reliability, maintenance requirements, and access to credit can become as important as annualized water cost in the final decision between diesel, wind, and solar powered water pumping. 25 II. CONCLSIONS 64. The analyses presented in Chapter 2 indicate that, in general and with the discount rate used in Bank studies, the economic sensitivity of renewable energy technologies to lower international oil prices is mainly a function of scale and location of the particular RET installation. 65. Fuel coats generally comprise a larger percentage of total annualized system costs for large-scale petroleum-based conventional energy installations than for small-scale ones. Hence, a marked decrease in fuel oil and diesel fuel prices reduces large scale conventional energy costs significantly, whils barely changing those of smaller conventional energy tecbnologies. It was seen, for example, that a 50% drop in fuel oil price (from a base of 20 c/lt) would reduce the cost of electricity generated by a 10 KW diesel by over 30%, thereby sharply reducing the competitiveness of an equivalent-sized deadrothermal power plant (Table 1). On the other hand, even a 678 drop in diesel fuel price (from 45 c/l to 15 c/i) would reduce the cost of water, pumped by a 2.5 kW diesel for a village of 500, by less than 10%, thus hardly changing the relative competitiveness of renewable alternatives (Figure 8). Clearly, renewable energy technologies that compete directly In the modern sector as large-se le petroleum substitutes are the most adversely affected by falling oil prices. 66. The location of a renewable energy project is often indicative of its scale. RETs that are large-scale petroleum substitutes tend to be located close to urban areas, while the suiiller, stand-alone technologies are often used in rural and remote applications. The price of petroleum fuels generally increase with distance from major urban areas because of transportation and distrlbution costs. LLkewise, the price of biomess fuels generally decrease with distatce from major uIban areas due to Licreasing availability in rural areas. For these two reasons,r the economic viAbility of rural and remote UST applications is affected less by falllng International oil prices than large-scale, petroleum substitution RITs locat near urban areas. 67. Two additional attributes of location serve to inslate the economics of small-scale, rural RET applications from the fall in oil prices. First, as shown in Figures 1 and 2, in most developing countries the regulated fincial prices of diesel fuel and fuel oil have not been reduced nearly as much as the drop in international FOB oil' product prices. It has been noted that retail prices of small quantity conventional fuel purchases is often uncontrolled in- remote 26 regions. Hence, operators of small-scale rural energy applications cam face -financial fuel prices well above regulated prices and far above economic fuel costs. Second, a reliable supply of conventional fuels is much more common in and near cities than in remote regions. Even though the economic analysis may show a particular RET to be slightly more expensive than a conventional power source, the intermittency of conventional fuel supply could well be enough to make the renewable application the appropriate choice. 27 TECHNICAL AEN= Fuel Alcohol Base Case Assumptions . . . . . . . . . . . . . . . . . . 31 Wind Electricity Generation ....... .. .. .. .. ...... . 32 Heat Gasifiers ........................... . 33 Power Gasifiers . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Solar Water Heating ............ .... .... .... . 35 Water Pumping Model Assumptions .................. . 