PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1. CDM Executive Board CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS A. General description of project activity B. Application of a baseline and monitoring methodology C. Duration of the project activity / crediting period D. Environmental impacts E. Stakeholders‟ comments Annexes Annex 1: Contact information on participants in the project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring plan
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PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.
CDM Executive Board
CLEAN DEVELOPMENT MECHANISM
PROJECT DESIGN DOCUMENT FORM (CDM-PDD)
Version 03 - in effect as of: 28 July 2006
CONTENTS
A. General description of project activity
B. Application of a baseline and monitoring methodology
C. Duration of the project activity / crediting period
D. Environmental impacts
E. Stakeholders‟ comments
Annexes
Annex 1: Contact information on participants in the project activity
Annex 2: Information regarding public funding
Annex 3: Baseline information
Annex 4: Monitoring plan
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SECTION A. General description of project activity
A.1 Title of the project activity:
Project Title: “Pelita Agung Agrindustri Biomass Cogeneration Plant”
PDD Version: Version 1.1.0
Completion Date: 18/03/2008
A.2. Description of the project activity:
Pelita Agung Agrindustri (PAA) commenced construction of an integrated palm oil processing complex in early 2005. When
completed, the complex will consist of a palm oil mill, four lines of kernel crushing plants, one crude palm oil refinery unit, two
lines of transesterification (biodiesel), glycerine distillation, as well as a number of storage tanks (tank farms). By the time of
validation, only the mill and (one) kernel crushing plant are in operation with limited load pending to the completion of its
downstream facilities expected to be in mid 2008. At its full operation, the complex will have the capacity to process palm fresh
fruit bunches into various products including cooking oil, stearine, purified fatty acid distillate, bio-diesel, glycerine. The new
complex is located in the Province of Riau, on the Island of Sumatra, Indonesia.
In order to meet the high demand of steam and electricity, PAA implemented renewable energy initiatives covering construction
of (a) co-generation plant powered using biomass generated by its upstream milling activities and (b) biogas extraction project to
treat the complex‟ effluent, diverting from traditional method of relying on fossil fuel. Both projects are implemented with
assistance of CDM although applications are made on under separate PDD. This PDD covers only for the biomass co-generation
project (“the Project”).
The Project consists of three identical parallel trains of combined heat and power (CHP) units each consisting of a boiler and a
turbine. In total, the system will have the capacity to deliver up to 9.2Mwe (gross) of electricity, and 95MWth of steam meeting
almost1 all of PAA‟s complex energy requirements: 75tonnes per hour of low pressure steam, 15 tonnes per hour of medium
pressure steam, and up to 8.5MW to power the complex including its supporting facilities.
In addition to a drastic reduction of solid waste volume from its upstream processing unit (the palm oil mill), the Project provides
renewable steam and electricity for PAA energy-hungry downstream processing facilities which in other situation would have
been generated using fossil fuel. It is projected that at full operation more than half of the energy requirement would have been
self-generated, with the rest are powered using residues from other palm oil producer. Upon the Project completion, PAA facilities
including its offices and staff residents, would be powered by the Project and with no imports from national grid, enabling PAA
be produce fossil-free end-products.
Contribution to Sustainable Development
The Project supports sustainable development in the following ways:
∷ Elimination of oil-based captive power/steam generation typically employed by downstream processing facilities. By
utilizing biomass exclusively, the Project eliminates the need for PAA to generate fossil-based electricity/steam that would
consequently contribute to green-house-gas emission;
∷ Highly efficient operation. The integration of palm oil mill and its downstream processing facilities complemented with
renewable energy technologies increase the overall efficiency of energy consumption and green-house-gas emission per unit
of end-products.
The integration allows energy consumption to be drastically reduced by elimination of transportation of intermediate products
between facilities, such as: transportation of biomass residues from mill to power/heat generation plants, transmission loss,
transportation of CPO from mill to refinery & biodiesel plants.
1 Very high pressure steam for refining is met using methane extracted from the waste-water
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∷ Utilization of unused biomass. The Project consumes entirely all residue generated by the palm oil mill including its empty
fruit bunches, preventing it from emitting methane during its decomposition.
Without the Project, PAA can-not sufficiently meet its large energy demand using its available biomass, and thus must meet its
remaining demand using prevailing fuels.
A.3. Project participants:
Table 1 – Party(ies) Involved
Name of Party Involved Private and/or Public Entity(ies) Project Participants Kindly Indicate if the Party involved wishes to be
considered as Project Participant
Indonesia (host) PT Pelita Agung Agrindustri, Private Entities No
Japan Mitsubishi UFJ Securities Co., Ltd., Private Entities No
PT Pelita Agung Agrindustri (PAA) is wholly owned by PT Permata Hijau Group based in Medan, North Sumatra, Indonesia.
The group operates palm plantations, palm oil mills, refineries, bulk storage terminal, and recently entering bio-fuel industry with
inception of PAA.
Mitsubishi UFJ Securities Co., Ltd. is the CDM consultant of this Project.
A.4. Technical description of the project activity:
A.4.1. Location of the project activity:
A.4.1.1. Host Party(ies):
Indonesia
A.4.1.2. Region/State/Province etc.:
The Province of Riau
A.4.1.3. City/Town/Community etc:
Sebangar Hamlet, Mandau District, Town of Bengkalis
A.4.1.4. Detail of physical location, including information allowing the unique identification of
this project activity (maximum one page):
The Project is located within PAA palm processing complex. The Project geographical location is shown in the following figure.
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PAA is located on KM No. 26 (Simpang Bangko) of the main road connecting the City of Duri and the City of Dumai (Lintas
Duri Dumai) at 1° 25‟ 41.75”N and 101° 11‟ 21.29“ E.
A.4.2. Category(ies) of project activity:
The Project falls under:
Sectoral Scope I, Energy Industry; and
Sectoral Scope II, Waste Handling & Disposal
A.4.3. Technology to be employed by the project activity:
Project Equipment The Project involves the installation of three (3) identical parallel trains of combined heat and power (CHP)
units. The simplified process flow diagram of the units is illustrated in Figure 2 overleaf. Each train consists of a biomass boiler
connected sequentially to a steam turbine and a generator. The installed capacities and annual outputs of each boiler and turbine
are provided in the following Table 2.
Table 2 – Boiler and Turbine Installed Capacity and Output
Train Installed Capacity
Boiler Turbine/Generator
I 35MWth (40TPH) 3.2MWe
II 35MWth(40TPH) 3.2MWe
III 35MWth(40TPH) 2.8MWe
The boilers are manufactured by Vickers-Hoskins (M). Sdn. Bhd. with license from Babcock Energy Ltd. in United Kingdom.
The steam turbines and generators are manufactured by United States based Dresser-Rand and Newage AVK respectively.
The CHP system is equipped with (a) biomass treatment system to pre-treat the biomass and (b) reverse osmosis water treatment
plant to meet the system water demand.
