Economic Assessment of Biomass Based Power Generation

Abstract

Biomass based power generation systems can play a significant role to alleviate energy crisis and reduce fossil fuel dependency in the countries that possess abundance of agricultural and forest biomass resources. Particularly the countries to go for biomass energy in a large scale must know power and energy potential for biomass based commercial production with proper economic assessment of the possibilities. In-depth knowledge is must to assess the profitability and sustainability of the projects. Profitability measures how the investment in the project can be secured to have an ensured surplus to be shared by the stake holders and sustainability ensures the long-term existence in the business with a positive trend of gaining market share day by day or simply to be in the business. This chapter will present the details of the economic assessment of biomass- based energy projects in terms of net present value (NPV), internal rate of return (IRR), discounted payback period (DPB), and cost of energy. The economic profitability measure is a must before advancing to a venture whether it is self-financed or loan financed. So, it is hoped that readers of the chapter should develop a proper evaluation capability and know how to analyze the biomass-based energy projects.

1. Introduction

Biomass based energy generation systems impart low environmental impact. To be specific, these systems produce a very low level of CO₂ or other toxic gases or radioactive materials, unlike the ones that are produced by the fossil fuel energy systems. But we are very much reluctant to establish these traditional systems (i.e., coal, natural gas, oil -based power plants) for producing our final energy forms in power plants or vehicles [1, 2]. The estimated average price of 6.9 c/kWh from biomass-based power generation is not yet cost effective comparing to fossil fuel technologies can offer a price in the range of 4.2–4.8 c/kWh [3]. Investment cost for the biomass-based power generation technologies generally take a higher scale compared to other technologies due to diverse fuel characteristics, collection and pre-treatment of the fuel needed prior to introducing to the generation system [4]. The fuel handling requires extra installation and maneuvering cost involvement. Table 1 shows some of the established fuel densification processes used in biomass- based power generation systems.

Densification process	Type of biomass	Bulk density; (kg/m^3)
Without densification	Sawdust; Wood Chips; Straw	47.7; 209–273; 40–60
Palletization	Wood Saw Dust; Straw	606; 360–500
Briquetting	Wood Saw Dust; husk; Fruit Fiber	505; 410; 250

Table 1.

Comparison of bulk density with different processes [5].

Thus, a detailed economic feasibility study must be done prior to jumping into a project.

2. Basics of economic assessment of a biomass based power generation system

The practical outcomes of a biomass-based energy system can be evaluated mainly from two aspects. Number one is from energy content of the biomass in a desired form and number two is economic justification of the specific power generation systems. The evaluation process follows some steps like [6]:

1. evaluation of costs and benefits over the years of operation. Costs involved are investment costs, fuel cost, cost of fuel collection and pre-treatment, costs for operation and maintenance, servicing and insurance against damage etc. On the other hand, benefits may be direct revenue earning or savings for replaceable energy i.e., the avoided bill costs, the incentives received from CER, or revenue earning from the selling of energy to the utility companies under certain tariff rates;

2. analysis of cash inflows and outflows;

3. evaluation of the economically effective space otherwise would have been left empty;

4. estimation of the energy recovery factor pertaining to the analysis done;

5. Sensitivity analysis for the most significant parameters.

2.1 Economic analysis and use of discounted cash flow

The discounted cash flow concept can be presented in a simple equation. The total earning from the project in its life span is represented by, G. Overall return from the project activities is R with the cost incurred C. The simple relation then looks like the following Eq.

$$G=R-C$$E1

As the initial investment and the subsequent cash flows occurs in different time frames, so a time value effect is imparted to this simple equation. This time value is included in the relation using some correlation coefficients which equalize the time value of the money or the future payments of receipts are discounted. So, discounted cash flow (DCF) tries to figure out the value of an investment on the base year and highlights on how much money it will generate in the future.

Each of the future cash flows must be “deflated” first to go back to base year. So, future cash flows must be multiplied by the discount factor:

$$\frac{1}{{\left(1+r\right)}^j}$$E2

Where, r is the discount rate and j is the year index.

