Renewable Power Projects Using Elephant Grass

Despite the world's financial and economic crisis, electric energy consumption in Brazil is growing at 5% a year. The current installed generating capacity is 101 GW. Since supply and demand are balanced these days, it means that the required expansion is 5 GW/year just to make sure the market is supplied in the years to come. However, the approved, licensed and under construction power plants add up to 4 GW/year. There is a 1 GW/year deficit.

This scenario stimulated the Federal Government to offer special stimulus for renewable, up to 30 MW projects. The official development bank – BNDES - offers special credit lines for such projects, and mainly the end users who contract energy out of these projects get a 50% discount on the wire fees (related to demand charges).

There is a list of renewable projects that fit in very well here in Brazil. The sugar mils took the lead and are now cogenerating energy as much as they possibly can, by burning excess sugar cane bagasse to produce and sell electricity through the public grid. Elephant grass might be a very interesting option too:

* The power plants are the same ones that are already and extensively used to burn other biomasses such as wood chips and sugar cane bagasse;

The elephant grass grows very quickly as compared to other biomasses (2 to 4 harvests per year), it is resistant to drought and disease;

 * It is neutral in terms of emissions;

* It may be built and start operations in less than 2 years.

A 30 MW power plant requires about 5 000 hectare of elephant grass to produce firm energy throughout the year. Since this is a considerable land size, only remote areas are good candidates for such farms. Therefore, special attention is needed when it comes to selecting the location. The closer to the public grid, the better in order to reduce transmission line investments. The good news is that there are states in the country that fit very well these requirements.

Elephant grass power plants may be of special interest to independent power producers and to end users such as industrial, commercial and institutional to "self-produce" energy. The regulations are very well prepared in Brazil to accommodate such projects. There is an established electricity spot market which may be used to balance the power plant's production versus contracted volumes.

The elephant grass power plant makes sense for the investors and for the client.

Energy is being sold at R$ 180/MWh (1 USD = 2.3 R$ as of November 08) in the deregulated energy markets in Brazil.

A potential client for this energy will receive a 50% discount on the wire fees. The following calculations show the final price as seen by a 13 kV industrial energy user. Typically the wire fees are:

On-peak demand: R$ 33/kW
Off-peak demand: R$ 8/kW

Assuming an industrial client with a 24 x 7 operation and a 80% load factor the wire fees as referred in terms of R$/MWh may be calculated:

Total demand cost: R$ 41/kW
Number of hours per month: 720 h

Equivalent demand cost: 41/(720 x 80%) = 0,071 R$/kWh = 71 R$/MWh
The 50% discount represents therefore R$ 35/MWh.

Energy billed by the plant is R$ 180/MWh. The end user will see it as R$ 180/MWh – R$ 35/MWh = R$ 145/MWh.

The most important challenges associated with a project like this are:

* Find a competitive 5 000 hectare land close to a public grid. There are states very conveniently located in the central and or southeaster states which might fit this "job description";

* Contract the turn key package (thermal power plant) from world class providers. There are very well established companies with decades of tradition in the sugar mill industry;

* Develop a long term energy contract with a client (or clients) so as to facilitate access to official loans (especially from the BNDES) which offer special terms and conditions for such projects;

* Contract elephant grass from a local producer or develop its production on-site so as not depend on third parties;

* Contract back up power before the local utility company. If the power plant for any reason is not able to produce energy the final client will not be affected at all;

* Develop a strategy to take advantage of the spot markets. In Brazil where 75% of the electric energy is produced out of hydro power plants, the rainy and dry season have a major influence in the spot prices. Combining the thermal power plant with these seasonal variations will only but increase internal rate of returns!

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