37 miel nua uemas usa mues: see 59 ASIA .Wan hsV * A 48t a) (596) 001 s59 a61 wX S uutL atii 06 mun It wit 1 "a Lss -00 ."g41 u.Js r .1 to ".r as "3 eauiUwi pre ita OAe 5 41.515461'11 a5. 46. 45.00 1.5 44.69 1.43 51.3 100 56.11 450 36.90 44a 39.111 6.0 33.6 1.46 31.14, * Sus~~~~~ie lIte 340t 35 34.. 6.5 31.0 1.01 36.0. lisa 6.n1 a1. 1.3 3 3.n6 11.5 3.30 U" 3." s 1.30 3.11 11.10 t1.59 us5 14* 4.6 3.11 6 30.116 195 it9d 5*1 A. MA 4.06 31.5. 343f 3.30 1.4 31.69 9 .1 10.09 bier dIesel 6.11~~~~- 3.15MA 3.65 31.9 4.25 U6.56 3.50 36.96 3."9 21.4 M6 1.60 4515 .6 3.3 11 99 160..IrIet kew5 8140 M20 19.1t9 fuel OtI tiler 4.0 55.55 5.4 59.5 I.5 9.3 543 50.09 81.60 M3 19.59 3.62 13.16 4.53 3.51 suma us~~~~~~~~~~~U S 1 mu I*166) SyO) eb h11r e0s) SA*7 e6b (SeS) 0 W$ de as) 6t,u F UNITS to Tml TE1s i rw-7 us r a a-' rse arui-l Iselinsp pemlia Slew MA 54.41 M.0 64610 30.65 3.98 19.65 515.59 13.0 33.1It 99.0 31.61 % 6sud Slew 35.40 60.*u 16.53 9*.35 65.0 29.55 9.0 35.19 co Ow S lw 3.0 .3.5 a5. 46.16 .4 U." 4.8 5.61 a.4s .5 .36 1.50 44.53 59.0 22i5 05.0 30.00 btet Ot 36.0r 44 o .36 .4 14 a Ir ".0 5s65.7 Is.21 SI. 2-0Os 55.7 5s .3 5.1.51 KNC d Wt 0.t 51.46 1 59 36.65 1t96 445.13 15.02 3n.92 0.15 19.15 0. 2-. .L 17 14itrIl" diese tHew tM I5.11 .I1 a 5.16 ItS2 1.97 U 7.45 43.63 we 6.36 6.0 31.05 W allon miii. 1.6 35.13 6.0 RAY 5.151 9."4 I i.9i ss. 6.60 30.46 S.49 3r89 a" s) 565 5t meg 066 (NW 05) (N 06) (act 05) 5w 066 CISOS SJuV M65 lAds' all fwts lov F5 U usj ---i of.- -Ca----Ui m1selt- .1. us* v -~U-. I -$. - 66iseettAs Or I,. tkw L.5 110.4 LW9 59.4 24 43.6 A4 45.45 4.65 33.60 2.36 36.40 0.6 44.30 0.96 49.20 51.26 IS$^~ 11.0O 2.30 Segtet Iiter 0.6 43.50 0.96 41.60 53.35 62.55 53.30 59.10 gtesaw ISew 5.66 36.6 L.B 61.0 Il 5110., It 3.2.3 0.51 21. 10 0.61 30.10 3.14 1.41 3.55 5.10 ips ~~~~~~~~~~~ ~~~~~~ ~~~~~~~~~~~~~~~~~~~~10.61 9.1is 10.1Z is. 40 atordleout ttet 8.05 41.0 3.9 19.4 a6 35.15 II 35.96 3.02 21.0 S.AO IS."6 0.10 34.00 0.16 31.60 10.65 9.1 1 0.4A2 15.50 fuel oil 1ISWe 6 to."6 6 11.36 5.52 U).97 0. i8 9.12 1.49 6.61 6.60 9.60 29 NOTES TO TABL! SOURCE: letroleua product prices are quoted in local currency and are converted to $US at prevailing market eachange rates as noted. In countries where no distinction is made between grades of gasoline or grades of diesel oil, prices for these products are listed as premium gasoline and motor diesel. For further product specification, such an gasoil in Africa, see notes for each country. 2/ SOURCEs All prices from de Lucia and Associates, converted at Tk3O.3 * $1 (July '56) and Tk 27.3 a $1 (1965). Fuel oil price is ez-depot. 3/ SOUIs All petrolem prices frm de Lucia end Associates. u oil price a Rs 1650/mt, assumed 6.7 bbl/mt. Prices converted to $U5 at Rs 16.82 * $1 (July '86) nd Rs 16 - $1 (July '85). Natural gas prices, from EGYDI, World Bank, are for the first 7 mcf/month consumed at domestic rates. 4/ SOURCE: All prices from de Lucia and Associates, converted to US$ at Rs 13 *$1 (1986) and Us 12.35 * $1 (1985). 5/ SOURCE: World Bank Staff Appraisl Report #5942-IDD, 11 April 1986 and World Batk Economic Nemorandum #6201-ID, 20 Mty 1986. Petroleum product prices remained unchanged between 1 April 1985 and March 1986. These prices are reported as November 1985 prices and are converted to $US at 1123 Up - $1. July 1986 prices ounced by the Deprtment of Mines and nergyp, donesia on 9 July 1986, were converted at 1131 Up a $1. 