Thus, discounted cash flow is used to get Net Present Value (NPV) of an investment following the equation:

$$\mathit{NPV}=\sum _{j=1}^n\frac{C{F}_j}{{\left(1+r\right)}^j}-\mathit{Io}$$E3

Where.

Io - initial investment.

n = years of duration of the investment.

When the net present value (NPV) results to a positive figure, it means at the end of life of investment the discounted cash flows produced throgh out the entire life possess higher inflow than the cost of the initial investment, and other associated costs and therefore, the erection of a plant is justified from a financial point of view; vice versa when the NPV is negative.

Details of net present value and other indicators that uses discounted cashflow like internal rate of return (IRR), and discounted pay back period will be discussed in details in later sections.

2.2 Tools used for economic performance analysis

Economic performance is better understood with the value a product or service provides to the willing customers. A higher value means a higher price customer willingly pays for the product or service. Economic value that a customer is willing to pay for tradable goods, may be greater than the actual market price (thus creating an economic surplus) but it is not usually less [7]. Otherwise, customer would not buy the product replacing the available one. Economic performance must be justified with proper tools, so that the user of the product put their preferences over other available alternatives.

The following tools are commonly used for economic assessment of biomass-based energy projects:

• Life Cycle Cost (LCC)

• Net Present Value (NPV)

• Internal Rate of Return (IRR)

• Discounted Payback (DPB)

• Levelized Cost of Energy

• Profitability Index (PI)

• Sensitivity Analysis

2.3 Life cycle cost analysis

Life cycle cost (LCC) gives a basis for comparing bioenergy technologies to conventional energy technologies. This method accounts the total system cost during a specified time period (life of the project). It comprises the initial investment and operational cost during the useful life. LCC is the sum of total cost that includes not only initial investment but also costs directly related to repair, operation, maintenance, transportation to the site, and fuel used to run the system. All of these costs are discounted with a MARR to the present value (PV). An LCC analysis allows the designer to study the effect of using different components with different reliabilities and lifetimes. It is also helpful for comparing costs of different designs and/or determining whether a hybrid system would be cost –effective option.

The equation of life cycle cost analysis is [8].

$$\mathit{LCC}=C+M_{\mathit{wp}}+E_{\mathit{wp}}+R_{\mathit{wp}}-S_{\mathit{wp}}$$E4

LCC = Life cycle cost.

C = initial cost of installation- the present value of the cost on capital resources.

$M_{\mathit{WP}}$= Aggregation of all yearly operation and maintenance costs- includes wage of the operators, site access, guarantees paid, and all other regular maintenance costs.

$E_{\mathit{WP}}$= Aggregation of all yearly energy cost including fuel cost and its transportation to the plant site.

$R_{\mathit{wp}}$= Aggregation of all yearly replacement costs.

$S_{\mathit{wp}}$= Salvage value.

2.4 Net present value (NPV) analysis

The net future earnings are discounted to the base year with the rate selected to justify minimum attractive rate of return (MARR). The investment is deducted from the present sum of benefits. This value is called NPV [9].

$$\mathit{NPV}=-S+\frac{{\mathit{CF}}_1}{{\left(1+r\right)}^1}+\frac{{\mathit{CF}}_2}{{\left(1+r\right)}^2}+\dots +\frac{{\mathit{CF}}_T}{{\left(1+r\right)}^T}=-S+\sum _{j=1}^T\frac{{\mathit{CF}}_j}{{\left(1+r\right)}^j}$$E5

Net present value shows the following advantages for project assessment:

• Time value of money is included in net present value analysis

• This method considers cash flows disregarding the accounting profits. All cash flows are considered but non-cash flow benefits are not taken into consideration.

• Net present value method is consistent with the objective of profit maximization.

But net present value (NPV) has the following limitations for evaluating a project:

• The calculation is complex and hence requires skill handling.

• It is particularly difficult to quantify the return on investment in an economy where inflation varies year to year and hence necessitates year to year adjustment

• Net present value method does not consider hidden costs or incomes not shown as cash flow.

