Energy resource is the economic driving force for the industrial world as well as for the developing nation. At the same time energy production and utilization is also blamed for the environmental degradation. In addition, the prospects of long term exhaustibility of the fossil fuel resources, the energy crises of the 1970s and further thrusts towards development and environment concern have promoted the use of renewable resources (such as biomass or hydropower) or inexhaustible resources (such as solar energy or wind power) as the solution. However, the economical and sociological factors are very important for implementation of renewable sources.
The energy need in Malaysia is met by both renewable and nonrenewable energy
sources and the country is well endowed with relatively cheap and plentiful
supply of conventional fossil fuels such as oil (approximately 3 billion barrels),
natural gas (1.61 trillion cubic meters) and coal (776 million tons) as well
as nonrenewable energy sources like hydro and solar power and biomass (Joanta,
1996). However, past and current economic growth in the country is fueled
mostly by fossil fuels. The energy need in Malaysia is relatively high (expected
to increase at a rate of 9.5% per year) as the economy is projected to grow
at a high rate. The maximum electricity energy demand projections are 40,515
MW for the year 2020 (Yusoff, 2006). Figure
1 shows the primary energy demand in Malaysia that indicates a rapid increase
and for year 2030, the primary energy demand is expected to increase close to
100 MTOE (million ton of oil equivalent) (APEC, 2006).
Realizing this, The Ministry of Energy, Water and Communications has been promoting
energy efficiency and incorporation of renewable energy sources. It has been
observed that after the Diversification Policy the need for the use of renewable
energy has increased from 6,000 kTOE to 60,000 kTOE since 1971 to 2005 (Zain-Ahmed,
2008). In addition, the government of Malaysia as a Fifth Fuel Policy has
incorporated RE since year 1999 and Small Renewable Energy Program since year
2000. RE offers the prospect of increasing energy supply in a self reliant way
at national and local levels along with the attended economic, social and security
benefits in the process. Long term sustainable development of developing countries
like Malaysia, requires the affirmative shift towards renewable sources of energy
that are more equivalently distributed and less environmentally destructive
than the fossil fuel sources. Nevertheless with all the effort and policy implementation
by government, as of 2010, the largest contribution of energy demand is still
coming from petroleum products (62%) and electricity (19%) is in next position
which has gradual increase from natural gas (16%) and demand for coal and coke
is in stable conditions (Gan and ZhiDong, 2008). Though
Malaysia is a net exporter of oil and natural gas but they are the nonrenewable
and one day will be completely depleted. Moreover, the gradual deregulation
of natural gas prices, with price increase from RM 6.40 per MMBTU to RM 14.31
per MMBTU for power sector in 2008 has often brought natural gas to the downside
and it is expected that current gas fields to be depleted by 2027 with new fields
of higher carbon dioxide content. To make things worse, there is uncertainty
on adequacy of gas supply for power generation beyond 2018 (Sulaiman
et al., 2011). Not only that, there is a proven declination of oil
reserves by 3.0 billion barrels in January 2007, which was at a peak of 4.6
billion barrel in 1996 (Mustapa et al., 2010;
Rotty, 1979). Hence to reserve the nonrenewable sources
no new gas-fired power plants are allowed. Though the offshore areas, especially
the deepwater zones are being actively explored by PETRONAS and its partners
to ensure the increasing primary energy demand of Malaysia and is continued
to be sustained with the support of other energy sources such as coal.
