INTERVIEW - China Enersave Plans 20 Biomass Plants
Date: 12-Oct-06
Country: SINGAPORE
Author: Ovais Subhani
EnerSave now has three 24-megawatt (MW) biomass power plants under construction in China with the first plant starting operations in 2008.
"By 2010 we should have at least 20 biomass plants in total. That is our plan," EnerSave's Chief Executive Officer Simon Koo told Reuters in an interview.
Biomass -- organic material like wood, crop residue and agriculture waste -- can be used to fire a boiler that produces high-pressure steam for a turbine to produce electricity.
Each of the three plants has cost EnerSave around US$30 million, with about 60 percent of the funding provided by Chinese bank loans and the rest raised through equity placements.
Koo said the company would use the same funding method for the rest of the planned power plants. It has already signed 10 preliminary agreements with China's provincial authorities for such plants.
Koo said each plant would have an average life span of 30 years and would yield a margin -- net of depreciation and interest payments -- of 25 percent.
EnerSave, originally an engineering services firm, ventured into China in 2003 to set up a waste-to-energy plant, which uses non-organic material as fuel, in Guangdong province. The 12 MW plant will start test runs later this month and commercial operations before the end of 2006.
But Koo said that it soon became obvious that biomass was a more profitable business than waste-to-energy, as China's vast agricultural resources make it easier to source much cheaper feedstock for biomass.
INCENTIVES AND AMBITIONS
Koo said China produces an estimated 1.5 billion tonnes of agriculture residue and wood waste every year. The Renewable Energy Law, in force since January 2006, stipulates that these materials can no longer be disposed of by burning.
Koo said China's renewable energy law has given a boost to the biomass industry.
Incentives include guaranteed sales to the national grid at a 0.25 yuan (US$0.3) premium on prevailing power rates, supply of biomass from the forest authorities, and permission to sell electricity to third parties at negotiable rates.
Koo said the new law is a road map drawn by Chinese authorities to achieve their ambition of sourcing at least 15 percent of the country's total energy needs from renewable sources such as biomass, solar, wind and biofuels. Hydro-electric dams are not deemed a renewable energy source under that law.
To top up revenues from its biomass plants, EnerSave in September inked a deal to sell carbon credits to Irish company EcoSecurities Group Plc, a carbon credit broker.
Under the agreement, EcoSecurities will buy at least S$50 million (US$31.47 million) of carbon credits from EnerSave between 2008 and 2012. EnerSave will also be able to sell the steam from the plants to industrial customers, Khoo said.
Carbon credits are measured in units of "certified emission reductions" (CERs). Each CER is equivalent to one tonne of carbon dioxide reduction.
The Clean Development Mechanism (CDM) under the 1997 Kyoto Protocol allows industrial countries to purchase carbon credits from developing countries in order to comply with requirements for the reduction of greenhouse gas emissions.
But biomass power plants are typically small, with output capacity in the range of 20-50 MW, compared to coal-fired plants with capacity ranges of 100-1,500 MW.
Koo said that in order to secure an immediate boost to China EnerSave's revenue stream, the company last month also bought a 51 percent stake in a 270-MW coal-fired power plant in Henan, China that has been in operation since 2004.
Shares in China EnerSave have risen by about 41 percent this year, taking the company's market capitalisation to about US$50 million. The Singapore Straits Times has risen by about 12.6 percent in the same period.
LINKS: www.enersavegroup.com; www.ecosecurities.com