barrier analysis for the supply chain of palm oil processing biomass (empty fruit bunch) as...

Barrier Analysis for the Supply Chain of Palm Oil Processing Biomass (Empty Fruit Bunch) as Renewable Fuel

Integrated Resource Planning 2

January 2006 (Final)

EFB Fuel in Bales Photo Anders Evald, 2004

Barrier Analysis for the Supply Chain of Palm Oil Empty Fruit Bunch as Renewable Fuel January 2005

Sub-component 1 Integrated Resource Planning 2 Activity 1.6

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Barrier Analysis for the Supply Chain of Palm Oil

Processing Biomass (Empty Fruit Bunch) as

Renewable Fuel

January 2005

A report prepared under the

Malaysian - Danish Environmental Cooperation Programme

Renewable Energy and Energy Efficiency Component

Consultants:

Eco-Ideal Consulting Sdn. Bhd.

Mensilin Holdings Sdn Bhd

The views expressed in this document, which has been reproduced without formal editing, are those of the authors and do not necessarily reflect the views of the Government of Malaysia nor DANIDA.



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Table of Contents

LIST OF TABLES ...............................................................................................................................5 LIST OF FIGURES..............................................................................................................................5 LIST OF ANNEXES ............................................................................................................................5 LIST OF ABBREVIATIONS................................................................................................................6 1. INTRODUCTION.........................................................................................................................8

1.1 BACKGROUND ..........................................................................................................................8 1.2 OBJECTIVES & SCOPE ..............................................................................................................8 1.3 METHODOLOGIES .....................................................................................................................9 1.4 STAKEHOLDERS CONSULTED ....................................................................................................9

2. SUPPLY CHAIN OF EFB AS RENEWABLE ENERGY FUEL ................................................11 2.1 GENERAL DISTRIBUTION OF OIL PALM PLANTATIONS ................................................................11 2.2 SUPPLY CHAIN OF EFB AS FUEL .............................................................................................14 2.3 LARGE PALM OIL COMPANIES .................................................................................................16 2.4 INDEPENDENT PALM OIL PROCESSING MILLS ...........................................................................16 2.5 OTHER TRANSPORTERS OF EFB (E.G. BROKERS, WASTE COMPANIES, USERS ETC.) ...................16 2.6 FUEL PROCESSING EQUIPMENT SUPPLIERS & OPERATORS ......................................................17 2.7 BOILER FACILITIES & SUPPLIERS .............................................................................................17

3. EFB FUEL SUPPLY CHAIN BARRIERS.................................................................................20 3.1 ACCEPTANCE OF EFB AS RENEWABLE FUEL............................................................................20

3.1.1 General Awareness and Acceptance ..........................................................................20 3.1.2 Palm Oil Mills Acceptance ...........................................................................................20 3.1.3 Industry Acceptance ....................................................................................................21 3.1.4 Power Sector Acceptance ...........................................................................................21

3.2 ACCESS TO EFB FUEL SUPPLY ...............................................................................................21 3.3 ECONOMIC ASPECTS ..............................................................................................................22 3.4 TECHNICALITIES......................................................................................................................22

3.4.1 Demand for Power and Heat .......................................................................................22 3.4.2 Suitability of EFB as a fuel...........................................................................................23 3.4.3 Reliability of EFB Energy Production Technologies ....................................................23 3.4.4 Standardisation of EFB as Renewable Fuel................................................................23

3.5 SUMMARY OF EFB SUPPLY CHAIN BARRIERS ..........................................................................23 4. DEMONSTRATION PROJECT: EFB FUEL SUPPLY CHAIN ................................................25

4.1 INTRODUCTION .......................................................................................................................25 4.2 OBJECTIVES & ACTIVITIES.......................................................................................................26 4.3 SITE SELECTION AND DESCRIPTION.........................................................................................26

4.3.1 Site selection criteria....................................................................................................26 4.3.2 Description of Selected Case Proposed Penggeli CHP Plant..................................27

4.4 FINDINGS AND DISCUSSIONS ...................................................................................................27 4.4.1 Mapping of EFB Suppliers...........................................................................................27 4.4.2 Barriers Identified by Stakeholders on Penggeli CHP Plant .......................................28 4.4.3 Assessment of EFB Fuel Supply .................................................................................29 4.4.4 EFB Transportation......................................................................................................33 4.4.5 Economic Barriers with Penggeli EFB CHP Plant.......................................................34 4.4.6 Assessment of Fuel Supply Chain Options Case example......................................35 4.4.7 Potential Barriers of Sourcing EFB from Other Mills ...................................................38 4.4.8 Determining the EFB Fuel Value .................................................................................39



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4.4.9 EFB Fuel Price Vs CHP Economic Feasibility.............................................................40 5. CONCLUSIONS AND RECOMMENDATIONS........................................................................43

5.1 CONCLUSIONS........................................................................................................................43 5.2 POLICY RECOMMENDATIONS TO ENCOURAGE EFB AS RE FUEL ................................................44

5.2.1 Perceptions and Acceptance of EFB as Fuel..............................................................44 5.2.2 Access and Security of Fuel Supply ............................................................................45 5.2.3 Economic Aspects .......................................................................................................46 5.2.4 Technicalities ...............................................................................................................47 5.2.5 Futher research and studies......................................... Error! Bookmark not defined.

6. REFERENCES..........................................................................................................................53



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List of Tables Table 1: Barriers Identified for the Proposed EFB CHP at Penggeli, Johor .................................................... 28 Table 2: EFB source for Penggeli power plant................................................................................................ 30 Table 3: EFB generation of non FELDA mills ................................................................................................. 30 Table 4: Nutrient content of typical EFB.......................................................................................................... 31 Table 5: EFB mulching value .......................................................................................................................... 32 Table 6: Comparison and sensitivity analysis of cost savings from EFB fuel supply scenarios ...................... 37 Table 7: Examples of fuel characteristics of EFB fuel in Malaysia .................................................................. 49 Table 8: Examples of boiler supplier demand on EBF fuel in Malaysia........................................................... 49

