Biomass Co-firing with Procuring Palm Oil Waste

About

Indonesia has a target for a renewable energy mix share of 23% in 2025. This target must have a clear action plan and project execution with optimizing the potential of renewable energy resources today. There are 32 GW of energy potential from renewables yet the utilization is not more than 11%. There is a gap between potential and utilization so some initiatives are pushed in order to achieve that target. One of them is coal replacement in steam power plants by using biomass co-firing. Indonesia, by National Electric company, has strived to optimize the biomass resources and also evaluate the technical feasibility and economical feasibility.

Challenge

Besides the technical analysis, the non-technical analysis must be identified in terms of the partnership model and financial model which mutually impact each other. Biomass development will look feasible and viable when there is a financial and partnership model focusing on long-term strategy. The current challenge is still in development which still looks not too feasible considering the partnership model within the Power generation company (in the case of PLN), biomass developer, and its supply chain management. Both biomass development and power generation could achieve technical and economic feasibility with the adjusted model, not only talking about the transactional model. This model is developed for biomass co-firing systems with considering the stakeholder analysis and cost-benefit analysis

Solution

Option A. Joint Venture Model

This model is to build a Joint-Venture (JV) model with the new entities as O&M vehicles. In case of Ailesh and PLN, below is some points to be considered.

• PT PLN as a major shareholder provides initial investment cost in fixed capital, all production facilities, and other fixed assets. 

• Ailesh as a minor shareholder provide know-how in technology, human resource, supply chain & operation management

• Ailesh is also responsible for securing raw materials from suppliers. The factory must be in the surrounding supplier (<10km) 

• PT PLN (Persero) will get bio-pellet with appropriate and standard quality. The power plant must be within a 40 km radius of the factory

• Bio-Pellet price is USD 57 per MT or Rp 798 per kg

Some benefits that can be grabbed with this scheme are below

• The raw material could be secured and also it can solve the environmental issue of palm oil so the off-taker could get more value as a problem-solver for brand value by utilizing the waste 

• Off-taker (PT PLN) can use high-grade premium by producing the biomass from a new entity under PT PLN, with operating management from the highly-profiled Team of Ailesh

• This business would result in an ROI of 21.41% and a payback period of 4,96 years, so this is economically-feasible

• This also impacts to get potential cost-saving of 33% and revenue of Rp 18.5 Billion annually

Option B. Profit-sharing Model

This model is to build a profit-sharing model with a specific scope for both entities. In case of Ailesh and PLN, below is some points to be considered.

• Ailesh as owner and producer of bio-pellet would share the 5% profit with PT PLN (Persero)

• A 5% shared profit is worth an electricity cost subsidy for 5 years of operation, area, and building of the pellet factory

• Ailesh provides bio-pellet according to the specification of the power plant which is located within a radius of 10 km from the factory

• The electricity cost which Ailesh paid for the operation process of the pellet factory is subsidized by 40% for 5 years of operation. In the 6th year, Ailesh must pay based on the normal tariff

• PT PLN as an off-taker of bio-pellet supports the logistical aspect by factory area & building and the utility aspect by electricity cost subsidy 

• PT PLN (Persero) provides land use for the production facility and building in the surrounding power plant with at least 10,000 m3 area

• PT PLN (Persero) will provide a 40%-subsidy of electricity cost for 5 years of bio-pellet operation

• Bio-pellet price is USD 49 per MT or Rp 686 per kg

Some benefits that can be grabbed with this scheme are below

• The raw material could be secured and also it can solve the environmental issue of palm oil so the off-taker could get more value as a problem-solver for brand value by utilizing the waste 

• Off-taker (PT PLN) just makes a transactional model with Ailesh but would get profit-shared. Ailesh is responsible to supply bio-pellet. The risk cost would be covered by Ailesh 

• This also impacts to get potential cost-saving of 42% and shared profit of Rp 0.86 Billion annually

  
  

Option C. Licensing Model

This model is to build a profit-share model by buying intellectual property. In case of Ailesh and PLN, below is some points to be considered.

• PT PLN (Persero) as owner and producer of EFB pellet would operate the EFB Pellet factory

• Ailesh is the owner of key technology in the bio-pellet production process 

• PT PLN must pay a royalty fee of 3% of sales

• Ailesh must provide know-how in technology, Front-end engineering design, and Standard Operation Procedure

• Bio-pellet price is USD 52 per MT or Rp 728 per kg