• Misleading results are probable when the projects are mutually exclusive. In that case profitability index is a more suitable method for summarizing the output.

2.5 Internal rate of return analysis

Internal rate of return discounts all the cash back, providing zero NPV throughout the investment life of the project [9].

$$\mathit{NPV}=-S+\sum _{J=1}^T\frac{{\mathit{CF}}_J}{{\left(1+\mathit{IRR}\right)}^j}=0$$E6

This method uses a widely understood percentage rate as the decision variable to compare mutually exclusive investments or individual investments whether public or private. Incremental internal rate of return analysis is preferred to individual analysis by analysts.

Internal rate of return method for project economic analysis has the following merits:

• Time value of money is taken in to account

• Negative values can be used

• No need to have a precise calculation of discount rate, only a guess is supplied for assessment.

• The output of IRR method is a rate, which can directly measure of project profitability.

In analyzing the economic performance of a bioenergy project, the use of internal rate of return method got the following limitations:

• The calculation of IRR is to go through a trial-and-error method so it is difficult to attain the final point if done manually.

• It is assumed that cash flows generated by the project can be reinvested at its internal rate of return. This is quite unrealistic.

• IRR can have a negative value. Moreover, there is a possibility of having multiple internal rates of return to be produce for the same project.

There exists a huge theoretical preference for NPV analysis for project appraisal and investigations suggests that corporate executives prefer internal rate of return (IRR) analysis over net present value analysis. Actually, managers like to compare projects of varying sizes in terms of predictive performance, using IRR as a decision metric put a summary value of the firm performance rather NPV returns a value of merit figure not a rate. IRR method is an obviously a shortcut of assessing the economic viability of a project.

2.6 Discounted payback period

Discounted payback period is a modified version of the payback period that accounts for the time value of money. This is the time period when the project cash inflows reach a ‘break even’ or to get the point where the net cash flows generated is equal to the initial cost of the project. Discounted payback period can be used to evaluate the profitability and feasibility of a project [10]. DPP can be calculated by solving the following Equation [11].

$$\sum _1^{\mathit{DPP}}\frac{{\mathit{CF}}_n}{{\left(1+r\right)}^n}=0$$E7

Where, CF_n is the cash flow related to the n-th year and r is the discount rate.

Discounted payback period (DPP) has the following limitations

• No track is kept for the cash flows in the project life after the recovery period is achieved.

• This method may not be consistent with the goals of profit maximizing for the business owners. And, the cash flows occur after the DPP attained are generally becomes insignificant but practically all the cash flows through out the span of economic life contribute the project outcome.

• Discounted payback period method plays a minor role in mutually exclusive project selection.

• Discount rate is considered fix for the whole span of project. But in practical, the rate must be adjusted for inflation in a regular interval.

2.7 Levelized cost of energy (LCOE)

Table 2 shows a sample Microsoft excel worksheet to evaluate NPV, IRR, and Payback Period for a biomass- based energy project. Levelized cost of energy is a uniform equivalent rate that is calculated from the revenue stream of an energy project. The revenue generated is discounted at IRR to yield an NPV. The calculated NPV is converted to annual payments and then divided by the project’s annual energy output. The unit stands at $/kWh. This LCOE is a first order parameter to evaluate projects attractiveness. The LCOE should be at a comparable level to defend the competitor’s price. LCOE analysis of power generation plant is a price estimation based on specific assumptions. The assumptions are made for the simplification of calculations. A standard form used by most of the industries worldwide is as below:

$$\mathit{\text{LCOE}}\left(T\right)=\frac{{\sum }_{n=0}^T\frac{\mathit{TIC}\left(n\right)+\mathit{OM}\left(n\right)+\mathit{FC}\left(n\right)}{{\left(1+r\right)}^n}}{{\sum }_{n=0}^T\frac{\mathit{EP}\left(n\right)}{{\left(1+r\right)}^n}}$$E8

where TIC, is the total investment cost in the year, OM is the annual operation and maintenance cost, FC is the annual fuel cost, EP is the estimated annual generation and T is life span of the project in years. Table 3 shows a comparison of LCOE values of different renewable energy sources at different areas. Biomass based energy can be seen as an attractive mode of energy source in the range 0.03–0.07 $/kWh which is much lower margin than solar PV [13].

