Lesson Learned from High Efficiency

Biomass Power Plants in China

Achieving lower risk and higher profitability

Anders Brendstrup– Global Head of Sale

April 2012
China biomass today

Current capacity vs Potential

•2 GW installed capacity
(75% agricultural residues)
•800 million tons of waste
agricultural and forestry
residues produced annually
of which still only 5% used.
•Potential for 100 GW
China biomass today
Government
•RMB 0.75/kwh feed-in-tariff (=0.119 USD/kWh incl.
VAT)
•Government targets – 30 GW by 2020
•Increasing adoption of high efficiency HPHT
technology (government to enforce)

Environment and Social

•Millions USD injected into rural economy every year
•Rural electrification – Renewable Base load power
3
China biomass industry began in 2006

• Very little government support

• Zero collection infrastructure

• Volatile price of fuel

• Small scale farmers

• Unpredictable crop cycles

Overcoming the challenges – Reducing risk and increasing profitability

Plant owners Technology Providers

•Low EPC costs •Improve efficiency

•Improve fuel flexibility
•Fuel management •Improve availability and
reliability.

5
Case study: NBE – lessons learned

Founded in 2004

Built China’s first biomass plant in
2006, have built on average one
every 2 month since then.

Currently have 1200 MWe
capacity, largest biomass power
generating company in the world

Adapted European HPHT
technology: DP CleanTech

Partnership with State Grid.
Case study: NBE – lessons learned

• Many of the mistakes and

successes made along the
way
1. laid the foundation for
China’s current fuel
collection
2. influenced current
government policy
3. And taught us a lot about
lowering risk and increasing
profitability.
7
DP CleanTech - 50 references in China
Leveraging low cost EPC

European technology adapted to China market

Manufacturing in China: Reduction of EPC cost from 2,5
MUSD/MWe in Europe to 1-1,2 MUSD/MWe for the
same base technology

Breaking the China standard project execution mold -
Providing a complete biomass tailored solution.

DPCT focused on what is special for biomass (fuel
handling and fuel feeding, combustion, boiler, flue gas
cleaning)

Remainder was handled by “standard” Chinese suppliers
Biomass Cost Structure

Note: Above is based on a reference 30MW Power Plant in China

Fuel Management
NBE initiated China’s first fuel logistics framework.
Prices were very volatile to begin with.
Agents helped stabilize the price.
Farmers began to benefit significantly.

A 30 MW Power Plant require 700 T/Day – 220 000 T/Y

CC CC
Collection 50 KM

Power Plant
CC 8 Collection Centers/PP

CC Quality
CC
120 Agents AG AG control
Fuel
Weight
Fuel
F F F F F storage
400 Farmers/ AG
 High Performance Technology
NBE were able to reduce fuel supply risk and allow better operability

Fuel flexibility
– Moisture Content up to 60 %
– Different types of Biomass - Mix
straw type and wood chip
– Vibrating grates can adjust to
fuel type

Availability
– 7,500-8000 hours a year
– Boiler designed to handle
corrosion and fouling
WATER COOLED VIBRATING GRATE
– Good maintenance
High Performance Technology

High Efficiency High Pressure ,

High Temperature boiler
– 92% , 92 Bar , 540 C
– Plant efficiency up to 32 %

Reduce the plant fuel consumption

by more than 20% compared with
classical technology

Allow big Capacity 12 MWe to 30

High Pressure High Temperature Boiler
MWe
HTHP vs MTMP

A HTHP boilers is far more expensive to produce than a MTMP boiler

due to the following reasons
• The materials used for the last super heaters have to be alloyed
steels. In Sh3+SH4 DP uses TP347H stainless steel which is both due
to the high temperature and pressure but also for corrosion
protection.
• The high furnace temperature causes more slagging which means
that the boiler must be relatively larger in size in order to have the
similar thermal effect.
• The higher pressure requires higher wall thicknesses of all materials,
hence higher overall material cost
HTHP vs MTMP

HTHP boilers provide us with better efficiencies with lower feedstock costs

 The feedstock costs for a HTHP are nearly 20% lower than MTMP

 Lower feedstock costs would in return lead to lower price fluctuations and
risk

 HTHP is able to generate much higher cash flows which can be used to
service a greater amount of debt

15
HTHP vs MTMP
Cost Assumptions

Investment cost for a 30MW power plant – USD 30 mm (HTHP)

Investment cost for a 30MW power plant - USD 27 mm (MTMP)

– Boilers and turbines are expensive for a HTHP based plant

HTHP vs MTMP
Performance Assumptions

HTHP

• Temperature: 535oC / Pressure: 8.83MPa

• Uses 9,821 kj / kWh i.e. turbine efficiency of 36.65%
• For HTHP the boiler efficiency is c.89% - implies a theoretical plant efficiency
of 32.6%

MTMP

• Temperature: 450oC / Pressure: 4.90MPa

• Uses 11,087 kj / kWh i.e. turbine efficiency of 32.47%
• For MTMP the boiler efficiency is c.83% - implies a theoretical plant efficiency
of 27.0%
– Fuel Handling and flue gas cleaning are more expensive due to more fuel
( lower efficiency) and therefore more flue gas
 Reference Plant