Process Description The biomass boiler obtained energy from the combustion of biomass mixture consisting of palm kernel shell
(shell), mesocarp fibre (fibre) and treated empty fruit bunches (EFB) which has been pre-treated to ensure efficient combustion.
PROJECT
SITE
Figure 1 – Project Location in Riau Province, City of Bengkalis
PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.
CDM Executive Board Each boiler is capable to deliver 40tonnes per hour (TPH) of superheated steam at 32barg or 3,300kPaa and will be operated at
3,000kPa(a) with maximum outlet temperature of 320degC. About 10% of this steam are withdrawn as medium pressure steam for
heat exchange applications in the biodiesel and glycerine plant after pressure adjustment in a pressure reducing valve.
The remaining steam from biomass boiler are fed to the steam turbines, each is connected to a power generator. The steam turbine
expands the steam pressure from 3,000kPa to 300kPa driving the attached power generator to produce up to 9.2 MW of electricity.
The generated electricity is sufficient to meet all PAA production needs as well as office use, staff dormitory and lighting within
PAA complex, and thus eliminates the need to purchase electricity from the grid for domestic usages.
Low-pressure steam from the back pressure vessel is distributed to various areas including to pressure-cook the fresh fruit bunches
in the mill, direct usage in the kernel crushing, and glycerine distillation, and general heat exchange processes in all areas. Un-
used low pressure steam are recirculated. Only small portion of the water used for low pressure application can be recovered as
condensate, the rest must be treated in the anaerobic digesters in the waste-water treatment plants.
The biomass fuel feeding system includes pressing and shredding machines to treat EFB and automated using mechanical
conveyor belt system, requiring minimum operator intervention. Prior to feeding, the pressed/shredded EFB are in contact with
hot air from boiler‟s exhaust to adjust its moisture to acceptable level.
There is a future plan to add a new burner parallel to these boilers to recover heat from unused biogas obtained from the bio-
digester and thus reduces flaring. However, implementation of this plan is pending to confirmation that there is sizable excess
biomass2.
2 The biodigester has completed construction but not yet running at the time of PDD writing, pending to the completion of the refinery construction.
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Figure 2 - Simplified Process Flow Diagram of the Cogeneration System
Medium pressure
Steam users
Low pressure
Steam users
Pressur e Reducing
Valve
Back Pressure
Vessel
High Pressure
Steam Header
Feed Water
Tank
circulating water
Turbine
Generator
Turbine
Generator
Turbine
Generator
Biomass
boilers
Biomass
boilers
Biomass
boilers
Make-up water from
Reverse Osmosis
Biomass
Fuel mix
e lectricity
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The proposed power/heat generations represents a considerably more complex set of system than those typically practised by
Indonesian palm oil industry. Typically, palm oil mill and kernel crushing plant (referred hereafter as „upstream facilities‟) is
located in-land closer to palm plantation, whereas the refinery and other more complex chemical productions (referred hereafter as
„downstream facilities‟) are located closer to a maritime access.
With this Project, PAA attempts to take a more holistic approach in its production by combining the residue generating upstream
activity (palm oil mill) and the energy-intensive downstream processing. The Project therefore represents a link of delicate
balance between these two aspects of operations. Interruption in the palm oil mill, for example, influences the production of
biomass fuel and high pressure steam supply to refinery which relies on the biogas extracted from the mill‟s waste water. In order
to ensure success, PAA took caution in implementing this Project by providing buffer of biomass fuel and intermediate-products
to minimize impact.
The combustion of EFB is widely applied in Malaysia with the advent of CDM. However, Indonesia is slow in catching up and
PAA was the first EFB consuming project in Indonesia to apply for CDM assistance but application was delayed due to
unavailability of a suitable methodology.
A.4.4 Estimated amount of emission reductions over the chosen crediting period:
Table 3 – Estimated annual emission reduction over the chosen crediting period
Year Annual Estimation of Emission Reduction
in t-CO2/yr
1 149,686
2 157,229
3 164,512
4 171,545
5 178,336
6 184,893
7 191,225
8 197,339
9 203,242
10 208,943
Total estimated emission reduction (t-CO2/yr) 1,806,950
Total number of crediting years 10
Annual average over the crediting period of estimated reductions (t-CO2/yr) 180,695
A.4.5. Public funding of the project activity:
This Project does not receive any public funding in its financing.
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SECTION B. Application of a baseline and monitoring methodology
B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity:
The approved methodology applicable to this Project is ACM0006 Version 06 (EB33). The title of the methodology is:
“Consolidated Methodology Electricity Generation from Biomass Residue”
Other methodological tools used are:
“Tool to calculate project or leakage CO2 emissions from fossil fuel combustion” Version 01 (EB32)
“Combined tool to identify the baseline scenario and demonstrate additionality” Version 02.1 (EB28)
“Tool to determine methane emissions avoided from dumping waste at a solid waste disposal site” (EB35)
This PDD is completed in accordance with Guideline in Completing CDM-PDD and CDM-NM Version 06.2.
B.2 Justification of the choice of the methodology and why it is applicable to the project activity:
The Project is a cogeneration plant fuelled using biomass residue and is implemented as the utility facility of a new integrated
palm oil processing complex. The Project involves the installation of a new biomass residue power and heat generation plant
where previously no power and heat generation occurs (green-field project), thus meeting the general description of Project under
ACM0006.
The following assessment demonstrates that the Project is applicable to apply ACM0006:
The biomass residue used by the Project (palm kernel shell, mesocarp fibres, and empty fruit bunches) are the by-product,
residue or waste stream from agriculture related industries (palm oil mill) and does not include municipal wastes or other
wastes that contain fossilized or non-biodegradable material. Thus, the biomass residue used by the Project meets the
definition of biomass residue characterized in ACM0006;
The Project was designed to supply PAA complex, which itself is also a new facility with pre-defined capacity and demands.
Its implementation deemed not to increase the processing capacity of the raw input material of the palm oil mill other than the
pre-designated capacity.
The biomass residues used by the Project will not be stored for more than one year. Under normal circumstances, untreated
EFB is expected not to be stored and storage capacity for buffer shell is no more than a few months.
The dry biomasses: shell and fibre do not need additional energy for treatment as it is also used in the baseline. The wet
biomass (EFB) requires pressing, drying and mechanical shredding to reduce its moisture content and ensure smooth feeding
to the boiler. Drying is performed by subjecting the wet biomass to the exhaust of the boiler combustion chamber on a
moving conveyour belt, resulting in no significant increase of energy utilization. However, pressing and mechanical
shredding requires a sizable amount of electricity which is made possible by the co-generation system.
It is pertinent to note that the bio-diesel plant in PAA complex exclusively processes refinery products via esterification.
However, the product of esterification process will not be used as fuel to the Project plants.
It can then be deduced that apart from transportation and mechanical treatment, no significant energy quantity is required to
prepare the biomass residues (EFB, fibre, or shell) for fuel combustion.
It is demonstrated under Section B4, that the baseline Scenario of the Project meets the situation described in Scenario 20 of
Table 2 of ACM0006.