List of Figures Figure 1: Distribution of palm oil plantations in Malaysia. ............................................................................... 11 Figure 2: Stakeholders involvement in the palm oil industries ........................................................................ 12 Figure 3: Distribution of palm oil mills in Malaysia........................................................................................... 13 Figure 4: EFB generated and mulching in typical palm oil mill in Malaysia ..................................................... 13 Figure 5: Supply chain model for EFB fuel...................................................................................................... 15 Figure 6: A typical biomass fired boiler system............................................................................................... 18 Figure 7: A typical process diagram for EFB biomass power plant ................................................................. 19 Figure 8: Summary of Barriers of EFB as Renewable Energy ........................................................................ 24 Figure 9: EFB supply chain for Demonstration Case in Johor ........................................................................ 25 Figure 10: Location of proposed EFB CHP power plant ................................................................................. 28 Figure 11: Oil palm mills around Proposed Penggeli CHP.............................................................................. 36 Figure 12: Scenarios comparison - EFB supplied by other nearby mills ......................................................... 38 Figure 13: Sensitivity analysis of EFB price to power plant IRR...................................................................... 41 Figure 14: An assessment of CDM on EFB CHP plant with different fuel price .............................................. 42 Figure 15: Processed EFB fibre .........................................................................Error! Bookmark not defined. Figure 16: Example of standard sampling of biomass in Sweden................................................................... 50

List of Annexes Annex A: Directory of Palm Oil Mills in Malaysia (valid till mid 2004).............................................................. 55 Annex B: Distribution of Palm Oil Mills in Malaysia ......................................................................................... 71 Annex C: Independent palm oil millers & private mills with small plantations ................................................. 72 Annex D: Directory of EFB Fuel equipment/facilities suppliers ........................................................................ 74 Annex E: Directory of Known Existing / Planned EFB Energy Plant in Malaysia (Iskandar) ............................ 79 Annex F: Assessment of Barriers, Recommendations and Priorities .............................................................. 80 Annex G: Sensitivity Analysis for 10 MWe EFB Power Plant IRR................................................................... 86 Annex H: Discussion Notes from Stakeholder Workshop in Johor.................................................................. 89



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List of Abbreviations Bhd. Limited (companies)

BOOT Build-Own Operate Transfer

CHP Combined heat and power generation

CPO Crude Palm Oil

DANIDA Danish International Development Assistance

EFB Empty Fruit Bunch

EPU Economic Planning Unit

FELDA Federal Land Development Authority

FELCRA Federal Land Consolidation and Rehabilitation Authority

FFB Fresh Fruit Bunch

FRIM Forest Research Institute Malaysia

GEF Global Environment Facility

GHG Green House Gas

IRR Internal Rate of Return

JTOP Johor Tenggara Oil Palm

K.S. Kilang Sawit

m.c. moisture content

mt metric ton

MDF Medium density fibreboard

MF mesocarp fibres

MPOA Malaysian Palm Oil Association

MPOB Malaysian Palm Oil Board MW Mega Watt PKC palm kernel cakes

PKS palm kernel shells

POM palm oil mill

POME palm oil mill effluent

PTM Pusat Tenaga Malaysia (Malaysia Energy Centre) REEE Renewable Energy and Energy Efficiency Project

REPPA Renewable Energy Power Purchase Agreement

RISDA Rubber Industry Smallholders Development Authority

ROI Return on investment

SIRIM Standards and Industrial Research Institute of Malaysia

SLDB Sabah Land Development Board

TNB Tenaga National Berhad



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UKM Universiti Kebangsaan Malaysia

UNDP United Nations Development Programme

UPM Universiti Putra Malaysia

USD American Dollars

w.t. Weight



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1. Introduction

1.1 Background Biomass residue from palm oil industries such as palm kernel shells (PKS), mesocarp fibres (MF) and empty fruit bunch (EFB) are potential renewable energy fuel in Malaysia. The abundance of these biomass resources is increasing with the fast development of palm oil industries in Malaysia.

The utilization of these energy sources will promote replacement of fossil fuel while addressing the issue of waste management in relation to biomass especially EFB which are difficult to transport, store and manage. Today, PKS and MF are the most common fuel for energy for palm oil mills but not EFB. Most palm oil mills with their own plantations will mulch their EFB in the field. However, EFB is currently a waste problem especially the case for independent palm oil processing mills without their own plantation where mulching of EFB is not possible.

Despite the great potential of EFB as a renewable fuel, there are several existing barriers identified in relation to the market development of these palm oil biomasses as fuel for energy in earlier studies on biomass potential by the DANIDA / Economic Planning Unit (Energy Section) Renewable Energy / Energy Efficiency component. These barriers impede development of renewable energy products as another product from the palm oil industries while meeting the nations target to promote cleaner fuel.

1.2 Objectives & Scope The overall objective of this study is to promote EFB as one of the renewable biomass fuel in Malaysia and suggest policy measures to remove the existing barriers. Based on earlier findings on the barriers and challenges identified in the DANIDA RE/EE component, this study assessed these barriers in great details, including consultations with relevant players in the supply chain as well as testing the barriers on a selected demonstration case. Based on these, specific policy recommendations were formulated to establish an enabling condition for future market development of EFB as biomass fuel.

PKS & MF are higher quality fuel and easier for transport to other uses as compared to EFB. Therefore, a potentially ideal model would be to utilize EFB for on-site energy demand while making PKS & MF available to off-site utilization which will likely bring higher market prices as compared to burning on-site. These off-site utilization can be energy or non-energy related (increasing market for these e.g. activated carbon, animal feed, etc.).

In this specific task, focus was placed on addressing issues related to the supply chain of EFB as a ready feedstock for energy production. Special emphasize were



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placed on the especially the use of EFB in boilers for energy production. These boilers could be those installed in palm oil mills, refineries as well as other industrial applications such as glove manufacturing, cement production and so forth. In this study, the demonstration case was based on an energy plant in palm oil milling setting.

The specific tasks under the overall objective were divided into 2 phases: Phase 1 Mapping of EFB Fuel Supply Chain and Detail Barrier Analysis

To detail out the supply chain of EFB as fuel in boilers, including clarification of stakeholders;

Confirm and address pertinent issues/barriers related to market development of EFB as a fuel for energy;

Provide recommendations to alleviate these barriers and promote EFB as biofuel;

Specifically, this study elaborated issues related to developing an EFB fuel specification and standard in Malaysia;

Phase 2 Demonstration and application of supply chain model

Demonstration site: Testing of supply chain model and barriers identified Provide evaluation and recommendations for barriers removal.