6/ SOURCE: All prices from official Governmet price change announcements obtained from East Asia and Pacific Country Program Departments, Philippines Division, World Bank and ECYDi, World lank. Fuel oil price is wholesale. January 1986 prices are preelection price reductions. Average product prices befWore the price chne of 25 Jauary wre 60 CetaosP/liter highe. Janury 198k prices converted to $118 at 19.11p $1; June 1966 prices at 2.05 P a $1. / hSOURCE: Eastern and Souther Africa, Coutry Programs Department South Central Divsion, Vorld Sak. All prices are eferee Prce (without distribution margin) in Kinshasa and are, therefore, retail prices in Kiabsa. DKesel prices are for 8gasoil" in Zaire. Janury 1986 Wices conveted to US$ at 55.1 a $1; Aeust 1986 prices at 58.75 Z * $1. 8/ SOURCE: 1985 prices from Kenya Solar Vater Veating Project Cren Cover, March 1986, World Bnk. July 1986 prices were anounced in the June 1986 Budget, Governmet of lenya. Diesel fuel prices for "gasoil" in Kenya. Industrial diesel prices are for 2500 sec fuel oil and fuel oil prices are for 1000 sec fuel oil. No*ember 1985 prices converted to $11 at 16.5 Ksh * $1; 30 9/ SOURCs: Official anouncment October 3, 1984 and Budget statement June 1986, Covernuent of Tanzania. Official prices anoned on October 3, 1984 were unchanged as of April 1986 for gasoline, kerosene and diesel. Hence, it is assumed that no significant retail price changes occurred between October 1984 ad April 1986. 1985 prices converted to $US at $1J TSH * $1 (Oct. '85 Avg) Jult 1986 prices at 42 Tbh a $1. Prices quoted for diesel are for diesel gas oil' in TSanni. 1985 LPC and hevy fuel oil prices am wholeslal. 10/ SOURCE: 1985 prices fru Swaziland Eneg Assessmetl, Yellow Cover, World Bank. July 1986 prices from personal comnication with USD regional economist for Southern Africa. Prices quoted for diesel are fur 'bs rates diesel fuel s almot all diesel pumps in the country are set at the bus rate. Industrial diesel 1985 price is for "mid-duty" diesel fuel. November 1!85 prices converted to $US at 2.71 - $1; July 1986 prices at 2.2 2 iI/ SOURCE: September 1985 prices from Latin America and the ri"bje, -Country Progrm Departmt, World Bank. August 1986 prices from Shell Oil, Haiti (new prices effective Hay 1986). Diesel prices are for "gasoil' in Haiti. All. prices converted at CS a $1. 12/ SOURCE: August 1986 prices have not changed (in nominal [l310itar) since 1983, a pe 3D3 Costa hiea. August 1986 prices converted to lS$ at 56.3 CaC a $1; November 1985 prices at CIC 52.8 a $1. 13/ SOURCE: Central Bank of Brazil, July 1986 Bulletin. Prices in Cr$Ilter for gasoline and diesel oil, and Cr$/kg for fuel oil, assumd to be residual with density of .94 kg/I. October 1985 prices converted to US$ at 8.56 Cr$ a $1; May 1986 at 13.84 Cr$ a$1 A price freez oan ptrolei products has bees in effect since "rly 1986, but a new 28S taz ba bee imposed on gasoline on 25 July 1986. This taz is not reflected in the table. 14/ SOURE All prices fom do Lucia end Associate, coverted to $M *S 2B a $1 for eac period. 15/ s5C: July 1985 local prices frm Table 2*2, °euador Energy ds61m"t, Deember 1985, World Bnk. 22 July 1966 lcal prices quoted in Office mmrandvu of 31 JIly 1986 of RD2, lWold Bank. Local prices conrt ed to $115 at official rates for July 19853 67.175 SUCWES 81 ad July 1986 109 SUCuaS s $1 (before dealuation). 