Year	Generation; (kWh)	Revenue; Earning; (MYR)	Cost of sales; (MYR)	Gross Profit; (MYR)	Operating; Expenses; (MYR)	CER/Tax; (MYR)	EAT; (MYR)	Cumulative; Earning; (MYR)
0							−54,576,000	−54,576,000
1	65,700,000	13,797,000	7,450,366	6,346,634	586,146	2,436,500	8,196,988	−46,379,012
2	70,080,000	14,716,800	7,972,960	6,743,840	606,827	2,601,500	8,738,513	−37,640,499
3	79,978,800	16,795,548	8,889,223	7,906,325	628,282	2,976,215	10,254,258	−27,386,241
4	79,978,800	16,795,548	9,172,407	7,623,141	650,544	2,976,215	9,948,812	−17,437,429
5	79,978,800	16,795,548	9,464,912	7,330,636	673,644	2,976,215	9,633,207	−7,804,222
6	79,978,800	16,795,548	9,767,059	7,028,489	697,617	2,976,215	9,307,087	1,502,865
7	79,978,800	16,795,548	10,079,180	6,716,368	722,497	2,976,215	8,970,086	10,472,951
8	79,978,800	16,795,548	10,401,620	6,393,928	748,321	2,976,215	8,621,822	19,094,773
9	79,978,800	16,795,548	10,734,737	6,060,811	775,127	2,976,215	8,261,899	27,356,672
10	79,978,800	16,795,548	10,734,737	6,060,811	802,955	2,976,215	8,234,071	35,590,743
11	79,978,800	16,795,548	11,800,419	4,995,129	831,847	1,040,821	3122461.5	38,713,205
12	79,978,800	16,795,548	11,538,820	5,256,728	861,845	1,098,721	3296162.25	42,009,367
13	79,978,800	16,795,548	11,910,593	4,884,955	892,996	997,990	2993969.25	45,003,336
14	79,978,800	16,795,548	12,294,800	4,500,748	925,346	893,851	2681551.5	47,684,888
15	79,978,800	16,795,548	12,691,877	4,103,671	958,944	786,182	2358545.25	50,043,433
16	79,978,800	16,795,548	13,102,279	3,693,269	993,842	674,857	2024570.25	52,068,003
17	79,978,800	16,795,548	13,526,474	3,269,074	1,030,094	559,745	1,679,235	53,747,238
18	79,978,800	16,795,548	13,964,952	2,830,596	1,067,755	440,710	1322130.75	55,069,369
19	79,978,800	16,795,548	14,418,218	2,377,330	1,106,884	317,612	952,835	56,022,203
20	79,978,800	16,795,548	14,886,798	1,908,750	1,147,541	190,302	570,907	56,593,110
21	79,978,800	16,795,548	15,333,402	1,462,146	1,181,967	70,045	210,134	56,803,244
						IRR	12.40%
						PV	61274142.67
						NPV	6698142.67
						PBP	5.84

Table 2.

Sample Microsoft excel worksheet to evaluate NPV, IRR, and PBP [12].

Country	Biomass	Geothermal	Hydro	Solar PV	Onshore wind	Offshore wind
China	0.03	na	0.03	0.10	0.05	0.14
Europe	0.07	0.12	0.08	0.15	0.065	0.15
Middle East	0.07	na	0.07	0.14	0.09	na
India	0.04	na	0.04	0.09	0.07	na
USA	0.07	0.09	0.05	0.13	0.05	0.12

Table 3.

Average LCOE from renewable energy source in 2017 ($/kWh) [13].