1.3 Methodologies The following approaches were used to address the objectives of the study:

Collect, review and consolidate earlier and related studies and relevant literatures, publications etc.;

Meeting and discussions with relevant stakeholders (palm oil industries, research institutes, boiler manufacturers etc.);

Elaborate fuel standards based on other available standards and current best practices;

Demonstration site for barrier supply chain testing; Supply chain workshop with relevant stakeholders for demonstration site; Elaborate findings, recommendations and reporting.

1.4 Stakeholders Consulted The following stakeholders were consulted and involved during the study:

Government / Research Institutes Malaysia Energy Centre (PTM), UNDP GEF BioGen Project Malaysian Palm Oil Board (MPOB) SIRIM

Palm Oil Industries Palm Oil Millers Association Felda Palm Industries Sdn Bhd



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United Bell Plantations Penggeli Palm Oil Mill (FELDAs mill) Johor Tenggara Oil Palm Berhad, JTOP (Plantation and mills) Malim Sawit Sdn Bhd (independent mill)

Fuel Handling & Energy Equipment Suppliers Vyncke (East Asia) Sdn Bhd Enco Systems Sdn Bhd Vickers Hoskins (M) Sdn Bhd Kejuruteraan EMI Sdn Bhd

Others

Vyncke (East Asia) Sdn Bhd Felda Technoplant Sdn. Bhd Ladang Inas Selatan (FELDAs plantation)



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2. Supply Chain of EFB as Renewable Energy Fuel

2.1 General Distribution of Oil Palm Plantations In Malaysia, there is a total acreage of 3.8 million hectares of oil palm plantation throughout the country1. The Peninsular Malaysia contributes to 58% of the oil palm planted area in Malaysia, where else the East Malaysia, which is Sabah and Sarawak together contribute to the rest of 42% planted area. The distribution of oil palm plantation throughout Malaysia is illustrated in figure below. Most of the oil palm plantations located in Peninsular Malaysia are concentrated in Johor, Pahang and Perak States while in East Malaysia, plantation is concentrated on the east coast of Sabah and Northern region of Sarawak.

Figure 1: Distribution of palm oil plantations in Malaysia. (Note : Plantation areas are shown in red (colour version) or dark grey (black and white version. Source: MPOB homepage at www.mpob.gov.my, accessed October 2005)

Oil palm plantations can be classified into 3 broad categories involving a range of stakeholders. These stakeholders and relationship can be genericly illustrated in the figure below:

1 Based on the planted area in 2003 (Source: Malaysian Oil Palm Statistics 2003)



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Figure 2: Stakeholders involvement in the palm oil industries (Source: http://www.fftc.agnet.org.) There are three main sources of palm oil fruits (commonly referred as Fresh Fruit Brunch FFB). These are large estate owners, farmers in land development scheme such as FELDA/FELCRA as well as independent small holders. As illustrated above fruits from large estates and land development scheme are processed in their own palm oil mills. Where as the fruits from smallholders are usually sold to independent palm oil mills which have no plantation or one with limited size. Of all these mill owners, the independent palm oil millers are the ones that would have waste management issues in term of handling empty fruit bunches (EFB). At the first quarter of 2005, there were all together 388 palm mills in Malaysia2 catering the milling of the Fresh Fruit Bunches (FFB) produce by from these 3.8 million hectares of plantations (see Figure 3 below). A directory of palm oil mills categorised according to distribution according to State up to year 20033 (consisting of 358 mills) is attached as Annex A. A summary showing the mill size distribution according to State is attached as Annex B.

2 Records according to MPOB until March 2005. 3 Listing in 2004/2005 not made available during this study



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Figure 3: Distribution of palm oil mills in Malaysia (Source: SIRIM Biogen Report 2005) On average, total FFB produced is about 19-20 tonnes per every hectare of oil palm planted. In year 2004, the total FFB yielded was estimated around 80 million tonnes4. Among this, about 23% weight of FFB ends up as Empty Fruit Bunch (EFB), which is a by-product generated during the stripping process of palm oil milling. Thus, about 18 million tonnes of EFB was produced in year 2004 and the figure is predicted to increase due to the continuous growth trend of oil palm industry. Figure 4: EFB generated and mulching in typical palm oil mill in Malaysia

4 Malaysia Palm Oil Statistics 2004, Malaysian Palm Oil Board (MPOB)



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Presently, most EFB are combusted in on-site incinerators where the ash is later distributed back to plantation as fertiliser. These typically old and improperly maintained incinerators are often inefficient in combustion. Some are utilised for mulching directly in the oil palm plantations where common problems are limitation of application, attraction of pest and vermins. EFB in general is considered not a ready fuel due to its physical property e.g. high moisture content, fibre structure causing problems in fuel feeding etc. However, with appropriate fuel preparation, there is a large potential of converting these large amount of EFB into renewable energy that could meet the existing energy demand of palm oil mills or other industries. Under such scenario, other sources of biomass fuel such as palm kernel shells and mesocarp fibres which are currently utilised for providing heat for mills can be relieved for other uses off-site with higher economic returns for palm oil millers.

2.2 Supply Chain of EFB as Fuel The supply chain of EFB involves a series of stakeholders involved from the generation, handling to the end users of the EFB as a product. The following main groups of stakeholders were identified:

Oil palm plantations supplies FFB to mills, often transporters of EFB Palm Oil Processing Mills generators and some case transporters of EFB Other transporters of EFB (e.g. brokers, waste companies, users etc.) Fuel Processing Equipment Suppliers & Operators Boiler facility owners Boiler equipment suppliers

An illustration of the supply chain of EFB as fuel is illustrated in Figure 5 below:



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Figure 5: Supply chain model for EFB fuel (Source: Own Illustration)

The stakeholders and their roles in the EFB fuel supply chain will be described further below:

EFB Fuel Pre-treatment

For Energy:

FFB From Plantation

Oil Palm Mills

Crude Palm Oil (CPO)

Press Cake

POME

Fibre Shell

Palm Kernel Cake (PKC)

EFB Moisture: 65-69%; Calorific Value:18 MJ/kg (0% m.c.) 4.3 MJ/kg (67% m.c.)