31 P1el Alcohol Base Case Assumptions 69. Assumptions and results of the base case analysis for the iClume project include: Original Revised (May 1985) (al1y 1986) Discount Rate 10% Interest Rate 12% Exchange Rate E2.1 - US$ 1 Plant Size (liters/day) 65,000 Average Production ('000 liters/yr) 11,938 Operation (days/year) 250 Plant Life (years) 20 Salvage Value 10% Recovery (liters alcohol/mt molasses) 250 Molasses Ex-mill price (US$ /mt) 24 Capital Cost (US$ million) 6.38 Amortized Capital Cost (C/liter/year) 7.16 Variable and Fixed Costs (excluding debt service) (C/liter) 12.68 Economic Cost, Zblume (C/liter) 19.84 Transport to Matsapha (C/liter) 0.85 Ethanol Cost Eatsapha (C/liter) 20.69 20.69 Gasoline Import Parity 93 RON Matsapha (C/1) 28.09 21.81 Difference Between Gasoline Import Parity and Economic Production Costs (C/liter) 7.40 1.12 Savings on Fuel Oil and SFF Levies (C/liter) 1.69 1.69 TOTAL ECONOMC COST DIFFERENTIAL (C/liter) 9.09 2.81 Economic Rate of Rpturn 28.5% 18.0% 32 Wind Electricity Generation 70. The wind generation costs quoted in Figure 3 are representative anualized costs derived from actual 1986 installed costs of 100 kW turbines in California wind farms, estimated 06& costs, and annual energy production at -25% capacity factor.25/ 71. The oil-based electricity generation costs shown in Figure 3 were derived by finding the least cost generation mix, of large fuel oil steam base load plants and diesel oil gas turbine peaking plants, to meet a hypothetical load duration curve at representative 1985 fuel oil and diesel import prices (shown below) and at fractions of those prices. As fuel prices can change much more quickly than actual generation capacity, this least cost generation mix will represent a loaer boud to actual oil-based generation costs for any given utility. -yowc ftet= Load Pmfb HS S 4 n iSU_ fets/w e % a Pecam* MN) Themal Plant Cost Assumptions 400 KW 50 KW Fuel Oil Steam Diesel Oil Gas Turbine Capital Cost Includlng Reserve ($/kW) 1,100 450 Arnual OUK (8 of Cap) 2.5t 3% Lifetim (yrs) 25 15 Annual cost.Q 10% ($/kW) 148.50 72.50 Fuel Price US$ 30/bbl (20 G/l) 30 e/l Therml Efficiency 36% 28% Fuel Cost (4/kth) (4.7 4/kUh) (10.90/kWh) 25/ -Study of the Potential for Wind Turbines in Developing Countries , Phase I Draft Report, for USDOE and the World Bank by Strategies Unlimited, December 1986. 33 Siamss Gasifiers flot Gasifiers 72. A recent Es2thscan study26/ estimated the capital costs of hea tasifiers to vary from US$ 15,000 to US$ 35,000 per GJ/hr of rated boiler output. The higher end of the range represt.'ts highly mechanized systems while the lower end represents manually operated systems. The principle economic assumptions and results of this study are tabulated below. Capital Cost ($/GJ/hr) 15,000 25,000 35,000 Lifetim (years) 12 12 12 Discount Rate 10% (CRF-.147) 10 10% 10% Anrnualized Cap Cost ($/GJ/hr) 2,205 3,675 5,145 O&K ($/yr) 1,500 2,500 3,500 Fixed Costs ($/GJ) 1.85 2.85 3.95 Woodfuel Cost ($/mt) 20 20 20 Energy Content (GJ/mt) 15 15 15 Conversion Efficiency 65% 65% 65* Voodfuel Cost ($/GJ) 2.05 2.05 2.05 Total Costs ($/GJ) 3.9 4.9 6.0 73. By way of comparison, the conversion efficiency in a conventional fuel oil boiler is approximately 85% and the energy ontent of fuel oil is 37.6 JU/1. At 20¢/liter (US$ 31.75/bbl) the energU cost of fuel oil steam is roughly US$ 6.26/GJ. As the case presented in Figure 4 is for a heat gasifier retrofit to an existing fuel oil boiler, the total costs of the retrofit gasifier are compared to the energy costs of che fuel oil boiler over a range of fuel oil prices. 26/ Foley, G. and- Barnard, C., Biomass Gasification in Developing Countries, Earthscan, 1983. 34 lower Gas ifiers 74. In the IErEM analysis, estimates of installed cost, plant life, annual power output, efficiency, and 06K cost vary by technology and plant size. Some representative installed cost and plant life assumptions in the baseline comparison are tabulated below. The discount rate, fuel costs, and load characteristic under which these tecnnologies are compared is also specified. Installed Cost Lifetime ($/kW) (years) 50kUW SOOi 50 W 500kW High speed diesel 585 553 6 8 Charcoal gasifier 910 5 Wood gasifier (manual) 1300 . 