2.8 Profitability index (PI)

Profitability index is the ratio of the future cash flows to initial investment. If the value is 1 than the project is at breakeven point and greater than one means project is profitable. If mutually exclusive projects are ranked based on PI than it eases the decision making. If an individual project shows to have a PI ratio less than 1 then, it indicative that the future cash inflows cannot cover the expenditures.

The simple relation of profitability index in terms of NPV and I₀ can be written as,

$$\mathit{PI}=\frac{\mathit{NPV}}{I_0}+1$$E9

The present value of a single payment made in the future can be written as, [8].

$$\mathit{PV}=\mathit{FV}{\left(1+i\right)}^{-n}$$E10

Profitability Index (PI) is a relative parameter. It shows how much present value of cash inflows generated for each dollar invested. It is a ratio not having unit unlike NPV.

Decisions for using the Profitability Index:

Accept the investment project proposal if index is greater than 1.0.

Reject the project proposal if index is smaller than 1.0.

When the index equals 1.0, it makes it indifferent whether accept or reject.

So, the investment alternatives should be ranked from highest index to lowest one.

Sample problem on profitability analysis:

Three mutually exclusive projects are under consideration for decision making. The economic attributes are as follows:

Project	A	B	C
Initial investment	$40,000	$42,000	$55,000
Year 1 profit	$ 12,500	$ 13,000	$ 13,500
Year 2 profit	$ 12,000	$ 12,000	$ 12,500
Year 3 profit	$ 11,500	$ 11,000	$ 11,500
Year 4 profit	$ 11,000	$ 10,000	$ 10,500
Year 5 profit	—	$ 9000	$ 9500
Year 6 profit	—	—	$ 8500
Economic life	4 years	5 years	6 years
Salvage value	$7000	$8500	$10,000

The opportunity cost of capital is 10%. Identify the best alternative among those three using profitability index.

Solution: Profitability index for the three mutually exclusive projects can be calculated as:

Profitability Index of Project A:

PI_A = $\frac{\frac{\mathit{\text{\$}}\mathrm{12,500}}{\left(1+0.1\right)}+\frac{\mathit{\text{\$}}\mathrm{12,000}}{{\left(1+0.1\right)}^2}+\frac{\mathit{\text{\$}}\mathrm{11,500}}{{\left(1+0.1\right)}^3}+\frac{\mathit{\text{\$}}\mathrm{11,000}}{{\left(1+0.1\right)}^4}+\frac{\mathit{\text{\$}}7000}{{\left(1+0.1\right)}^4}}{\mathit{\text{\$}}\mathrm{40,000}}=1.05.$

Profitability Index of Project B:

PI_B = $\frac{\frac{\mathit{\text{\$}}\mathrm{13,000}}{\left(1+0.1\right)}+\frac{\mathit{\text{\$}}\mathrm{12,000}}{{\left(1+0.1\right)}^2}+\frac{\mathit{\text{\$}}\mathrm{11,000}}{{\left(1+0.1\right)}^3}+\frac{\mathit{\text{\$}}\mathrm{10,000}}{{\left(1+0.1\right)}^4}+\frac{\mathit{\text{\$}}\mathrm{9,000}}{{\left(1+0.1\right)}^5}+\frac{\mathit{\text{\$}}\mathrm{8,500}}{{\left(1+0.1\right)}^5}}{\mathit{\text{\$}}\mathrm{42,000}}=1.14$

Profitability Index of Project C:

PI_C = $\frac{\frac{\mathit{\text{\$}}\mathrm{13,500}}{\left(1+0.1\right)}+\frac{\mathit{\text{\$}}\mathrm{12,500}}{{\left(1+0.1\right)}^2}+\frac{\mathit{\text{\$}}\mathrm{11,500}}{{\left(1+0.1\right)}^3}+\frac{\mathit{\text{\$}}\mathrm{10,500}}{{\left(1+0.1\right)}^4}+\frac{\mathit{\text{\$}}\mathrm{9,500}}{{\left(1+0.1\right)}^5}+\frac{\mathit{\text{\$}}\mathrm{8,500}}{{\left(1+0.1\right)}^6}+\frac{\mathit{\text{\$}}\mathrm{10,000}}{{\left(1+0.1\right)}^6}}{\mathit{\text{\$}}\mathrm{55,000}}=0.99$

Since project B has the highest profitability index, it should be chosen among the three alternatives.