B.3. Description of the sources and gases included in the project boundary
Sources and gases included in the project boundary are summarized in Table 4.
The following sources are excluded:
1. Emissions from storage of biomass This emission source is excluded in the chosen methodology and deemed appropriate as
the storage period of biomass fuel is short.
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2. Pre-treatment of biomass As elaborated under applicability conditions (Section B2), EFB requires pre-treatment to reduce
its moisture content to ensure efficient boiler feeding. The process results in the generation of EFB liquor which is then
processed in a closed bio-digestion system where all methane are captured and used to replace fuel for one of the boiler in the
refinery. The drying is done through evaporation by subjecting shredded biomass on conveyor belt to hot air from boiler
immediately before feeding. Thus, it can be concluded that no additional emissions results from this pre-treatment system.
3. Electricity usages The entire PAA facility, including office & staff dormitory is not connected to external electricity grid.
Any electricity needed will be drawn from the project output – which is entirely generated from renewable energy. For plant
start-up or electricity consumption during project down-time, electricity will be drawn from back-up diesel gen-set, which
emissions are accounted as „on-site fossil fuel usage‟. Thus, electricity usage is not accounted as an isolated emission source
but rather as emission from combustion of on-site fossil fuel.
Table 4 – Sources and gases included in the project boundary
BASELINE SCENARIO ACTIVITY
Source Gas Details
Electricity generation CO2 CO2 emissions from the consumption of diesel oil to generate electricity in the power generator.
Heat generation CO2 CO2 emissions from the combustion of residue oil in the baseline fossil fuel boiler to supplement
energy unable to be met by biomass utilization alone
Decay of biomass CH4 CH4 emissions from the decay of landfilled EFB
PROJECT ACTIVITY
Source Gas Details
Onsite fossil fuel usage CO2 CO2 emissions from on-site utilization of fossil fuel including for electricity generation attributable to the
Project, ie. to start-up project equipments (as defined in Section A.4.3). This does not cover fuel
consumption by the stand-by gensets to generate electricity for the offices, process users, during
project down-time. Co-firing is unforeseen, but included as parameter to be monitored.
Offsite transportation of
biomass residue
CO2 CO2 emission from the transportation of biomass imported to PAA complex.
The remaining biomass is self-generated on-site and movement is done using conveyor belt system
consuming electricity from the project.
Combustion of biomass
residue for Project activity
CH4 CH4 emission in the stack gas of the biomass boiler combustion chambers
Spatial project boundary The spatial extent of the project boundary encompasses the cogeneration plants at the project site, the
means of biomass transportation, the site where preparation and storage of biomass occurs and the site where the biomass would
have been left to decay. With consideration that PAA does not have electrical connection for import or export of electricity, the
project boundary does not include power plants in the public grid.
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B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario:
The following section determines the most likely alternative to the Project and embodied Step 1 (identification of alternative) of
the „Combined tool to determine baseline scenario and demonstrate additionality‟. Subsequent steps of the tool (demonstration of
additionality) are described in Section B.5.
STEP 1 – Identification of alternative Scenarios
Step 1(a) – Define alternative scenarios to the proposed CDM project activity
As prescribed in Section II of the applied methodology, baseline identification process should assess how power and heat
would have been generated, and how the biomass would have been handled in the absence of the Project.
Determination of baseline scenarios for biomass handling
As required by the methodology, the application of Step 1 must take into account the following alternatives into
consideration during baseline determination:
Table 5 – Biomass Baseline Scenarios to be considered as per ACM0006
Scenario Description
B1 The biomass residues are dumped or left to decay under mainly aerobic condition. This applies, for example, to
dumping and decay of biomass residues on fields.
B2 The biomass residues are dumped or left to decay under clearly anaerobic conditions. This applies, for example, to
deep landfills with more than 5m.
B3 The biomass residues are burnt in an uncontrolled manner without utilizing it for energy purposes.
B4 The biomass residues are used for heat and/or electricity generation at the project site.
B5 The biomass residues are used for power generation, including cogeneration, in other existing or new grid-connected
power plants.
B6 The biomass residues are used for heat generation in other existing or new boilers at other sites.
B7 The biomass residues are used for other energy purposes, such as the generation of biofuels
B8 The biomass residues are used for non-energy purposes, e.g. fertilizer or as feedstock in the processes.
As required by the baseline methodology, the baseline analysis of the biomass residues is identified for each type of
biomass. Biomass residue from different sources is considered as different type of biomass residue. The classification
and utilization of biomass in this Project and results of its assessment is summarized in the following table. The
assessment process is described in the next few paragraphs.
Table 6 - Biomass Classification, Projected Utilization, and Baseline Scenarios Considered
Biomass
Type
Description and Note Projected annual consumption Baseline Scenario Evaluation
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K4 Imported, palm kernel shell used only
in the project situation
77,229 1,214 B4,B5,B6 B4
K5 Onsite generated, empty fruit bunches
from PAA mills
93,150(untreated) or
64,860 (treated)
549 B1, B2, B3, B8 B2
Note: The term ‘on-site’ referred to biomass generated by PAA palm oil mill, as oppose to biomass ‘imported’ from other mills outside
PAA.
Biomass K1 : mesocarp fibre from PAA
Mesocarp fibre represents the most widely used biomass energy source in the palm oil industry, consequently:
(a) Scenarios involving biomass being dumped (B1, B2) or burnt in uncontrolled manner (B3) are excluded;
(b) Scenarios involving the use of this biomass for other energy purpose such as bio-fuels(B7) or non-energy purposes
such as fertilizer (B8) are non-existent, and thus excluded.
(c) Scenarios involving utilization of fibre as energy source in the baseline [B4, B5, and B6] are credible alternative and
considered for further evaluation.
However, with consideration of PAA large energy demand, it is unlikely that PAA would sell this biomass to other
parties for power/heat generation as described in Scenario B5 and B6. It is likely that this biomass is used by PAA itself
as energy source – as with any other palm oil mill, and thus baseline Scenario B4 is the most credible baseline scenario
for Biomass K1.
Biomass K2 ,K3,and K4 : palm kernel shell
The utilization of kernel shell for palm oil players differs from operator to operator. Traditional palm oil mill which
needs little electricity can meet its energy demand by combustion of fibre, and small amount of shell using low-
efficiency simple co-generation technology. The remaining shells are used for non energy purpose such as plantation-
road reinforcement to reduce slip during wet season, and therefore left to decay aerobically.
Less commonly, minority players operate a kernel crushing facility (like PAA) which requires more electricity than a
mill3. For this type of operator, the kernel shell plays an important energy source to generate steam and electricity which
is typically done by increasing the capacity of the low pressure co-generation system. As such, for palm kernel shell:
(a) Scenarios involving biomass being dumped (B1, B2) or burnt in uncontrolled manner (B3) are excluded;
(b) Scenarios involving the use of this biomass for other energy purpose such as bio-fuels(B7) or non-energy purposes
such as fertilizer (B8) are non-existent, and thus excluded.