NBE has now constructed and is operating more than thirty 30MW plants all
of which are being benchmarked against Generic Model, therefore we
believe this is the right reference point for our Analysis

For our analysis we have only altered 2 variable, the cost of the plant and
the plant efficiency which then has a resultant effect on the amount of
feedstock consumed per ton of power generated
 30 Mwe Reference Plant

NBE has now constructed and is operating more than thirtyy 30MW plants all of which are being benchmarked against Generic Model,
therefore we believe this is the right reference point for our Analysis

For our analysis we have only altered 2 variable, the cost of the plant and the plant efficiency which then has a resultant effect on the amount of
feedstock consumed per ton of power generated

Metrics Assumptions Metrics Assumptions

Utilization hours
7,500 hours in each year Depreciation
Generic 30MW plant - 15 years straight-line depreciation

Tariff
Generic: USD 0.09 /kWh

Adjusted with benchmark desulfurized coal-fired tariff Income tax
25%

Efficiency factor
Approx. 32.6% efficiency for HTHP and 27.0 for
MTMP O&M cost
0.2 mUSD per year

Efficiencies adjusted for plant degradation as given
below:
Working
Inventory – 16.7% of Feedstock costs
1st year 0.25%
Capital
2nd year 0.50%
Assumptions
3rd year 0.75%
4th year 1.00% Debt Funding
Assume 70% debt financing on capital expenditure
(Overhaul at the end of 4th year)

Interest rate of 6%
5th year 0.25%
Capital
100% Capital expenditure spent in the year prior to year of
Feedstock heat
USD 0.0042 / MJ = 50 USD/ton at NCV = 12000 kJ/kg
Expenditure operations
price

Assumed total capital expenditure
Internal Power
11%
• 30MW HTHP – USD 30 mn
Use
• 30MW MTMP – USD 25 mn
Construction 18 months
period
 HTHP vs. MTMP – Side by Side
30 Mwe HTHP MTMP
Feedstock
2012 2013 2014 2015 2012 2013 2014 2015 casts of
Net power revenues mUSD 0 9.4 19.1 19.7 0.00 9.25 18.91 19.47
Feedstock costs mUSD 0 -5.4 -11.1 -11.5 0.00 -6.58 -13.45 -13.86 HTHP are
Other costs mUSD -0.51 -1.7 -1.9 -1.9 -0.51 -1.72 -1.86 -1.90
total COGS mUSD -0.51 -7.2 -13.0 -13.3 -0.51 -8.30 -15.31 -15.75
about 17.5 %
EBITDA mUSD -0.51 2.20 6.14 6.35 -0.51 0.95 3.59 3.72
lower than
margin mUSD 0% 23% 32% 32% 0% 10% 19% 19% that of MTMP
Depreciation mUSD 0 -0.8 -1.5 -1.5 0 -1.01 -2 -2 due to higher
EBIT mUSD -0.51 1.4 4.6 4.8 -0.51 -0.06 1.59 1.72 plant
margin mUSD 0% 15% 24% 25% 0 -0.01 0.08 0.09 efficiency
Net income mUSD -1.08 0.3 2.8 3.0 -1.08 -1.14 0.47 0.65

Cash Flow
Net income mUSD -1.08 0.3 2.8 3.0 -1.08 -1.14 0.47 0.65
add depreciation mUSD 0 0.8 1.5 1.5 0.00 1.01 2.00 2.00
less changes in NWC mUSD 0 -0.9 -0.9 -0.1 0.00 -1.10 -1.15 -0.07 Project IRR
Cash flow from operations
add net interest expenses
mUSD
mUSD
-1.08
0
0.1
1.9
3.3
1.9
4.4
1.9
-1.08
0.00
-1.23
1.89
1.33
1.89
2.59
1.89
20 % vrs 13
Capex mUSD -27 0.0 0.0 0.0 -27.00 0.00 0.00 0.00 %.
Free cash flow mUSD -28.1 2.0 5.2 6.3 -28.08 0.66 3.22 4.48
And ROCE is
IRR % 20% 13%
ROCE % 37% 22% 37 % vrs 22
%
 Indian 12 Mwe plant

Metrics Assumptions Metrics Assumptions

Utilization hours
7,500 hours in each year Depreciation
12 MW plant - 15 years straight-line depreciation

Tariff
Generic: USD 0.10 /kWh

Adjusted with 3 % per year Income tax
25%

Efficiency factor
Approx. 32.6% efficiency for HTHP and 27.0 for
MTMP O&M cost
0.2 mUSD per year adjusted by inflation

Efficiencies adjusted for plant degradation as given Water cost
0.1 mUSD per year adjusted by inflation
below:
Plant SG&A
0.2 mUSD per year adjusted by inflation
1st year 0.25%
2nd year 0.50% Working
Inventory – 16.7% of Feedstock costs
3rd year 0.75% Capital
4th year 1.00% Assumptions
(Overhaul at the end of 4th year)
5th year 0.25% Debt Funding
Assume 70% debt financing on capital expenditure

