Lesson Learned from High Efficiency

Biomass Power Plants in China

Anders Brendstrup– Global Head of Sale

April 2012

Achieving lower risk and higher profitability

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

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 today

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

•Low EPC costs

•Fuel management

Technology Providers

•Improve efficiency

•Improve fuel flexibility

•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.

• 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

Case study: NBE – lessons learned

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

Power Plant

CC

AG

F

CC

CC

CC

CCAG

FFFF

8 Collection Centers/PP

120 Agents

400 Farmers/ AG

Collection 50 KM

Quality

control

Fuel

Weight

Fuel

storage

High Performance Technology

� 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

– Good maintenanceWATER COOLED VIBRATING GRATE

NBE were able to reduce fuel supply risk and allow better operability

�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

MWe

High Performance Technology

High Pressure High Temperature Boiler

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

15

�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

HTHP vs MTMP

HTHP vs MTMP

�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

Cost 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

Performance Assumptions

HTHP vs MTMP

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

Metrics Assumptions

Utilization hours � 7,500 hours in each year

Tariff � Generic: USD 0.09 /kWhAdjusted with benchmark desulfurized coal-fired tariff

Efficiency factor � Approx. 32.6% efficiency for HTHP and 27.0 for MTMP

� Efficiencies adjusted for plant degradation as given below:

1st year 0.25%2nd year 0.50%

3rd year 0.75%

4th year 1.00%(Overhaul at the end of 4th year)

5th year 0.25%

Feedstock heat

price

� USD 0.0042 / MJ = 50 USD/ton at NCV = 12000 kJ/kg

Internal Power Use

� 11%

Metrics Assumptions

Depreciation � Generic 30MW plant - 15 years straight-line depreciation

Income tax � 25%

O&M cost � 0.2 mUSD per year

Working

Capital Assumptions

� Inventory – 16.7% of Feedstock costs

Debt Funding � Assume 70% debt financing on capital expenditure

� Interest rate of 6%

Capital

Expenditure

� 100% Capital expenditure spent in the year prior to year of

operations

� Assumed total capital expenditure

• 30MW HTHP – USD 30 mn

• 30MW MTMP – USD 25 mn

Construction period

18 months

� 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

HTHP vs. MTMP – Side by SideFeedstock

casts of

HTHP are

about 17.5 %

lower than

that of MTMP

due to higher

plant

efficiency

Project IRR

20 % vrs 13

%.

And ROCE is

37 % vrs 22

%

30 Mwe HTHP MTMP

2012 2013 2014 2015 2012 2013 2014 2015

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

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

EBITDA mUSD -0.51 2.20 6.14 6.35 -0.51 0.95 3.59 3.72

margin mUSD 0% 23% 32% 32% 0% 10% 19% 19%

Depreciation mUSD 0 -0.8 -1.5 -1.5 0 -1.01 -2 -2

EBIT mUSD -0.51 1.4 4.6 4.8 -0.51 -0.06 1.59 1.72

margin mUSD 0% 15% 24% 25% 0 -0.01 0.08 0.09

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

Cash flow from operations mUSD -1.08 0.1 3.3 4.4 -1.08 -1.23 1.33 2.59

add net interest expenses mUSD 0 1.9 1.9 1.9 0.00 1.89 1.89 1.89

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

IRR % 20% 13%

ROCE % 37% 22%

Indian 12 Mwe plant

Metrics Assumptions

Utilization hours � 7,500 hours in each year

Tariff � Generic: USD 0.10 /kWh

Adjusted with 3 % per year

Efficiency factor � Approx. 32.6% efficiency for HTHP and 27.0 for MTMP

� Efficiencies adjusted for plant degradation as given

below:

1st year 0.25%2nd year 0.50%

3rd year 0.75%4th year 1.00%

(Overhaul at the end of 4th year)5th year 0.25%

Feedstock heat price

� USD 0.0033/ MJ = 40 USD/ton at NCV = 12000 kJ/kg adjusted with 6 % per year (inflation)

Internal Power

Use

� 11%

Metrics Assumptions

Depreciation � 12 MW plant - 15 years straight-line depreciation

Income tax � 25%

O&M cost

Water cost

Plant SG&A

� 0.2 mUSD per year adjusted by inflation

� 0.1 mUSD per year adjusted by inflation

� 0.2 mUSD per year adjusted by inflation

Working

Capital Assumptions

� Inventory – 16.7% of Feedstock costs

Debt Funding � Assume 70% debt financing on capital expenditure

� Interest rate of 13%

Capital Expenditure

� 100% Capital expenditure spent in the year prior to year of operations

� Assumed total capital expenditure

• 12 MW HTHP – USD 12 mn

• 12 MW MTMP – USD 11 mn

Construction period

18 months

Indian HTHP vs. MTMPMargins

are lower

due to

higher

interest

rate

Project IRR

20.8 % vrs

15 %.

And ROCE

is 39.7 % vrs

28 %

Indian 12 Mwe HTHP MTMP

2012 2013 2014 2015 2012 2013 2014 2015

Net power revenues mUSD 0.00 4.24 8.83 9.27 0.00 4.24 8.83 9.27

Feedstock costs mUSD 0.00 -2.24 -4.71 -4.99 0.00 -2.71 -5.70 -6.04

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

EBITDA mUSD -0.16 1.18 3.22 3.34 -0.16 0.71 2.23 2.29

margin mUSD 0% 28% 36% 36% 0% 17% 25% 25%

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

less changes in NWC mUSD 0.00 -0.37 -0.41 -0.05 0.00 -0.45 -0.50 -0.06

Cash flow from operationsmUSD -0.66 -0.17 1.82 2.33 -0.62 -0.63 0.90 1.47

add net debt repayment mUSD 0.00 0.56 0.56 0.56 0.00 0.51 0.51 0.51

Capex mUSD -12.00 0.00 0.00 0.00 -11.00 0.00 0.00 0.00

Free cash flow mUSD -12.66 0.39 2.38 2.89 -11.62 -0.12 1.41 1.98

IRR % 20.8% 15.0%

ROCE % 39.7% 28.0%

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