(c) Scenarios involving utilization as energy source in the baseline [B4, B5, and B6] are credible alternative and
considered for further evaluation.
Biomass K2, ,on-site palm kernel shell. With consideration that PAA energy demands is higher than typical industry
practice due to its large downstream processing activities; it is unlikely that biomass K2 is sold to other parties for energy
purpose (B5 and B6). Thus, scenario B4 is the only credible alternative for this type of biomass.
Biomass K3, and K4 , shell from other mills. PAA purchased shell from traditional millers who utilized fibre for its
operation and shell partially, and left excess shell unused and decay aerobically (B1). Such millers however is expected
to be aware of shell economic value in future and sold this biomass to industries in need of large energy source like PAA
(B5 and B6). Thus, in all likelihood, biomass K3 and K4 will be used as energy source whether at PAA site (B4), or other
industrial sites (B5 and B6).
At the time of decision making, the utilization of shell for energy purpose outside the upstream palm oil mill & kernel
crushing was not a common practise but becoming more common with the advent of CDM. In terms of calculation of
baseline emission, the use of biomass at any sites (PAA or other industrial site), for whichever purposes (heat or
3 The ratio of kernel crushing facility is about 1:11, 1 kernel crushing plant with typical size of 600TPD services about 10mills with average capacity of 45TPH. However, even for such players, there are still considerable amount of excess shell available.
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electricity) has little influence in determining the baseline emission. As such, for all intent and purposes, this biomass is
considered to have baseline B4.
Biomass K5, empty fruit bunches from PAA mills. The utilization of EFB as energy source was not a common practise
before the advent of CDM. When the project proponent decided to explore this project in 2004, there was no palm oil
mill in Indonesia to implement large scale EFB boilers with or without CDM. Until today, only two EFB power plants in
Indonesia are applying for CDM. Both are not yet registered at the time of PDD writing and are non-cogeneration type.
Others, prefer to use EFB as material for composting with assistance of CDM.
EFB is not commonly used in palm mill power plants for a number of reasons: (a) the pre-treatment process is energy
and capital intensive and (b) a typical non-integrated stand-alone mill hardly needs electricity, and the necessary steam
can be supplied from fibre combustion alone.
For the Project, PAA installed four EFB treatment process with total electrical consumption of 536kWh or nearly 40% of
the electricity needed by the mill itself. Thus, it is clear that without any sufficient and economical electrical output,
utilization of EFB as fuel is not an attractive option. In addition to this, the cost of these treatment plant itself is not
insignificant thus further hindering its utilization as energy source.
As indicated in Table 6, EFB contributes to only 20% of the total fuel mix on energy basis despite the additional capital
requires for treatment plants and considerably large electrical requirement for pre-treating the material. These factors
deem that usage of EFB as fuel is prohibitive whenever system with lower efficiency is employed. Consequently,
alternatives involving the utilization of EFB as energy source (Scenario B4, B5,and B6) are excluded from further
consideration in the baseline.
A number of technical papers cited the potential use of EFB as: (1) potential feedstock for refused derived fuel (Scenario
B7); (2) potential feedstock for pulp and paper industry (Scenario B8); and (3) feedstock for composting (Scenario B8).
Currently, the first two situations are still in research and development and non-existent in Indonesia, and thus both are
excluded from further consideration. However, Scenario 3 is a credible option and will be further assessed.
With the exclusion of some scenarios above, the remaining credible scenarios are scenarios involving the disposal of
EFB (Scenario B1, B2, B3), and scenario involving the use of EFB for composting (B8) and discuss in the following
paragraphs:
A. Scenario B1, biomass disposal in mainly aerobic condition. The disposal of empty fruit bunches in mainly aerobic
condition is associated with the use of the material for mulching. For PAA, this does not provide a long-term
solution to its requirement to manage empty fruit bunch for the following reasons:
(1) Costs incurred for material movement PAA is not bordered by its own plantation, and which means the
use of untreated empty fruit bunch as mulch will incur significant costs for material movement (labour and
transportation). It is unlikely that independent farmers who operate the plantation surrounding PAA facility
compensate for delivery of untreated EFB.
(2) Short-term application The application of mulch is intended to reduce water evaporation due to harsh
tropical climate for new plant or during re-planting. After the tree matures, the tree canopy and its dry leaves can
sufficiently fulfil this function. With a life-cycle of 20 years, the demand for mulch is not continuous and no
longer required as soon as the tree reaches its productive stage and evaporation is sufficiently prevented by its
own canopy.
B. Scenario B8, EFB is used for composting (non-energy purpose). Using EFB as composting has been cited as one of
the most potential eco-friendly way of handling EFB. However, its application remains unimplemented in the region
as it requires not insignificant investment. As such, the use of EFB as composting is only feasible with assistance of
CDM as has been evidence with the numerous CDM applications of composting activities in the region. As PAA
operates a relatively large industrial complex, production of compost is not in-line with its core activity and thus less
likely to be considered as an option.
C. Scenario B3, the biomass residue is burnt for non energy purpose. With no other potential usages, PAA facility and
others surrounding the region are equipped with incinerator to destroy the EFB when unconsumed. This incinerator
is simple incinerator with high stack, but no combustion control.The existing incineration in PAA was set up as
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temporary measure to destroy EFB generated by the mill before the cogeneration plant is fully operational, and will
be decomissioned after the Project is fully operational.
Under the current environmental regulations, the application of incineration is not prevented as long as it meets the
required ambient air quality governed under the ministrial decree for stationary combustion. The applied standard for
combustion of biomass requires the control of the following emissions: particulate matters, sulfur dioxide, nitrogen
oxides, hydrogen chloride, chlorine, ammonia, hydrogen fluoride, and opacity. It does not control the methane
emission from combustion.
However, many environmental agencies voiced concerns over the use of incineration for the handling of waste due
to fear of the formation of dioxin and furan. As consequence, the continuation of such practise may no longer be
compliance with law in not-too-distant future, as with the case with other countries in the region which banned
incineration by law. Consequently, the only long-term solution within law for PAA is to construct a landfill to
contain its 93,000t per year of EFB.
D. Scenario B4, the biomass residue is managed in a sanitary landfill. If the use of existing incineration is prohibited by
law then the only viable option of managing EFB is the construction of a landfill within vicinity of PAA to avoid
transportation/labour costs. This solution is a feasible option as land is available and economical in the area where
PAA is located and away from residential area. In order to avoid complain from surrounding neighbour, the
constructed landfill must be implemented with sanitary standard, where waste must be compacted, covered, with the
collected leachate treated in PAA waste water treatment facility. However, with consideration of the unstable
emission profile and the size of this private landfill, it is unlikely that methane collection facility is implemented
without CDM.
Based on this long-term view, the most plausible baseline scenario for handling EFB is the construction of a managed
landfill (B2). The baseline emission is calculated using multiphase model as described in the „Tool to determine methane
emissions avoided from dumping waste at a solid waste disposal site‟. The choice of parameters and justifications are
explained in Table 10 and Table 11 of this document in Section B6 (p. 26).