5 Wood gasifier (automatic) - 2135 - 6 Discount rate 10% High speed diesel fuel costs (¢/1) 40 Charcoal costs ($/mt) 80 Wood fuel costs ($/mt) 20 Hi speed diesel energy content (NJ/1) 36 Charcoal energy content (NJ/kg) 29 Wood energy content (NJ/kg) 14 Moisture content (w.b.) wood 30% Load characteristic 30 % of time: 80 % of rated load 70 8 of time: 30 8 of rated load 35 Solar Water Heating 75. A recent ESHAP study of the Potential for Solar Water Heating in Kenya provides a unique case study on the impact of lower oil prices on the economic and financial viability of solar water heating (SWH) applications. The study originally assessed SWH systems using October, 1985 fuel prices and was revised using August 1986 prices. Between October 1985 and August 1986, petroleum product border prices in Kenya declined on average 32% and nominal retail prices wera reduced on average 201.27/ Economic and retail fuel prices as of October 1985 (used in original study) and Augusc 1986 (used in revision) are presented in Table Al. TABLE Al ECONOMIC ECO14OIC RETAIL RETAIL PRICE 85 PRICE 86 PRICE 85 PRICE 86 FUEL $US/TOE $US/T0E $US/TOE $US/TOE Gas Oil 260 140 405 363 Fuel Oil 1000 sec 120 81 144 108 2500 sec 143 107 167 134 LPG 321 276 410 347 Kerosene 321 193 320 240 Charcoal 151* 161* 151 161 Wood 46* 48* 46 48 Electricity 222 178 Residential A 251 267 Residential D 145 154 Commercial 166 176 Industrial _ | 142 151 * Retail prices assumad as economic prices. 1985 prices L 17 KSH - $USI; 1986 prices @ 16 KSH - $US1. 76. The tachnical performance of optimal solar water heating systems was simulated in forty five sites. The average installed systes cost was determined to be US$ 126/rn while the simpler systems used In Industrial applications averaged US$ 103/a2 of collector area. A sample of the original and revised economic evaluations are sumarizal in Table A2. The financial net present worth of each Installation in the revised amalysis is presented as an Indication of the impact of lower retall oil prices on the viability of SUH systems from the consumr s perspective. In the origiasl report (1985), all applications had a positive not present worth. 27/ Real petroleum product retail price reductions averaged 21%. These prices are peculiar to Kenya and -the following summary is not intended as a general model of the impact of lower oil prices on the economic viability of solar water heating. 36 Table A2 NPW @ APPLICATION DISPLACED ERR ERR r-. 25 uFE 1985 1986 i-.13 Mt. Kenya Safari Club Fuel Oil 18 9 -3763 Nyali Beach Hotel Fuel Oil 21 11 -5240 Diplomat Cafe Electricity >60 4 3255 Kenya Brewery Puel Oil 15 <5 -15471 Elliot' s Bakery Gas Oil >60 23 80216 Dandora Creamery Fuel Oil 23 10 -4404 Health Center Electricity >60 30 6567 Heala sh Center Kerosene >60 >60 46172 University Dormitory Gasoil 45 14 311184 Rural Dormitory Wood <15 <5 -2331 Residential Electricity >60 30 Tariff A 854 Tariff D - - 290 77. In general, the applications which displace kerosene, electricity, and (marginally) gasoil still appear favorable using revised 1986 fuel prices. Due to the extremely low prices of both fuel oil and wood, SUH applications that displace these fuels do not appear to be cost effective. Table A2 shows that the economic rate of return for most applications displacing petroleum products has dropped to less than 50% of the rate of return calculated at 1985 oil border prices. This significant reduction in economic viability is due sole to the 32% (on average) drop In petroleum products border prices. 