23% wt FFB

Other usages / products

Reduction of size & moisture content

Shredding/Chipping

Moisture reduction to < 40%

Screw Pressing / Drying

Press into bales / pellets

Boiler / CHP Plant

Energy Distribution and

Use

Transporters

(Transporters)

Suppliers Transporters Brokers

Suppliers Facility owners, operators

Energy consumer



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2.3 Large Palm Oil Companies Large palm oil companies are those large scale oil palm plantations who have their own mills installed typically within the vicinity of the plantation area. However the sizes of these plantation companies vary considerably from few hundred hectares to more than hundred thousand hectares of oil palm plantation. The top ten main players in Malaysia with the large planted area and milling capacities are government owned Felda (Federal Land Development Authority), private listed corporations Kumpulan Guthrie Berhad, Golden Hope Plantation Bhd., IOI Corporation Berhad and Sime Darby Bhd, Guthrie Bhd., S. Kinabalu Bhd., FFM Berhad, United Plantations Bhd. and Boustead Group. The government scheme - FELDA is the largest upstream player which accounts about 17% of the planted area in 20035. According to MPOB, in year 2004, there were 156 oil palm mills installed with milling capacity over 50 tonnes of FFB per hour. These large palm oil mills are the main contributor to EFB. However, the availability of EFB as boiler fuel is not certain as often the EFB will be recycled as mulch for their own plantation. Transportation of FFB (from plantations to mills) as well as EFB (from mills to plantations) is done by the company themselves.

2.4 Independent Palm Oil Processing Mills Independent palm oil processing mills refer to those mills which do not have their own plantation. Instead, these mills obtain their role material i.e. FFB from mainly the small holder oil palm farmers, and some from the state or government scheme plantation. According to MPOA, the independent palm oil mills contributed to roughly 30-35% of the mills production in Malaysia6. This group of stakeholder would be expected as the main contributor to EFB as boiler fuel as they do not have plantation to decompose the EFB residues generated from their mills. A list of known independent palm oil processing mills identified is attached in ANNEX C.

2.5 Other Transporters of EFB (e.g. brokers, waste companies, users etc.) Besides the plantations and millers who are directly involved in the transportation of the EFB as mulch to plantation, there are also other parties involve in transporting the EFB away from oil palm mills. These parties are either dedicated transporters or companies mainly dealing with the secondary usage of EFB for example MDF manufacturing, EFB fibre production, composting, charcoal briquettes, pulp and paper,

5 Source: Malaysian Oil Palm Statistics 2003. 6 Discussion with Datuk Lo, President of Palm Oil Millers Association, 13 April 2005.



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etc. All kinds of EFB users collect and transport the EFB from oil palm mills themselves.

2.6 Fuel Processing Equipment Suppliers & Operators The fuel processing equipment suppliers and operators play an very important role in the supply chain of EFB for boiler fuel as the properties of the EFB are not naturally suitable as boiler fuel. The large size, high moisture content and high bulk density EFB resulting in a difficult to handle and lower caloric value fuel. Hence some pre-treatment such as shredding/chipping and dewatering (screw pressing or drying) are necessary in order to improve the fuel property of EFB. Without sufficient technologies to prepare the EFB into suitable size and moisture content, problem will arise in introducing EFB as boiler fuel as demonstrated in the few actual EFB power plants in operation now. Depending on where the pre-treatment of EFB is carried out, the dewatering and shredding will greatly improve the handling and reduces the transportation cost to the end user i.e. energy plant. A list of existing suppliers identified is attached in ANNEX D.

2.7 Boiler Facilities & Suppliers There are several biomass boiler suppliers in Malaysia. A list of existing suppliers identified is attached in ANNEX D. Biomass fuel applications encompass of boilers, steam turbines and solid fuel handling as basic components. As the nature of EFB contains high moisture, fibrous and containing soluble alkalis, problems will be encountered if direct burning of EFB is done in a boiler. Due to this problems, EFB has been categorised as poor fuels that having risk for deposit and corrosion7. This nature must be reflected in the boiler design where some efforts ought to be carried out to modify the boiler facility for accommodating the EFB fuel. Some solutions to EFB combustion are as follow8: 1. The fuel handling facilities should include shredder and screw press to pre-treat the

EFB into suitable size and moisture (if not done earlier). The conveying systems ought to be specially designed base on case to case.

7 Olle, Nystrm (2004). Applicability and competitive position of European equipment. EC ASEAN Cogeneration Programme Phase III. 8 Stowell, Graham & Tubb, Victoria. (2000). Maximising energy from biomass A practical view considering the technology issues within three case studies in Asia. Presented in Energy Resource 2000 Virtual Conference; and Olle, Nystrm (2004). Applicability and competitive position of European equipment. EC ASEAN Cogeneration Programme Phase III.



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2. Controlled combustion will be useful where staged combustion can be implemented to minimise the generation of nitrogen oxides and to promote better burnout of carbon in biomass fuel. This approach has been refined to handle high moisture wastes where the temperatures in lower furnace are maintained lower to dry the wet fuel for combustion.

3. Co-combustion or use of additives could be the option for EFB combustion. For the purpose of power generation, higher thermal efficiencies can be achieved by selecting higher boiler pressure and lower condenser pressure thermodynamic9. A typical layout of a EFB power plant is illustrated below:

Figure 6: A typical biomass fired boiler system (Source: CETREE (2002). Modern renewable energy technologies are totally competitive with conventional energy strategies. In Renewable energy: A private sector initiative.) A typical process diagram from storing and preparing EFB fuel to power generation is attached in Figure 7 below.

9 Anon (2004). The status of REPPA review exercise. BioGen News: Volume 1, Issue 1.



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Figure 7: A typical process diagram for EFB biomass power plant (Source: Samad, J.A. (2005). Renewable Energy The need for further incentives. In Jurutera, February 2005)

A list of existing and planned EFB energy production plants installation in Malaysia is attached in ANNEX E.

1. EFB Collection & Storage

2. EFB Moisture & Size Reduction

3. Prepared EFB Fuel Storage

4. Fuel Combustion (Boiler Combustion Zone)

Ash Collection

Ash Sales

5. Steam Generation (Boiler Water Tubes)

6. Electricity Production (Steam Turbine Generator)

Oil Recovery Oil Sales

Steam/Water Cycle Recirculation Loop River/JBA

Water Electricity Sales to Grid



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3. EFB Fuel Supply Chain Barriers Most of the EFB residues generated in Malaysia are not currently used as boiler fuel either in the palm oil mills or other industries. For palm oil mills, the quantity of PKS and mesocarp fibre produced from the milling process can already meet the mills energy demand and hence there has not been strong motivation to develop EFB as a fuel. As the development of EFB renewable fuel is relatively new in Malaysia, there exist certain barriers that prevent further development of EFB as a fuel. These barriers, many related to the supply chain of EFB, were identified and categorised into four main categories by combining earlier findings and the findings from the interviews and discussion of this study:

Acceptance of EFB as renewable fuel; Access to fuel supply; Economical aspect of EFB fuel; Technicalities of EFB as fuel.

