ENVIRONMENTAL ASSESSMENT OF SWITCHING TO RENEWABLE ENERGY SOURCES

Saad Sarfraz

Definitions Renewable Energy

Derived from sources that are naturally regenerative or are practically inexhaustible , such as biomass, heat (geothermal, solar, moving water (hydro, tidal and wave) , and wind energy. Municipal waste may also be considered a source of renewable thermal energy source. (Business Dictionary Online )

Wind Power Mechanical or electrical power generated by a windmill using the kinetic energy as the primary energy

source. (Macmillan Dictionary of the Environment 2nd Edition, Michael Allaby)

Market Externalities An economic concept covering those cost and benefit attributed to an economic activity that are not

reflected in the price of the goods and services produced. (Macmillan Dictionary of the Environment 2nd Edition, Michael Allaby)

Decision AnalysisA philosophy, articulated by a set of logical axioms, and a methodology and collection of systematic procedures, based upon those axioms, for responsibly analyzing the complexities inherent in decision problems. (Decision Analysis an Overview, Operations Research, Vol. 30, No. 5)

Introduction

Situation Analysis October 2008 load shedding crossed 7000MW

○ Peak Demand14130MW Available capacity: 7112 MW (Ex-KESC system) Peak power demand 5% energy sales 7% Current and projected demand supply gap

○ FY2010: Peak demand= 21838 MW ○ FY2013: Peak demand= 26978 MW

Least cost option for bridging the gap Policy Analysis vs. Decision Analysis and Market externalities Kyoto Protocol under UNFCCC Cost of non-compliance i.e. reducing Green House Emissions

Objective of this study

Estimate cost of externalities from coal CO2 Emissions (Dose-response relationship)

Incorporate cost of CO2 emissions into Economic analysis 1200MW of Power generation

Compare NPVs and EIRRs of competing options coal fired thermal vs. wind farm technology over the useful life of the project.

Backward and forward linkages

EnvironmentalCO2 Emissions

•Human health•Loss of productivity •Green House Effect

Economic Energy deficit

•Load shedding •Loss of industrial competitiveness •Loss of synergies

• Lack of energy planning • Unanticipated demand

increase • Economic Activity

• Fossil fuel burning • Deforestation • Economic activity

Indicators and Conversions Indicators

Environmental Sustainability Index ESI (Yale center for Environmental Law and Policy and Center for International Earth Sciences Information Network)

Pollution Standard Index PSI and Air Quality Index AQI (The US Environmental Protection Agency)

CO2 emissions from Solid fuel; CO2 emissions from Coal Burning. ( World Development Indicators 2008)

Conversions 1 Quad Coal = 85 Million Mt of CO2 emissions 3.5 Million Tons of Coal = 0.826 Million Mt of CO2 emissions

Estimated coal burning/annum in a 1200 MW Coal fired Thermal Power Plant

Significance of the topic Policy makers

Energy planning Socially accepted alternative Economic growth and development Health expenditure

Business Managers Synergetic aspect of production Global competitiveness; export deadlines Reduced work days lost due to illness

Analysis(Theoretical framework)

Dose-response relationship GDP/capita engaged constant 2000 US$= β0 + β1 Avg. Annual Earning

(industrial)+ β2 Capital/Labor Ratio+ β3 CO2 emissions from solid fuel consumption(in Millions)+ β4 days lost due to disputes + β5 Enrollment in professional vocational institutions+ε

CO2 emissions from solid fuel

Capital to Labor ratio

Avg. Annual Earning Days lost due to disputes

Voc/professional enrollment

GDP/Capita Engaged 2000 US$

NPV & EIRRThermal vs. Wind Energy alternatives

Net present values and EIRRNet present values in

$MillionTHERMAL WIND

NPV @ 10% $286 $1565.52

NPV @ 12% $108 $1111.08

NPV @ 15% $-59 $654.83

Economic IRR THERMAL WIND

EIRR @ 10% 3% 14%

EIRR @ 12% 2% 12%

EIRR @ 15% 0% 9%

Conclusion

Scope of project and limitations Targeted approachData limitations Other health effects from SO2 NO2 PM10 etc.

Cost effective vs. Benefit cost analysis Long term environmental sustainability

Link to excel work sheets

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Appendix

Wind NPV EIRR Calculations

*Work sheets included in the accompanying CD

Thermal NPV EIRR Calculation

*Work sheets included in the accompanying CD

Wind farm sites and other information