78. From the consumer's perspective, the financial viability of the sample applications is indicated by the NPW column in Table A2.28/ Installations with a negative net present worth are not financially viable under the assumptions used. The VW for the proposed Mt. Kenya Safari Club installation under 1985 retail prices of fuel oil (fuel saved) and electricity (pumping costs) was US$ 420. This compares with a VPW of -US$ 3763 using 1986 retail price. The difference between these two indices of financial viability is due saa1. to the 25% drop in the retail price of fuel oil. 28/ The IW was calculated at discount rate of 25%, for systems financed @ 13% interest over 10 years, assuming no increase in fuel prices, 259 duty on imported parts and no sales tax on solar pquipment. A 20% premium on foreign exchange was used throughout the analysis. 37 Water Pumping Nodel Assumptions Village Water Supply 79. Each system is sized to provide 20 liters of water/captta/day. This represents a minimal health standard daily water requirement. Irrigation 80. Systems are sized to pump peak daily water demand Qmax - 1.76 x Q and Q - 34 mO daily average per hectare. This peak ratio is -derived from Kenyan irrigation practices as described in Small-Scalj Solar-Powered uMoinx Systems: The Technologv. Its Economics and &4yaneeent, UNDP/World Bank, June, 1983. Irrigation water costs include gnly the costs of the pumpset and well. All Systems 81. In water lifting applications, the daily hydraulic demand is measured by the volume-head product: m4 - daily water demand(m3) x lift(m). Since the size and cost of a pumping system is directly related to the hydraulic demand it is designed to serve, water costs are commonly compared over a range of hydraulic demands to determine where economic tradeoffs occur. The computed water costs include anualized power source capital cost, fuel, O6&, and the costs of storage and wells. 82. Pumping systems are sized for a solar resource of 5kWh/m2/day and winds of 4m/sec during the critical demand month. These assumptions represent a normal solar regime for equatorial countries and a good wind resource. Discount rate 10S Period of analysis 20 years Fuel inflation 0% Useful life mechanical equipment 10 years non-mechanical equipment 20 years Maintenance costs mChanCal -equipment 10% of cspital costs no-mechanical equipment 1% of capital costs Diesel efficiency 7.5% fuel to hydraulic energy 38 Total Dynamic Read TDO - Lift + lOm friction and pumping to storase Pumped volume Q (m3/day) - Population x 20 liters/capita/day/lO00 Dissa- cal Installed engine cost $3000 for 2.5 kW engine Pump cost ($) - 275 + 25(TDH) + 75Q/4, but at least $750 Solar ost Irstalled array cost $12/Wp Pump cost ($) - 275 + 25(TDH) + 75Q/4, but at least $750 Installed system cost $500/12 swept area of rotor WelJl cost . 2000(Q)4/4, or $2000 for Qc16. Storass cos lOOO(Q*0.3)h Renewable technology system sizing Array size in peak watts: Up - Z x Q x TDH x PEAK Swept area of windmill rotor in m2 - 1.13Q x TDH x PEAK / v3 v - design month mean windspeed (r/sec) PEAK Qmax/Q Quaz - peak daily demand during design month Z ° sizing factor from table below. SIZING FACTOR (Z) PUMP Design Month Daily Insolation EFF ~ 4k/m2 Sk3h/m2 6knh/m2 408 1.97 1.61 1.33 50% 1.60 1.30 1.08 60% 1.28 1.04 0.87 iaggca: IT Power, Solar Powere Their PerfoBme. Cost_and_Economies, July 1986. UCf SERIES PAPERS Ho. 1 Energy Issues in the Developing World, Fahruary 1988 No. 2 A Review of World Bank Lending for Electric Power, March 1988 No. 3 Some Considerations in Collecting Data on Household Energy Consumption, March 1988 Go. 4 Imroving Power System Efficiency in the Developing Countries through Performance Contracting, May 1988