Determination of baseline scenario for power and heat
As stipulated in the methodology, baseline scenarios must be determined for both power and heat by considering
scenarios described in the following table.
Description Description
P1 The proposed project activity not undertaken as a CDM
project activity
H1 The proposed project activity not undertaken as a CDM
project activity
P2 The continuation of power generation in an existing biomass
residue fired powered plat at the project site, in the same
configuration, without retrofitting and fired the same type of
biomass residues as co-fired in the project activity
H2 The proposed project activity (installation of a cogeneration
power plant), fired with the same type of biomass residues
byt with a different efficiency of heat generation.
P3 The generation of power in an existing captive power plant
using only fossil fuel.
H3 The generation of heat in an existing captive cogeneration
plant, using only fossil fuel.
P4 The generation of power in the grid H4 The generation of heat in boilers using the same type of
biomass residues
P5 The installation of a new biomass residue fired power plant,
fired with the same type and with the same annual amount of
biomass residues as the project activity, but with a lower
efficiency of electricity generation than the project plant and
H5 The continuation of heat generation in an existing biomass
residue fired cogeneration plant at the project site, in the
same configuration, without retrofitting and fired with the
same type of biomass residues as in the project activity.
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therefore with a lower output than the project case.
P6 The installation of a new biomass residue fired power plant
that is fired with the same type, but higher annual amount of
biomass residues as the project activity and that has a lower
efficiency of electricity generation than the project activity.
Therefore, the power output is the same as the project case.
H6 The generation of heat in boilers using fossil fuel
P7 The retrofitting of an existing biomass residue fired power
plant, that is fired using the same amount of biomass
residues as the project activity, but with a lower efficiency of
electricity generation than the project plant, and therefore
with a lower output than the project case
H7 The use of heat from external sources, such as district heat.
P8 The retrofitting of an existing biomass residue fired power
plant, that is fired using the same type, but higher annual
amount of biomass residues as the project activity, and that
has a lower efficiency of electrical generation than the
project plant.
H8 Other heat generation technologies (eg. Heat pumps or
solar energy).
P9 The installation of new fossil fuel fired captive power plant at
the project site
As the Project is a green-field project where no power or heat is generated previously, any scenarios involving
continuation or retrofitting of existing equipment (P2, P3, P7, P8, H3 and H5) can be immediately excluded.
Scenario involving grid electricity import (P4) can also be excluded as Sumatra electricity grid does not have enough
capacity to supply electricity to a large industry with sufficient reliability at the time of project inception. The prevalent
practise in Sumatra for industry is on-site (captive) generation of electricity. This is evident from reports issued by the
state electricity company, PT PLN and the Directorate General for Electricity and Energy Utilization in 2005 suggesting
that less than 10% of total electricity sold in 2004 in Sumatra is purchased by industry4. The grid situation may change in
the future with many new (coal) power plants are added. However, it will not change the baseline situation, as
commitment to proceed with the Project was made in 2004.
The scenario involving the use of heat from external sources (H7) is also immediately excluded as at the time of PDD
writing PAA is not bordered with other industrial facilities that can procure or supplied excess heat. There are also no
utility company operating within proximity of the Project. With consideration of PAA relatively significant demand,
reliance on heat generation technologies such as heat pumps and solar energy are not a practical option. Thus, Scenario
H8 is also excluded.
Scenarios involving the installation of new biomass power plants (P5/P6) are considered as plausible scenarios. As
elaborated earlier (under biomass handling), the use of fibre is common in a typical stand-alone-mill and shell is used to a
lesser degree. As shown in Table 6, on-site shell (K2) and fibre(K1) can potentially supply the Project with 916TJ of
energy annually without additional transportation or material cost. Thus, these biomasses are considered as the primary
energy source in PAA.
It will be demonstrated in Annex 3, that biomass alone can-not meet the large steam and electricity needs of the complex,
and thus the baseline is likely to be combination of biomass and fossil fuel, either co-fired or in distributed system. Thus,
combination of Scenario H4 and H6 is treated as one option for the purpose of baseline identification assessment.
4 “Rencana Umum Kelistrikan Nasional” or “General Plan for National Electricity”, Directorate General for Electricity and Energy Utilization (DJLPE), Department of Energy and Mineral Resources, April 2005
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From the above eliminations, the remaining credible scenarios are: P1, P5, P6, P9 for power and H1, H2, H4, H6 for
heat.
Outcome of Step 1a
With non-relevant baseline scenarios are eliminated in the above assessment, the remaining possible combination of
baseline scenarios is summarized in the following table and described in paragraphs underneath as outcome to Step 1a.
Table 7 – Remaining combinations of credible baseline scenarios
Heat H1
Project without CDM
H2
Cogeneration
H4/H6
(Heat generation using biomass and fossil fuel) Power
P1 (Project without CDM) Scenario A × ×
P5 (Cogeneration) × Scenario B ×
P6 (Cogeneration) × Scenario C ×
P9 (Captive power generation) × × Scenario D
Scenario A - Installation of a cogeneration plant with same efficiency as the Project
The Project is carried out without CDM
Scenario B - Installation of a cogeneration plant with lower efficiency using the same amount of biomass as the Project
In this Scenario, power and heat are generated simultaneously using co-generation system which is prevalent in
palm oil industry, low pressure and low efficiency using the same amount of biomass as the Project. The lower
efficiency, however, creates a shortfall of output in comparison to the Project and thus must be compensated
with the adoption of fossil fuel technology to meet the remaining demand.
As the use of EFB in lower efficiency system is prohibitive, only biomass K1, K2, K3, and K4 is used.
Scenario C - Installation of a cogeneration plant with lower efficiency using more biomass as the Project
In this Scenario, power and heat are generated simultaneously using co-generation system which is prevalent in
palm oil industry, lower pressure and lower efficiency. In order to compensate the lower efficiency, the boiler is
designed to combust more biomass to recover more energy.
As the use of EFB in lower efficiency system is prohibitive, the plant is fuelled with biomass K1, K2, K3, and
higher amount of K4.
Scenario D – Separate generation of electricity and heat
Steam Demand for Upstream Processes (Mill and Kernel Crushing Plant). The steam demands for upstream
operations are supplied exclusively using biomass (K1, K2, K3).
Unlike an integrated industry, an independent palm oil mill consumes 100% of its fibre and 2% of its shell for
its thermal and electricity requirement. Greater amount of electricity is needed by minority player who owns and
run kernel crushing facility5.
PAA plans to operate greater than normal kernel crushing facility (almost double the typical capacity).
Combined with the mill, the thermal demand of these facilities is 42TPH of low pressure steam, and if generated
5 In the case of PAA (which operates one of the largest mill size), the mill itself can supply only 69t per day of kernel, which is very small compared to PAA designated 4x275tpd or 1100t per day of installed kernel processing capacity
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using biomass boiler with 70% efficiency6, consumes the entire self generated fibre (K1) and shell (K2) with
additional 3,126t/yr of more shell needed to be imported to PAA (K3).