2.9 Sensitivity analysis

A sensitivity analysis illustrates how much the merit figures will change in response to a given change in an input variable. There always exist some critical parameters which have significant impact on the final sought parameters like Net present value or internal rate of return, IRR). For example, the estimate of energy produced from a biomass-based energy project is often a major factor. Cost of the project, and estimated operation and maintenance cost are other factors generally considered to have greater impact in a sensitivity analysis.

A sensitivity analysis done for the operation of a power generation plant with revenue earning, costs of generation, and operational expenses as the parameters to have significant impact on IRR and Payback period, PBP. These parameters are plotted with ±10% change from the business-as-usual scenario. Table 4 below gives the sensitivity analysis done in the three parameters, revenue earning; the cost of goods sold and operational cost and the resulted changes in IRR and payback period. When all other parameters are fixed and revenue earning is declined by 10% then the IRR becomes −3.13%. This negative IRR means the project cannot payback the investment in its lifetime and thus the payback period is not available in this condition. Similarly, the revenue earning increase by 10% causes IRR changes from 4.31% (base case) to 9.10%. Hence project turns to earn positive NPV and the corresponding payback period is 7.6 years only. Revenue earning is the sensitive factor in the case of biomass-based power generation project.

	−10%		−5%		0%		+5%		+10%
	IRR	PBP	IRR	PBP	IRR	PBP	IRR	PBP	IRR	PBP
Revenue	−3.1	NA	1.2	13.8	4.3	10.3	6.8	8.7	9.1	7.6
Costs	7.4	8.5	6.0	9.3	4.3	10.3	2.3	12.1	0.0	15.6
Operation and Maintenance	4.5	10.1	4.4	10.2	4.3	10.3	4.2	10.5	4.0	10.6

Table 4.

Sensitivity analysis of the project IRR and payback period.

As the operational cost of a plant run on biomass cannot be expected to decrease over the years, the first cost of project installation must be curtailed. These can happen if the government ensures the tax credit and subsidy in the import items of the equipment needed.

Figure 1 shows the sensitivity of IRR with respect to revenue earning, the total cost of power generation and operational cost of generation. The internal rate of return of a biomass based power generation project is highly sensitive to revenue earning and cost of investment. The operational cost shows a less sensitivity. Perhaps, the earning is based on the selling to the utility company and the rate if low the internal rate of return is low. The implication of the IRR sensitivity curve is that the pricing of the energy generated should be increased to make the plant operation competitive with traditional power generation units.

Figure 1.

Sensitivity of IRR at the variation of revenue earning, generation cost, and operational cost.

3. Discussions

3.1 Economy of biomass combustion based power generation

Biomass based power generation is very much dependent on the source of biomass. There is a wide range of biomass feed stocks and can be procured from a variety of sources. The price of biomass is a critical factor as it is directly related to its thermal properties (calorific value, moisture content, bulk density and homogeneity etc.). The economic analysis is based on the palm oil-based fuels. Table 5 shows the cost structure of different types of biomasses needed for a typical combustion-based plant of capacity 10 MW.

Fuel type	In-sourced; (ton/year)	Outsourced; (ton/year)	Price; (MYR/ton)	Cost (MYR)
EFB	30,500	—	16	4,88,000
EFB	—	52,000	36	1,872,000
Fruit Fiber	22,000	—	37	8,21,400
PKS	15,000		115	1,782,000
Wood		2230	50	111,500
Total	68,200	54,230		5,075,400

Table 5.

Total biomass price for combustion-based plant [12].