Interest rate of 13%
Feedstock heat
USD 0.0033/ MJ = 40 USD/ton at NCV = 12000 kJ/kg
price adjusted with 6 % per year (inflation) Capital
100% Capital expenditure spent in the year prior to year of
Expenditure operations
Internal Power
11%

Assumed total capital expenditure
Use
• 12 MW HTHP – USD 12 mn
• 12 MW MTMP – USD 11 mn
Construction 18 months
period
 Indian HTHP vs. MTMP
Indian 12 Mwe HTHP MTMP Margins
Net power revenues mUSD
2012 2013
0.00 4.24
2014
8.83
2015
9.27
2012 2013
0.00 4.24
2014
8.83
2015
9.27
are lower
Feedstock costs mUSD 0.00 -2.24 -4.71 -4.99 0.00 -2.71 -5.70 -6.04 due to
Other costs mUSD -0.16 -0.82 -0.90 -0.94 -0.16 -0.82 -0.90 -0.94
total COGS mUSD -0.16 -3.06 -5.61 -5.93 -0.16 -3.53 -6.60 -6.98 higher
EBITDA mUSD -0.16 1.18 3.22 3.34 -0.16 0.71 2.23 2.29 interest
margin mUSD 0% 28% 36% 36% 0% 17% 25% 25%
rate
Depreciation mUSD 0.00 -1.01 -2.00 -2.00 0.00 -1.01 -2.00 -2.00

EBIT mUSD -0.16 0.17 1.22 1.34 -0.16 -0.30 0.23 0.29
margin mUSD 0% 4% 14% 14% 0% -7% 3% 3%

Net income mUSD -0.66 -0.80 0.23 0.38 -0.62 -1.19 -0.60 -0.48

Cash Flow
Net income mUSD -0.66 -0.80 0.23 0.38 -0.62 -1.19 -0.60 -0.48
add depreciation mUSD 0.00 1.01 2.00 2.00 0.00 1.01 2.00 2.00 Project IRR
less changes in NWC mUSD 0.00 -0.37 -0.41 -0.05 0.00 -0.45 -0.50 -0.06
Cash flow from operations mUSD -0.66 -0.17 1.82 2.33 -0.62 -0.63 0.90 1.47
20.8 % vrs
add net debt repayment mUSD
Capex mUSD
0.00
-12.00
0.56
0.00
0.56
0.00
0.56
0.00
0.00
-11.00
0.51
0.00
0.51
0.00
0.51
0.00
15 %.
Free cash flow mUSD -12.66 0.39 2.38 2.89 -11.62 -0.12 1.41 1.98 And ROCE
IRR % 20.8% 15.0% is 39.7 % vrs
ROCE % 39.7% 28.0%
28 %
Biomass Cost Structure
Sensitivity
At fuel cost of 20
USD/ton IRR is similar.
HTHP is more stable
with varying fuel cost

IRR not very

sensitive to
operating hours
as fuel cost is
very high part of
OPEX
Sensitivity
Going from 10 mUSD
to 15 mUSD will lower
IRR from 26 % to 17 %.
Investment cost is
important but not most
important

15mUSD for
HTHP will have
same IRR as 11
mUSD for MTMP.
 Financing Ability

Generally banks are cash flow based lenders and will determine sustainable
debt levels based on there free cash flow available to service debt and the
variability of those cash flows

As explained above, feedstock is by far the greatest variable cost for a plant

In a stable situation HTHP is able to generate greater cash flow available to

service debt

Further in a situation where feedstock varies, HTHP cash flows are less sensitive
India Market Overview
• Market similarities
• Current situation in India
• India produces about 450-500 million tones of biomass per year.
• EAI estimates that the potential in the short term for power from biomass
in India varies from about 18,000 MW, when the scope of biomass is as
traditionally defined, to a high of about 50,000 MW if one were to expand
the scope of definition of biomass.
• Govt incentives - capital subsidy, renewable energy certificates and Clean
Development Mechanism (CDM) which can be utilized effectively to make
the project economically attractive
Challenges India Market

•Supply chain bottlenecks that could result in non-

availability of feedstock. A related problem is the
volatility in the feedstock price.
•Lack of adequate policy framework and effective
financing mechanisms
•Lack of effective regulatory framework
•Lack of technical capacity
•Absence of effective information dissemination
•Limited successful commercial demonstration model
experience
Agricultural residues in India (MT)
Rice Straw

• It is estimated that 150 Mt of rice straw residue are

produced in India every year.
• In India, 23% of rice straw residue produced is surplus
and is either left in the field as uncollected or to a large
extent open-field burnt. About 48% of this residue
produced is subjected to open-field burning
• However Rice Straw is a difficult fuel to burn and
requires the right technology to avoid high long-term
costs.
Fouling
Ash Fusion Temperature
Conclusion
• India is in a very similar position to where China was 5 years
ago

• India has huge potential particularly with rice Straw.

• Due Diligence – Walk before you can run

• Reliable technology that deals with specific fuel will always

work out cheaper in the long run

• Use HPHT to get the best out of your fuel and improve IRR