A summary of these barriers and some recommended measures to overcome them are summarised in Annex F. These will be further elaborated below:

3.1 Acceptance of EFB as Renewable Fuel

3.1.1 General Awareness and Acceptance Generally, the concept of EFB for energy production has not been widely promoted until recent years. The idea of using EFB for energy is still a relatively new idea to many, ranging from politicians to government officers (who both play important role in directing the government policies), to palm oil millers, industries and so forth. Thus, the EFB fuel market development is difficult to develop with this lack of awareness and thus acceptance to the idea. In some cases, due to the lack of understanding and success stories, EFB can be perceived as a messy waste generated from palm oil industries These perception and lack of awareness barriers will inevitably prevents inaction for promoting EFB as fuel, leading to no further actions or policies being formulated.

3.1.2 Palm Oil Mills Acceptance Some problems also arise from the acceptance of palm oil mills where many palm oil mills may perceive energy as a troublesome, messy and less attractive way of dealing with EFB. The perception of EFB as better option (mentioned earlier) further adds to the barrier where palm oil mill owners will not further explore the EFB as renewable



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energy fuel since their core business is to produce value added palm oil products such as crude palm oil, but not producing energy. Furthermore, since there are many other potential options of utilising EFB currently being developed (as mentioned earlier), POMs are generally reluctant to commit themselves when there are many new uncertain markets for EFB based downstream products. The uncertain market conditions also allow speculations and expectations for the EFB value to rise, thus resulting in a wait and see situation.

3.1.3 Industry Acceptance In terms of using EFB in other industrial sectors, there seems to be an acceptance issue due to lack of awareness and success stories. The overall impression of EFB as messy fuel and the uncertainties surrounding the EFB fuel supply are discouraging other industries to uptake using EFB as renewable fuel for their boiler applications.

3.1.4 Power Sector Acceptance In addition to the similar acceptance barriers outlined above for palm oil mills and industries that is equally applicable for power sectors, an additional barrier is the uncertainty towards co-firing of EFB fuel technology. This uncertainty hinders the acceptance of power sector toward usage of EFB fuel.

3.2 Access to EFB Fuel Supply The access to sufficient and consistent EFB fuel supply is an important pre-condition for EFB energy plants. This is particularly crucial for EFB plants entering into current sales of power agreement such as the Renewable Energy Power Purchase Agreement (REPPA) which include penalty clauses for non delivery due to the lack of fuel supply. The access to the supply of EFB can be subjected to several factors below:

Non-energy competitive usages of EFB Season fluctuation of EFB produced

Due to the above factors, a firm and long term contract for EFB supply is not easily achieved as most EFB suppliers will be anticipating changes in the value of EFB and thus unwilling to commit to long term contracts. For non-energy competitive usages, some are commonly practices e.g. the direct use of EFB for mulching in oil palm plantations while others are still in developing phases e.g. composting of EFB with palm oil mill effluent into fertiliser or compost, processing of fibre for MDF (medium density fibre board) and particle boards, animal feeds, pulp and paper and so forth.



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Among the non-energy usage, mulching is the most common practice, where the demand can ranges from 50-90% of the EFB usage10. Mulching is most commonly practiced due to the minimal pre-treatment requirement of EFB before the distribution back to the planation as mulch. The mulching practice is also able to reduce the inorganic fertilisers applications required otherwise. Thus, a general perception is that the EFB value for mulching is higher that for energy production. However, an economic evaluation has shown that the returns of EFB as fuel for power generation may be higher than mulching (as high as 3 times of mulching reported)11.

3.3 Economic Aspects From the economical point of view, utilisation of EFB as renewable energy is facing the same economic barrier as other renewable energy projects in Malaysia. These economic barriers are a result of:

Due to economic of scale, unattractive current tariffs for renewable energy is causing unattractive payback for the investment and to drive the market;

Subsidized fossil fuel price which results in fossil fuel based boilers more attractive then biomass boilers;

Low-tariff natural gas at certain areas causes uncompetitive of biomass as fuel for industrial boilers.

3.4 Technicalities There are some technicalities issues that hamper development of EFB as fuel. Overall, the available technology for EFB combustion is still undergoing adaptation and there is no widely known success cases leading to the lack of confidence in the technology.

3.4.1 Demand for Power and Heat The availability of demand for the power and heat generated from an EFB plant is of great importance to the overall feasibility of the project. For the case of palm oil mills, since most mills would have excess demand for power and heat, the availability of a market for excess power and heat is important. Currently, the connection to power grid is not possible for those mills located in remote area (especially those in East Coast Sabah and Sarawak for examples) there no grid access is available.

In the case where grid connection is possible, there are also several existing barriers applicable for all renewable energy projects:

Conditions and procuderal barriers of REPPA;

10 Anon. (2000). Feasibility study on grid connected power generation using biomass cogeneration technology. Pusat Tenaga Malaysia. Pg 12. 11 Menon, Ravi, Rahman, Zulkifli & Bakar, A. Nasrin. (2003). Empty fruit bunches evaluation: mulch in plantation vs. fuel for electricity generation. Oil palm industry economic journal: Vol. 3(2)/2003. Malaysian Palm Oil Board 2003.



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Prohibitive standby charges for facilities such as EFB CHP plant. Similarly, should there be no steam demand around palm oil mills; locating a EFB CHP plant would be difficult. Thus, the location of such a facility will be limited by the demand of the power and heat.

3.4.2 Suitability of EFB as a fuel Due to the physical property (high moisture up to 65%, fibrous nature etc.) of EFB, it is widely recognised that EFB is often perceived as unsuitable boiler fuel if not pre-treated. The need of this additional fuel preparation (as compared to for example PKS that can be directly combusted with good efficiency) presents a technical barrier for the industries to take up EFB based boilers. Due to bulkiness and need of fuel preparation, there will be additional need for land space as well as additional cost for the fuel preparation.