Year	Generation; (kWh)	Revenue Earning; (mill MYR)	Cost; (MYR)	Gross Profit (MYR)	Opex (MYR)	Re-pay of loan; (MYR)	Certified Emission reduction; (MYR)	EAIT; (MYR)	Cumulative Earn; (MYR)
0						(3% p.a.)		−54,576,000	−54,576,000
1	65,700,000	13.79	7,450,366	6,346,634	586,146	3,667,279	2,436,500	4,529,709	−50,046,291
2	70,080,000	14.72	7,972,960	6,743,840	606,827	3,667,279	2,601,500	5,071,234	−44,975,057
3	79,978,000	16.80	8,889,223	7,906,325	628,282	3,667,279	2,976,215	6,586,979	−38,388,078
4	79,978,000	16.80	9,172,407	7,623,141	650,544	3,667,279	2,976,215	6,281,533	−32,106,545
5	79,978,000	16.80	9,464,912	7,330,636	673,644	3,667,279	2,976,215	5,965,928	−26,140,617
6	79,978,000	16.80	9,767,059	7,028,489	697,617	3,667,279	2,976,215	5,639,808	−20,500,809
7	79,978,000	16.80	10,079,180	6,716,368	722,497	3,667,279	2,976,215	5,302,807	−15,198,002
8	79,978,000	16.80	10,401,620	6,393,928	748,321	3,667,279	2,976,215	4,954,543	−10,243,459
9	79,978,000	16.80	10,734,737	6,060,811	775,127	3,667,279	2,976,215	4,594,620	−5,648,839
10	79,978,000	16.80	10,734,737	6,060,811	802,955	3,667,279	2,976,215	4,566,792	−1,082,047
							IRR	4.32%
							PV	55,737,400
							NPV	1,161,400
							PBP(y)	10.34

Table 6.

NPV, IRR, and payback period of a typical biomass combustion-based power plant with 50% loan at 3% p.a. [12].

3.2 Loan financing and economic feasibility of a biomass combustion and gasification based plant

The net present value (NPV), internal rate of return (IRR), and payback period (PBP) has been re-calculated if half of the total investment is taken as loan from a financing company (bank, government subsidy or other stake holders of the concern). The earnings before interest and tax which is called EBIT are calculated by deducting the operating cost from the gross profit. The current earnings are discounted cash to calculate the net present value of the total plant. The NPV, IRR and PBP period is seen to have changed significantly. The detail cash flow analysis for a typical biomass combustion power plant and a typical biomass gasification power plant is presented in Table 6.

The loan financed project seen to have NPV, IRR, and PBP values MYR 1.16 million, 4.32%, and 10.34 years respectively for the combustion-based plant. The changes in economic performance parameters are significant and can not be accepted from economic viability point of view.

3.3 Opportunities and challenges for sustainable biomass based power generation

The advantage of biomass- based power generation relative to other available renewable enrgy forms is that it can be availed as 24/7 basis as baseload power supply. The challenges come first is the continuous and adequate supply of the feedstock in right form and at proper condition regarding the usage in the right technology whether combustion or gasification.

4. Conclusion

Energy from biomass is a need of time to face the future energy challenges that would arise by the rapid depletion of fossil fuels. Biomass extraction for energy purpose is acceptable only if it is justified economically and socially, at the same time its strategy must aim at sustainability. A drive without sustainability would create a system to be abandoned in near future. In pursuit of sustainability all the moves should be towards achieving and using technologies on the basis of economic feasibility and viability. The selection of energy production technology would be so as to sustain the ecological conditions and not to instigate the food versus fuel conflict concerning the land and water use. Also, there should have a positive environmental balance for the whole life cycle of the biomass used for energy extraction. The best alternative to the combustion-based plant a biomass integrated gasification combined cycle (BIGCC) plant can be suitable pelleted or briquetted biomass with low-cost technology and developed locally.

List of acronyms

BIGCC

Biomass integrated gasification combined cycle

CDM

Clean development mechanism

CER

Certified emission reduction

IRR

Internal rate of return

MARR

Minimum attractive rate of return

MYR

Malaysian Ringgit

NPV

Net Present Value

PBP

Payback period