Steam Demand for Downstream Processes (Refinery, Biodiesel, Glycerine Distillation, and Tank Farms)
The combined steam demand of these areas are 32.7TPH of low pressure steam (3bar(g)), and 15TPH of
medium pressure steam (15bar(g)). As stated at earlier section, the common practice is to have these
downstream processes near to a maritime port for ease of distribution away from the upstream processes. In
such case, these processes typically consumes non-biomass fuel.
With highest pressure demand of only 15 bar, the use of cogeneration will not be able to provide sufficient
electricity needed which is in the order of 7.9MW. A simple calculation shows that such system can only
provide less than 6% of the total electricity needed7 and thus is ruled out as possible alternative. Consequently, it
is more likely that the steam requires by the downstream processing facility is generated as per its original
design of the process, supplied by boilers distributed in the individual demand. With consideration of lack of
natural gas pipeline, such boilers is likely to be operated using either residue oil or coal which are considered
more economical than diesel oil. However, the use of coal in distributed boilers system are unlikely due to
impractical fuel feeding system. Based on observation of other operations, it is likely that these boilers would
have been fuelled using residue oil which are more expensive but practical.
Electricity Demand for the Entire Facility With all of its self-generated biomass is concentrated for the use of
steam production in its upstream facility, and the possibility of cogeneration for the downstream steam usage is
ruled out, PAA has only one remaining option: to install a captive power plant to supply its electricity.
The most economical course of option is to install coal power plant due to its economic advantage and access to
fuel8. This is evident by moves initiated by the Indonesian government to reduce consumption of diesel oil as
Indonesia is heading toward a net-oil importing country due to lack of investment in oil exploration. However,
for sake of conservativeness, the baseline is assumed to be diesel oil power plant9.
In all of the above scenarios, biomass K5 (EFB) are not included as energy source and hence landfilled.
Substep 1b Consistency with mandatory applicable laws and regulation
All of the above Scenario A to D are in compliance with applicable legal and regulatory requirement in the host-nation,
including national policy.
Outcome of Step 1b.
Scenario A to D remains as credible alternatives to the Project.
STEP 2 – Barrier Analysis
Substep 2a – Identify barriers that would prevent the implementation of alternative Scenario
This section identify the list of barrier that prevents the implementation of Scenario A-D as described in Step 1
Barrier1 – Relative complexity & practicality of implementation. The alternative is less likely to be executed
than the Project if it represents a less practical option in terms of operation, control and reliability.
6 Maximum efficiency of biomass boiler as cited in Council of Industrial Boiler white paper: “Energy Efficiency & Industrial Boiler Efficiency:
an Industry Perspective” which cited New Biomass Boiler efficiency is in the range of 60% to 70%.
7 The incremental specific enthalpy between medium pressure (2,821 MJ/t) and low pressure steam (2,750 MJ/t) is only 71MJ/t. Thus for
turbine with 97% energy recovery efficiency and the low-pressure steam flowrate of 32.7TPH, the recoverable electricity is 451.4kW or only 5.3% of total electricity demand.
8 Sumatra is the largest coal producing region in Indonesia, and one of the leading coal supplier in Asia Pacific.
9 It is pertinent to note that this decision have several consequences in the barrier analysis, namely that a diesel power plant is more hefty in
operating costs but lower in capital costs compared to a coal power plant. However, the cost-effectiveness of a coal power plant is evident by the apparent proliferation of such technologies in Indonesia.
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Barrier 2 – Less financially attractive than the Project. The alternative is less likely to be executed than the
Project if it represents a less financially feasible option than the Project.
Sub-step 2b – Eliminate alternative Scenarios which are prevented by the identified barriers
Scenario A. This scenario represents the same technological advances as the Project and thus is not prevented by the
barriers identified in Sub-step 2a. Consequently, it remains as credible alternative to the Project.
Scenario B. This scenario represents a biomass co-generation technology with similar arrangement as the project
(boiler+steam turbine+generator) using lower efficiency, consuming the same amount of biomass as the Project (K1 to
K4). It is likely that such low-efficiency system is a result of combination of lower operating pressure, less efficient
boiler/furnace and low intake pressure, less efficient steam turbine than the Project.
The lower overall efficiency means that the boiler generates lower quality of steam in a quantity less than those
that can be supplied by the Project boiler, and subsequently reduces the quantity of recoverable electricity in the
steam turbine. In order to meet end-users demands, installation of such biomass co-generation plant requires
additional investment for the provision of remaining of electricity and steam. The option of adding more burning
more biomass is considered in Scenario C and thus not considered here. As electricity becomes less scarce the
utilization of EFB becomes less likely, and the fuel requirement must be met with import of fossil fuel.
At best, it is likely that this lower efficiency cogeneration and the additional capital investment to meet the
remaining steam/elecricity results in a similar investment cost as the Project. On the other hand, its operating
costs is significantly higher as more fossil fuel are needed to meet the shortfall.
An alternative of similar investment compared to the Project with higher running costs to procure fossil fuel,
represents a less sophisticated and financially less attractive alternative than the Project (Barrier 2). Thus, less
likely to be implemented than the Project.
Scenario C. This scenario represents a biomass co-generation technology with similar arrangement as the project
(boiler+steam-turbine+generator) using lower efficiency. In order to compensate the lower efficiency, more biomass is
burnt in this boiler than the Project situation.
In this scenario, more biomass is burnt to par the electricity/steam output as the Project. The additional biomass
needed to compensate the lower efficiency does not only translate to additional operating costs, but also a bigger
furnace chamber to accomodate combustion of more biomass, and bigger heat exchange surface area to transfer
the same quantity of thermal energy. Subsequently, the turbine must be able to handle lower pressure and more
volume of steam, with the constraint of low recovery efficiency.
The overall lower efficiency system will result in oversize system design that is harder to control with demands
and does not represent good engineering practice (Barrier 1). In order to compensate lack of operability, the
system must be splitted into many smaller systems (more than the Project) and thus elevates capital costs
without additional benefit. Taking into account the additional biomass that must be procured, this is a less
economically attractive option than the Project (Barrier 2).
Note for Scenario B and C: Lower efficiency cogeneration would be a more suitable option to PAA, if the mill
has been implemented independently (a few years before) the rest of the processing facility. In such case, the
mill is served by a typical lower efficiency cogeneration plant, and new utility are added with the
implementation of the downstream processing facility.
In the case of PAA, the mill and the rest of downstream operations are implemented as greenfield project based
on a long-term planning to create an integrated industry. As such, the planning of energy provision takes into
account the total electricity and heat demand of all downstream facilities.
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Scenario D. In this scenario, each individual process units (upstream and downstream facilities) are served by individual
smaller utility system that responds to individual demands.