3.4.3 Reliability of EFB Energy Production Technologies Mostly due to the maturity of EFB energy production technology, many industries perceived that the technology would not be reliable enough for industrial processes where regular breakdown or energy disconnection would be too costly for the investment in EFB energy plant. In addition, the accessibility to reliable fuel supply adds to the uncertainties and overall reliability.

3.4.4 Standardisation of EFB as Renewable Fuel Combustion of biomass (e.g. EFB) for energy recovery is not new in Malaysia. However, the focal objectives of the combustion is waste disposal rather than for energy production. Thus, not much effort has been placed on energy conversion efficiency and the quality of biomass as a fuel. There are several concerns related to the importance of knowing the fuel quality. Examples such as pricing, whether the fuel will meet the demand of the process equipment e.g. boiler and how the trade should be conducted and monitored. The lack of EFB fuel specification may lead to difficulty in pricing as well as maintaining fual quality.

3.5 Summary of EFB Supply Chain Barriers A summary of the above barriers in relation to the supply chain stakeholders is summarised in the figure below:



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Figure 8: Summary of Barriers of EFB as Renewable Energy

General Acceptance Barriers (awareness, messy EFB perceptions) Palm Oil Mill Acceptance

Industry / Power sector Acceptance

Access to fuel supply Barrier (competitive use, seasonal cropping) Economic barriers

Technicalities (fuel property, technology reliability)

Low payback

subsidized oil price

Security of supply

Palm oil Mills

(EFB fuel supplier)

EFB transporters

EFB end user

(EFB energy producer)

Products (power/heat) user

Barriers

Supply chain stakeholders



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4. Demonstration Project: EFB Fuel Supply Chain

4.1 Introduction Phase 2 of this study focused on applying the supply chain barriers developed from Phase 1 against a real proposed EFB project in reality. The selected case (Penggeli in Johor) for testing was a proposed EFB energy plant within palm oil plantation area. Both government owned and privately owned mills were relevant. The conceptual idea of demonstration project is presented in the flow diagram below:

Figure 9: EFB supply chain for Demonstration Case in Johor

End-users specific requirements on EFB (type of pre-treatment needed)

Transporters

EFB Suppliers (Palm Oil Mills)

Independent mills

(without plantation)

Excess from mills with

own plantation

Fuel Processing

Equipment suppliers: * Shredder/Chopper * Screw press, dryer * Boiler, CHP plant

Palm oil CHP / Heat Production plant

Data collection: * Production capacity * Energy (steam/power) demand * Boiler/CHP type * Location (distance from EFB fuel supply) * Quantity of EFB needed * Mapping of source of EFB



- 26 -

4.2 Objectives & Activities The objectives of the demonstration project included:

To test and evaluate market barriers solution based on the supply chain framework developed in phase 1;

Verify and develop real life experiences of the barriers identified in Phase 1; To identify the benefits of improved supply chain management including

formation of cooperations among the mills and development of EFB market within the area;

For the selected demonstration case (from the production, delivery to the utilization of EFB), identify and recommend measures to alleviate EFB market development barriers;

To demonstrate a successful supply chain model for disseminations to other similar area;

Specific activities of the demonstration project included :

Identification of a specified supply chain geographical area; Mapping of all relevant stakeholders; Identification and engagement of related stakeholders related to the EFB

supply chain; Briefing and discussion among the stakeholders; Dissemination of supply chain information and formation of organisation; Testing of solutions recommended to overcome barriers; Monitoring and reporting.

4.3 Site Selection and Description

4.3.1 Site selection criteria The demonstration site selected for the supply chain study was based on the following criteria:

Planned EFB based power and heat plant The EFB energy plant have no own sources of EFB There is a need of EFB supply from several source There exist both mills with plantation and private independent mills There are potential demands of power and heat from different sources Interest of project developers

After screening several potential sites, the proposed Penggeli CHP at Kota Tinggi, Johor by FELDA was selected.



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4.3.2 Description of Selected Case Proposed Penggeli CHP Plant FELDA is planning to construct an EFB to power and heat plant (CHP) at Kilang Sawit Penggeli that located in Kota Tinggi district, Johor. This would be the first grid connected EFB to power plant to operated by FELDA. Although the power plant is proposed within the vicinity of Penggeli Palm Oil Mill, the management of the power plant is proposed to be independent from the Penggeli mill operation.

4.4 Findings and Discussions

4.4.1 Mapping of EFB Suppliers The proposed EFB power plant is designed to source EFB supply from several FELDA mills around the proposed site. Investigation by FELDA had shown that the plant can meet their fuel supply demand from 5 FELDA mills identified. There are three nearby (less then 20 km) FELDA mills (including Penggeli) while other possible suppliers are expected from other FELDA mills located further away i.e. Kahang and Kulai Palm Oil. The EFB fuel cost is estimated at RM 15-17 per ton which is mainly to cover the transportation charges. Besides own mills, there are some other non-FELDA mills (mills with plantation and independent mills) situated near to the proposed Penggeli site and these could be plausible sources of EFB for the power plant. The five mills which located within 30 km of Kilang Sawit Penggeli are Kilang Sawit Sibol, Kilang Sawit Malim Sawit, Kilang Sawit Sg. Kachur, Kilang Sawit Tabung Haji and Kilang Sawit Ladang Sindora. These mills have capacity range between 30 and 40 mt/hour. The location of EFB fuelled CHP power plant and the neighbouring mills are plotted in Figure 10 below:



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Figure 10: Location of proposed EFB CHP power plant

4.4.2 Barriers Identified by Stakeholders on Penggeli CHP Plant Consultations and field visits identified the following barriers through communication with different stakeholders. A brief summary is tabulated in Table 1 below: Table 1: Barriers Identified for the Proposed EFB CHP at Penggeli, Johor

Stakeholders Consulted Barriers Highlighted FELDA Palm Industries Sdn Bhd (Proponent of the Penggeli EFB CHP plant)

SREP and REPPA conditions are not attractive and too rigid: - tariff price too low (RM0.17/kWh) - limit of the size of power plant to maximum 10MWe (but normally approved at reduced size than 10MWe) - rigid penalty for non-conformance - 3 tier conditions: peak, off-peak, weekend

Lack of government incentives Source of fund hard to finance the power plant

compared to more established fossil fuels plant as the success of the EFB plant is yet to be



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proven Communication problems in application and

monitoring process Fuel (EFB) supply anc conditions not

consistent, boilers difficult to cater 100% EFB FELDAs transporters Low EFB bulk density, high transportation cost

Loading and unloading conditions and time spent

FELDAs mill managers Unstable EFB supply. There are plenty competitive usage of EFB e.g. Mulching, composting, MDF etc.