|| Energy demand in Malaysia, MTOE: Million ton of oil equivalent
According to Gan and ZhiDong (2008), Malaysia's total
primary energy consumption and Carbon emissions will triple by 2030, indicating
that large amount of the energy demand would have to be supported by coal. The
coal deposits in Malaysia are not of very high quality mostly composed of anthracite,
sub-bituminous and lignite coals. Consequently, the national dependence on imported
coal is more than 97%. Moreover, the supply constraints amongst exporters, e.g.,
port facilities in Newcastle, Australia and to cope with coal export demand
due to escalating coal prices, especially within the region making the situation
Moreover, during the COP 15, Malaysia has also committed to reduce its carbon
intensity by 40% of its 2005 value, which is going to be an uphill task with
grow energy intensity of Malaysia and dwindling natural gas resources and increasing
coal utilization (Badariah, 2010). One of the solutions
would be aggressive and affirmative deployment of available RE energy resources
such as biomass and biogas that is abundantly available from the oil palm waste
to ensure supply sustainability and environment conservation. This is evident
with the upcoming deployment of National RE Policy to be announced soon, whereby
the share of RE is expected to be 11 and 17% of total electricity generation
mix by 2020 and 2030, respectively. This would translate to cumulative CO2
avoidance of 42.2 and 145.1 million tonnes for year 2020 and 2030, respectively.
This study explores the potential of biomass and biogas generated form Malaysian palm oil industry, as one of the promising alternative energy source in terms of its techno economic viability.
Biomass and bio-gas: A promising alternative: Biomass energy includes
energy from all plant matter and animal dung in the form of gas called biogas.
Biogas fuels currently account for about 16% of the energy consumption in the
country, of which about 51% is oil palm waste from palm oil industry (Joanta,
1996). Malaysia is the world leader in the production and supply of crude
palm oil. The Malaysian palm oil industry is projected to grow steadily (Lee,
2009). This will lead to the plantation of more palm oil trees, consequently
processing more palm oil Fresh Fruit Bunches (FFB) and thus more palm oil waste,
mesocarp fibres and palm kernel shells will be produced. In 2006, Malaysia had
more than 4.16 million hectares of land under palm oil cultivation. Nearly 80
million tonnes of fresh fruit bunches processed from 406 palm oil mills in 2007
and generating approximately 54 million tonnes of Palm Oil Mill Effluent (POME).
Based on these figures, the type and amount of biomass generated and their heat
value is shown in Table 1 and the potential energy from biogas
is presented in Table 2. POME is also high in nutrient containing
carbon and organic matter as presented in Table 3 and this
can be a great source of biofertilizer (Sulaiman et
The Malaysian Fifth Fuel Policy and the Small Renewable Energy Programme (SREP)
launched on May 2001 by the Ministry of Energy, Communication and Multimedia
had targeted palm oil wastes as the major form of renewable energy as it contributes
56% of biomass or 10.9% of biogas (Anonymous, 2008).
|| Biomass generated by palm oil mill
The biogas produced from anaerobic digestion can be captured and utilized as
RE to replace fossil fuel/diesel for steam or electricity generation. It has
been estimated that a 60 tons FFB/hr mill, will generate about 12,000 m3
of gas/day and the energy that can be generated is estimated to be 1.04 MW capacity
(Joanta, 1996). The total 261.1 MW installed capacity
of power from the potential of 406 mills would generate 1.88 MWh of electricity
(NKEA, 2011). It is worth to mention that the CO2
emissions for the generation of electricity by electric power plants by coal
or oil is 1100 g of CO2 per kW h, whereas, the figure is 600 g of
CO2 per kW h for using gas and biomass use can reduce it dramatically
to 16 g of CO2 per kWh (Yusoff, 2006). Hence,
the major greenhouse gas is not added to the atmosphere by the utilization of
biomass energy and the scenario is quite contrast of the use of fossil fuels
(Bazmi et al., 2011).
CAPITAL COST ESTIMATION
The main use of biogas generated from palm oil waste is considered for electricity generation. Three different capacity bio digesters are considered which can handle 30, 60 and 90 tonnes of fresh fruit bunch per hour (tFFB/h). The techno-economic analysis is based on the estimation of cost and cash inflow for a proposed project. The outflow of cost includes the capital cost, set up cost and annual operating cost and the inflow is selling price of the product from the proposed project. As electricity will be generated from the biogas produced from palm oil waste, hence the inflow is comprised of the selling price of the electricity produced.