This option represents an alternative which is easy to control to changing demand and economical as each utility
is designed to meet individual needs or a smaller group of processing plant. In addition to this, exact
quality/quantity of steam can be generated within vicinity of the demand, eliminating the need to compensate
heat loss due to pipeline condensation compared to cogeneration situation including the Project.
In the original design, individual processes of the downstream facilities would have individual utility system
supplying medium pressure and low pressure steam directly to the needing areas. The biodiesel plant for
example, would have installed four small residue oil boilers at different pressure level supplying steam for
glycerine distillation, bleaching, transesterification as well as general heat exchange processes. Similarly the
tank farms, the refineries, and the kernel crushing facility would have had its own, low pressure boilers, whereas
the mill can be powered using its own fibre and shell. Thus, this option is not prevented from implementation by
Barrier 1.
However, without the centralized steam generation system employed by the Project, it is not possible to generate
electricity in-house as by-product of steam generation. Consequently electricity must be provided by way of
captive diesel oil power generators, which is the prevalent practice10
.
It will be demonstrated in Section B.5 that this Scenario is not prevented for implementation by Barrier 2, and is
a more financially attractive option than the Project without CDM (Scenario A).
Outcome of Sub-step 2b
The above evaluation shows that Scenario A and D are the only scenarios that are not prevented for implementation by
both Barrier 1 and 2.
Conclusion to Assessment of Alternatives (Step 1 and 2)
It is demonstrated above that from point of view of large heat demands and electricity required by PAA, the remaining credible
alternative to the Projects are:
Scenario A – the Project is carried out without CDM; and
Scenario D – where (a) electricity is generated using diesel oil generator(s), (b) low pressure steam for upstream facilites
are generated exclusively using biomass, (c) steam for the downstream facilities are generated using residue oil. (c) with
exception of EFB, biomass K1 (on-site fibre), K2 (on-site shell) and K3 (imported shell used in the baseline) are used in
this facility. EFB will continue to be unused for non-energy purpose and landfilled.
Step 2b stipulates that „if there are several alternative scenarios remaining, including the proposed project activity undertaken
without CDM, proceed to Step 3 (Investment analysis)‟. It will be demonstrated using investment analysis in Section B.5, that
Scenario A is less financially attractive than Scenario D concluding that Scenario D is the only credible baseline for the Project.
This scenario falls under the description of Scenario 20 of ACM0006 where;
‘the project activity involves the installation of a new biomass residue fired cogeneration plant at a site where no power
was generated prior to the implementation of the project activity. The project plant is a captive cogeneration plant that
provides electricity and heat to captive users at the project site. In the absence of project activity, a new fossil fuel fired
captive power plant would be installed at the project site instead of the project plant.
The biomass residue would in the absence of project activity be (a) partly be used for heat generation in project site and
(b) partly be dumped or left to decay or burnt in uncontrolled manner without utilizing them for energy purposes.
The heat generated by the project plant would in the absence of project activity be generated using on-site boilers using
(a) the same biomass residues as fired in the project plant, and where applicable (b) partly using fossil fuels’
10 The diesel oil power generators is selected for conservativeness basis for purpose of emission reduction calculation. In practise, coal power plant would have been the most plausible baseline plant
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B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have
occurred in the absence of the registered CDM project activity (assessment and demonstration of additionality):
As prescribed in the methodology, the demonstration of Project‟s additionality is done in compliance with the „Combined tool to
identify baseline scenario and demonstrate additionality‟ Version 02.1 (EB28). Step 1 and Step 2 analysis has been carried out
under Section B.4, and concludes that two scenarios, Scenario A and Scenario D remain credible options. The tool prescribed that
in the case where there are more than one credible scenarios, the baseline is to be determined by which of the two option is the
most economically attractive and thus the most likely to be implemented. Thus, a comparative financial analysis is performed on
the two options to determine its relative financial performance.
Step 3 – Investment Analysis
General Approach of this Investment Analysis The Project capital investment value (Scenario A) is significantly more
expensive than its alternative (Scenario D), which is a simpler but equally reliable processes. From investment point of view, the
incremental capital to carry out Scenario A is justified if it provides investment return in the form of operational saving that meets
an acceptable benchmark. For purpose of demonstrating additionality, the investment comparison analysis is performed by
analyzing the net present value (NPV) of this committed incremental costs , using the following general approach:
Step A. To establish the basic parameters for the investment analysis.
Step B. To analyze the incremental capital investment of the two options;
Step C. To analyze the resulting operational savings gained from making the additional investment;
Step D. To establish the cash-flow of the additional investment, the resulting operational savings, and the additional tax
that must be paid (C) and analyze the net-present-value.
Benchmark selection The selected financial parameter that is deemed suitable is Net Present Value (NPV). The discounting
factor is constructed based on the applicable working capital loan interest rate applicable in first three semester of 2004 which is
13.86%11
, with additional 3% premium deem suitable to cover for risk of implementation due to project relative complexity and
longer than normal construction time.
Interpretation of financial parameter The calculated NPV from this incremental analysis (Step E) represents the NPV of the
Project relative to the NPV of its alternative. A positive NPV thus suggest that the Project Investment is more attractive than the
alternative. A negative NPV does not necessarily means that the Project is not profitable, but a less financially attractive option
compared to its alternative.
Step A Basic Parameters for the Investment Analysis. The basic assumptions used in the investment analysis as well as its
justification are summarized in the following table. For consistencies, all prices used excludes value added tax. With exception of
currency exchange, all of these assumptions have strong impact to the operational savings and thus included as parameter in the
sensitivity analysis.
Table 8 – Basic Parameters Adopted for Investment Analysis
Assumptions Value Assumed Rationale
Currency Exchange IDR 9,159 per USD The value is based on the average mid-rate currency exchange
between USD and Rupiah rate as published by the Bank of Indonesia
for period of 6 months leading to September 2004.
Cost of imported shell,
applicable to both
Scenario A and Scenario
D.
IDR 198,375 per tonnes of shell.
Projected shell imports amounts to 80,355t
per year.
On-site shell usage is not included in this
A study performed in February 2004 indicates costs of shell of
IDR150,000 per tonnes when imported within 200km radius. More
than 50% of this is contributed to cost of material movement.
The project developer projected that the price of shell will increase at
11 Based on information published by Bank of Indonesia for working capital loan for average of 6 months leading to September 2004
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analysis as it will be consumed on both
situations and thus has no impact to
operational saving.
a rate of at least 15% per annum as (a) PAA own consumptions and
demand from other industries will create a market for shell (b) as it is
a labour/transport intensive activities, the price will be influenced by
the country inflation. As such it is appropriate that by the time the
project is at its full operation, the price of biomass has increased
significantly.
Costs of water treatment
system, applicable in both
Scenario A and D
IDR5,953 per tonnes of water
Expected water consumption is 120TPH for
the Project and 97TPH for Scenario A.
PAA used reverse osmosis process to treat its water so that it is
suitable for use for the boiler. The costs of water treatment as
calculated by the supplier including cost of chemical and maintenance
is USD0.65 or IDR5,953 at the assumed exchange rate.