Fluctuation of supply due to cropping seasons (peak/off peak) as well as crop cycle (age of crop and replanting)

Unfavourable EFB fuel characteristics as fuel. High moisture content of EFB causes long term storage problem where degradation of EFB easily happen. Besides, low bulk density of EFB will occupy large storage.

Other non-FELDA millers Insecure EFB fuel supply. Each mill has own usage for EFB. Problems may exist if the power plant tries to source fuel from other non-FELDA mills

Plantation operators Insufficient EFB as plantations also need EFB for mulching

Details of the above barriers will be further elaborated in the sections below.

A final consultation workshop was carried out on 9 December 2005 to present and discuss the findings from the study. Details from the discussions can be found in APPENDIX H.

4.4.3 Assessment of EFB Fuel Supply Fuel availability assessment for proposed Penggeli Power Plant was carried out by PTM and TNB earlier. Based on a 10 years projection, the EFB supply from five Feldas east coast mills are expected to be sufficient for the planned Penggeli EFB biomass CHP plant. The total EFB requirement is estimated at about 200,000 ton/yr. The capacity and location of each FELDA mill are listed in below:



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Table 2: EFB source for Penggeli power plant Mill Processing

capacity (ton/yr)

Est. EFB Generation

(ton/yr)

Location Distance from Penggeli

Penggeli Palm Oil Mill 150,000 -250,000

34,500 - 57,500

Kulai 0 km

Kahang Palm Oil Mill 150,000 34,500 Kluang 50 km Belitong Palm Oil Mill 250,000 57,500 Kluang 20 km Bukit Besar Palm Oil Mill 120,000 27,600 Kulai 10 km Kulai Palm Oil Mill 120,000 27,600 Kulai 25 km

Total 181,700 204,700

It must be noted that the above assumed all EFB is supplied to Penggeli and it can be noted that one of the potential supplier (Kahang) is located relatively far (around 50 km) from Penggeli while the rest are within 30 km. Non-FELDA mills located within 20 km from proposed Penggeli site might be possible alternative sources of EFB. They are Malim Sawit Palm Oil Mill (6 km from Penggeli mill), Sibol Palm Oil Mill (10 km) and Sg Kachur mill (15 km). Both Sibol and Sg. Kacur belong to JTOP Berhad (private corporation active in palm oil sector). The EFB generated and location by non-FELDA mills are tabulated below: Table 3: EFB generation of non FELDA mills

Mill Processing capacity (ton/hr)

Est. EFB Generation

(ton/yr)

Location Distance from Penggeli

Malim Sawit Palm Oil Mill

30 34,500 Kulai 6 km

Sibol Palm Oil Mill 30 34,500 Kulai 10 km Sg Kachur mill 40 46,000 Kota

Tinggi 15 km

Total 115,000

Currently, most of EFB in Penggeli area are incinerated and the bunch ash returned to the field or the EFB is directly mulched in plantations. While FELDA mills interviewed expressed their acceptance to the EFB CHP plant and have no objections to offer their EFB, there were some barriers identified for the EFB generation and access to fuel especially from non-FELDA mills:



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Reluctance to offer excess EFB or entering into long term supply contracts; Competitive use e.g. JTOP claiming they need all for mulching. There are also

companies engaging into composting of EFB with POME in the area (see below for detail);

Setting of selling prices for EFB difficult. 4.4.3.1 Competitive Usage of EFB

As for Penggeli Mill, a mill constructed before year 1992, is equipped with incinerator for EFB. The EFB ash is sold as fertilizer, a supplement of potassium (K), at a price of RM 150 per tonne. However, to maintain the incinerators, the maintenance cost as well as environmental is high. The mill is very willing to stop the operation of the incinerator if there is better solution for EFB management12. Two of the non-FELDA palm oil companies interviewed were both utilising their EFB. JTOP recycles the EFB back to field as mulch. Malim Sawit, an independent mill that does not own any plantation, processes EFB into fibre as feedstock for their own steam boiler. A comparison of the cost and benefit for competitive EFB applications at the area is elaborated below: Mulching EFB nutrient contents make it suitable as fertilizer substitute for oil palm plantation. Proper mulching technique of EFB in plantation can release nutrient content slowly while the EFB degrades. Other than supplying nutrients, the more important role of mulching is to conserve moisture content of soil and act as soil conditioner. The EFBs nutrient composition is stated below: Table 4: Nutrient content of typical EFB Potassium

(K) Nitrogen

(N) Magnesium

(M) Calcium

(Ca) Phosphorus

(P) % of dry matter

2.24 0.44 0.36 0.36 0.144

(Source: Ravi, Menon, N., Zulkifli, Ad Rahman, & Nasrin, Abu Bakar. (2003). Empty fruit bunches evaluation: mulch in plantation vs. fuel for electricity generation. Oil palm industry economic journal, vol. 3(2)/2003.)

12 Personal communication with Mill Manager, Penggeli Palm Oil Mill, 12 October 2005.



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The recommended EFB application rate for mature palm planted on inland soils is 35 to 70 t/ha. A field trial carried out by Sabah Land Development Board (SLDB) indicated that one tonne EFB is equivalent to RM 11.47 of fertilizer but other researchers found a lower value of RM 5.39/ton EFB. Both studies did not consider the increase of yield in the range of 15 to 20% claimed by some researchers as well as additional cost involved in EFB transportation. Cost benefit study carried out by researchers under proper controlled and monitored conditions showing a net return of RM 14.40 for a tonne of EFB used as mulch13. However, in reality, it is impractical to achieve the ideal return as above. The EFB mulching can only cover small area of the plantation, usually within 5 km radius of the mill, due to high transportation cost. The application is also limited to certain areas depending on topography and land conditions. According to JTOP, the EFB application for mulching at their mills is at an average of 45 mt/ha/year and this rate conforms to the rate recommended 14 . The JTOPs plantation is around 20,000 hectares and is expected to consume 900,000 tonnes of EFB every year. However, due to high transportation cost, mulching for whole estate will not technically be possible and economically feasible. The mulching practice is normally recommended within 8,000 hectares from the mill13. For the Penggeli case, to mulch 8,000 hectares, 360,000 tonnes of EFB is required. JTOP claimed that their mills have no excess of EFB for Penggeli as all are ustilised for mulching. Table 5: EFB mulching value