The total project cost was taken from Biogas Project at Felda Serting Hilir
for estimations and it was divided into two phase. The detail of project cost
for handling 90 tonnes fresh fruit bunch per hour is presented in Table
4 (Saad, 2010) and the summary of key parameters
for financial analysis is given in Table 5 (Saad,
|| Total project cost for processing 90 tonnes fresh fruit bunch
per hour (tFFB/h)
|| Summary of outflow and inflow of cash for financial analysis
Economic analysis: The economic analysis was carried out based on Net Present Value (NPV), modified internal rate of return (MIRR) and payback period. Different discount rates were taken into consideration and cash flow was considered of with and without clean development mechanism (CDM).
Net present value (NPV): The following formula has been used to calculate
net present value along with compound interest (Saad, 2010):
||Total net cash flow period/years
||Interest rate assumption
||Cash flow period
In Fig. 2, the NPV at different discount rates is presented for project with CDM. The value of NPV at different discount rates without CDM is given in Table 6.
Based on NPV it can be said that the mill capacity at 60 tFFB/h and above is most potential option for investment.
Modified internal rate of return (MIRR): The Modified Internal Rate
of Return (MIRR) were used for analysis instead of Internal Rate of Return (IRR)
by considering the project future cash flows are reinvested at a lower rate,
such as a risk-free rate and the firm's cost of capital. The IRR assumes that
all future cash flows are reinvested at the project rate.
|| Net present value (NPV) versus discount factor for clean
development mechanism project with different plant capacity
|| Net present value (NPV) at different discount rates without
clean development mechanism (CDM)
MIRR better reflects the true economic benefit of a project (Saad,
||No. of equal periods at the end of which the cash flows occur
||Present value at the beginning of the first period
||Future value at the end of the last period
In Fig. 3, MIRR for different discount factors is presented. MIRR for project without CDM is given in Table 7. The value indicates that cash generated by the investment will be sufficient to repay the principal and the annual interest charged on the project. With the increase of plant capacity the investment becomes more attractive.
Payback period: It can be calculated as:
Because the cash flow associated with an investment project changes from year
to year, the simple payback formula cannot be used.
|| Modified internal rate of return (MIRR) versus discount factor
for clean development mechanism project with different plant capacity
||Payback period at different discount rate for different plant
capacity with clean development mechanism
|| Modified internal rate of return calculated at difference
mill capacity without clean development mechanism
The Payback period is calculated as follows:
||Last negative number of cumulative cash flow
||Cumulative cash flow
||The next cumulative year
|| Payback periods at difference mill capacity without clean
The payback period at different discount rates for different capacity is given
in Figure 4 for Clean Development Mechanism (CDM) project.
In Table 8 the value for without CDM project is presented.
As payback period represents the number of years in which the investment is
expected to pay for itself and generation profit. Hence shorter
payback period indicates that the investment is viable.
The present results indicated that Payback period for all mill capacity without CDM will take the same amount of time to break even on investment. Comparing results for both with and without CDM it can be said that the investment with CDM is most attractive with less time taken to recover capital investment.
The study confirms that the anaerobic treatment plant POME for generating electricity is technically, financially and economically viable. The conclusions are based on the analysis of results of cost economics of biogas plant of three different sizes, with different discount rates. Through the net present value calculation, it is found that the project is viable at all the three discount factor selected (5, 10 and 15%) for a plant capacity of 30 tFFB/h, 60 tFFB/h and 90 tFFB/h. However, 60 tFFB/h and above is more potential for investment. From the calculations, it can be summarized that the initial investment can be recovered in 3.17, 4.29 and 6.07 years for 90, 60 and 30 tFFB/h plant, respectively when the capacity factor is 100. The bigger the plant size, the shorter the payback period. In addition to the direct monetary benefits from the project, the Biogas Project will also gain a few indirect benefits to the nation as well as listed below:
||Improved effluent discharge standard which will protect the
water bodies from contamination. Thus complying with the DOE standard discharge
||Reduction of palm oil industry contribution to the accelerated
global warming or climate change by trapping and utilizing methane as renewable