Costs of residue oil for
steam production,
applicable only to
Scenario D.
IDR1,455 per L with density of 0.988kg per
Liter. Calculated consumption is 19,177t/yr
Cost of residue oil is based on PERTAMINA 12 published rate
for’minyak bakar’ for industrial used for 200413. Density of residue oil
is based on information from PERTAMINA.
The expected consumption of residue oil is calculated based on 100%
recovery efficiency of a residue boiler as required for baseline
calculation.
Costs of diesel oil for
electricity production,
applicable only in
Scenario D.
IDR1,864 per L, with electrical fuel
consumption rate of 0.202L per kWh
Expected electrical output is
54,951,600MWh per year. This electrical
output is calculated on net basis based on
the demand of individual processes and net
of electricity to run the project plant).
Cost of residue oil is based on PERTAMINA published rate for’minyak
bakar’ for industrial used for 2004. Density of residue oil is based on
information from PERTAMINA.
The consumption rate of the diesel gen-set is based on fuel
specification of a suitable gen-set provided by a manufacturer to be
0.1865kg/L.
Applicable tax rate 30% of profit (after excluding asset
depreciation)
Based on documents issued by the tax office. Tax rate is progressive,
but due to size, it is reasonable to assume the rate to be flat.
Step B. Incremental Capital Investment Analysis The total project investment values as identified in its feasibility analysis is
IDR168,573million which is significantly higher than its alternative. The breakdown of capital investment is provided in the
enclosed spreadsheet published with this PDD. The summary is provided in the following table.
Table 9 – Comparison of the Investment Values between Scenario A (Project) and its alternative (Scenario D)
Cost to purchase shell (K4): 77,229t IDR 15,320,337,979 IDR -
Cost to process water (6,900hr) IDR 4,929,194,400 IDR 3,984,432,140
Costs of fuel
Residue oil IDR - IDR 28,232,037,997
Diesel oil IDR - IDR 21,753,334,510
Maintenance
14
Biomass Boilers IDR 68,772,906 IDR 68,772,906
Turbine IDR 15,461,838 IDR -
Residue Boiler IDR - IDR -
Total Operational & Maintenance (O&M) Costs IDR 20,974,910,495 IDR 54,658,699,224
Incremental O& M (Operational Savings from Project Investment) IDR 33,704,810,430
Step D. Analysis of Cash Flow
With an incremental capital commitment of IDR122,027million, and an operational saving of IDR33,705million, the net present
value of the resulting cash flow is calculated to be –IDR52,165million. As explained earlier, this calculated NPV represents the
NPV of the Project (Scenario A) relative to its alternative (Scenario D), and thus concludes that the Project is less financially
attractive than Scenario D.
In order to asses the robustness of this analyis, a series of sensitivity analysis is performed on all of the critical parameters. The
results are listed in the following table.
Critical
Parameter
Sensitivity Magnitude Result of Sensitivity
Analysis (‘000,000)
Justification of sensitivity magnitude
Equipment
costs
Reduced by 20% IDR (31,708) The project equipment cost is based on quotation from a supplier on a turn-
key basis. However, the Project Participant decided to manage the project
itself, and thus made a considerable savings. The 20% reduction is deemed
appropriate.
Tax on Profit 25% instead of 30% IDR (11,393) The applicable tax rate is applied on progressive basis with maximum tax
rate of 30%. However the maximum tax rate is applied for profit above
IDR100million and thus the magnitude of sensitivity is appropriate.
Imported shell
price
Maintained at 2004
price
IDR (43,168) The shell price in 2004 is Rp150,000 per tonnes, as it is unlikely that the
price of shell will be lower.
The price of shell in 2007 is Rp290,000 per tones, well above the assumed
value in the financial analysis.
Fuel price Increased by 20% IDR (28,090) With hindsight of the current oil price, it is difficult to analyze the appropriate
magnitude for sensitivity analysis for this parameter at the time of decision
making.
14 Maintenance costs for the reverse osmosis plant has been accounted in the water treatment costs. Maintenance cost on the residue boiler is assumed to be insignificant in both cases.
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Although it was generally accepted that the government needs to shave its
oil subsidy at some point in time, increase is historically controlled and
announced overnight to avoid conflict.
The sensitivity magnitude of 20% is based on the evaluation of historical
price increase between January 2003 to January 2004 which is 25% for
diesel oil, but only 2.6% for diesel oil. The price remains constant for the
entire 2004.
Conclusion to the investment analysis The result of the sensitivity analysis shows that the financial analysis is robust to
variations of these critical parameters. The financial analysis concludes that the Project investment without CDM revenue is less
financially attractive than its alternative, and hence are unlikely to be implemented without CDM incentives. This sets Scenario D
as the most financially attractive from the two options, and more likely to be implemented than Scenario A.
Step 4 Common Practice Analysis
This step provides an analysis to which extent „similar activities‟ to the Project have been previously implemented or are currently
underway. „Similar activities‟ is defined as activities that are of similar scale, take place in a comparable environment, inter alia,
with respect to regulatory framework and are undertaken in the relevant geographical area, as defined in sub-step 1a above.
As explained earlier, the prevailing practise in Indonesia is to have palm oil mill located in-land within a palm oil plantation. The
majority of the crude palm oil generated from such mills are exported, a smaller proportion is processed domestically in refineries
to make cooking oil, and even smaller proportion is further processed into higher-value products (oleochemicals or biodiesel).
Typically, the refining and other processing are located in a maritime port closer to the storage terminal prior to being shipped to
its industrial consumers.
By implementing process integration at concept level, PAA deviates from the common practise in the industry. Process integration
is not a new concept in the more sophisticated petrochemical business, but new to the agricultural industries15
.The energy
provision strategy for such an integrated activity can not be compared to non-integrated operation. Along with its benefit, the
integrated utility also exposes PAA operations with additional risk requiring greater expertise. It is clear from this explanation that
PAA situation and subsequently the Project, is not a common practice in palm oil industry in general, and thus further demonstrate
that the Project is additional.
The significance of costs compared to alternative deemed the company to seriously pursue CDM status for this Project. The
company was already in serious discussion with representative from a leading buyer by October 2005. However, the deal stopped
short due to unexpected sensitive political situation beyond the control of the project developer deeming the company to restart
seeking option prior to engagement with Mitsubishi UFJ Securities Co.,Ltd.
B.6. Emission reductions:
B.6.1 Explanation of methodological choices
Baseline Scenario Applicable for the Project
As has been demonstrated in Section B4 and B4, the alternative to the Project falls under the description of Scenario 20, and thus
followed the methods prescribed for this Scenario.
Emission Reduction General Calculation Method
The total emission reduction resulting from the Project activity will be calculated as follow:
15 In April 2006, a research paper by a leading research institution in Indonesia describes the concept as „still needing research from scientist, courage from investors, and incentives from government‟
PROJECT DESIGN DOCUMENT FORM (CDM PDD) - Version 03.1.