Value, RM /ton EFB

(Dec 2002 fertilizers price) Nutrient contents reported by Hoong and Nadaraja, (1988)

11.47

Nutrient contents reported by Loong et al. (1987)

5.39

Net returns for mulching (taking into consideration for the cost of mulching and the benefit yield from mulching)

14.40

(Source: Ravi, Menon, N., Zulkifli, Ad Rahman, & Nasrin, Abu Bakar. (2003). Empty fruit bunches evaluation: mulch in plantation vs. fuel for electricity generation. Oil palm industry economic journal, vol. 3(2)/2003.)

13 Ravi, Menon, N., Zulkifli, Ad Rahman, & Nasrin, Abu Bakar. (2003). Empty fruit bunches evaluation: mulch in plantation vs. fuel for electricity generation. Oil palm industry economic journal, vol. 3(2)/2003. 14 Personal communication with Manager, JTOP Bhd., 12 October 2005.



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Fuel for Boiler Steam Generation EFB can be processed into fuel fibre by pressing, shredding and hammering to reduce size and moisture. As an independent mill, Malim Sawit has no estate to dispose of EFB generated. In order to solve the EFB disposal problem while meeting the biomass fuel demand for their mill, Malim Sawit is currently converting part of their EFB generated into fibre for feeding into boilers. During the study, Malim Sawit converted on average 50% of the EFB generated into fibre. This fibre is burnt together with shell and mesocarps fibre in boilers at a ratio 50:50 to generate steam for their mill operation. Malim Sawit is upgrading the system to process all the EFB yielded into fibre and expected to complete by 2005. The additional EFB fibre can be supplied to refinery boiler for replacing some of the shells used. These shells (PKS) are purchased as fuel for refinery boiler at an average cost of RM 56/ton. It was estimated that one ton of EFB fibre (processed and reduced 75% of moisture content) can yield 1.5 to 2 tonnes of steam as compared to the PKS that can generate 3.5 tonnes of steam. Therefore one ton of EFB fibre is equivalent to about 0.5 ton of shell in fuel value. By replacing the shell with fibre, the fuel cost (shell) is saved. Hence, one ton of EFB fibre can save about RM 28. One ton of raw EFB can produce about half ton of EFB fibre. This leads to an average value of one ton raw EFB to be equivalent to around RM 1415. A comparison of the cost of EFB value as compared to the use as EFB fuel for the proposed Penggeli CHP plant would be discussed later.

4.4.4 EFB Transportation As the proposed EFB plant will be receiving EFB from off-site sources, these EFB will have to be transported to the EFB CHP site. Some of the barriers in transporting EFB identified during the study included:

High cost of transportation for mills far away i.e. Kahang Palm Oil Mill around 50 km away;

Handling of EFB : bulky, decomposition leading to foul odour etc; Loading and unloading condition determine the cost of transportation. The

waiting time is a loss for transporters. Minimise the waiting time will be an advantage to transporters;

15 This cost includes EFB fibre processing cost and the processing cost is not assessed in this study. Therefore the actual value of raw EFB is lower than RM 14.



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Processed EFB (in the fibre form) are too light to transport. A 34-feet truck can only carry around 20 tonnes of EFB per trip. The fibres ought to be baled or packed for the ease of handling.

The charges for EFB transportation in Penggeli area vary according to distance (from mill to plantation) and practice (whether stacking or distribute on field). The average cost is between RM 5 to 15 for every ton of EFB transported within 20 km of distance. There is no common practice on how EFBs transportation is managed. Different stakeholders will practice their own system. For example, Ladang Sg. Sayong pays RM 7 for every ton of EFB transported by the same lorry which sends the FFB to Penggeli mill. There is not contract among tranporters and plantation. The distance of transportation is about 11 km. The transporter is only responsible to bring back the EFB to field without doing any stacking or field distribution. On the other hand, the cost involved for Ladang Inas Selatan is RM 10.50 per ton of EFB transported within 9 15 km. The EFB transporter for Inas Selatan is different with the FFB transporter. The transporter is contracted and dedicated for transporting EFB. The transporter will carry EFB from Penggeli Mill to the plantation, at the same time responsible to distribute the EFB on the field. Summarising the information gathered from the site visit, the transportation cost for raw EFB can be estimated at an average of RM 0.70 /ton/km. This will be used for further calculations of EFB fuel cost below. In terms of other technicalities, should preparation of fuel is desired, it is found that the party that is responsible for pre-treatment and handling of fuel (shredding or chipping, pressing or drying and finally compressed into bales or pellets) should be negotiated and decided before the commissioning of the plant. The fuel could either be prepared by the mills before sell to the power plants, or handled by the end users based on their own requirements. Besides, centralised EFB collection and pre-processing system could be considered as a component in EFB supply chain. From the discussion with EFB power plant developer, boiler suppliers and palm oil mills, it appears that there is a lack of interest and need at this stage to develop strict fuel specification for EFB as fuel. This is mostly due to the flexibility of the boiler where some variation of fuel quality is acceptable.

4.4.5 Economic Barriers with Penggeli EFB CHP Plant The orginal proposed plant is designed at capacity between 10-13 MW. However, the SREP licence approved was only for 7.5 MW installation capacities. With this lower capacity, the feasibility of project is suppressed. After appeal and negotiation, the allowed export capacity is increased to a maximum of 9 MW. However the three tier



- 35 -

conditions associated are not favourable to developer, where 9 MWe can only be exported during peak load, but during off peak, only 6 and 4 MW is allowed for week days and weekends respectively. With this maximum 9 MW EFB to power plant and the three tier conditions, the feasibility of the project is predicted to be less attractive compared to the economic analysis carried based on 10 MWe plant unless there is off-grid power demand. The IRR is claimed to be about 9% which is not an economically feasible project from business point of view16. While the demand for power to grid is there, the demand of the steam produced is rather limited in the area. Most mills interviewed were reluctant to rely their steam supply off-site that is handled by other management while the piping of steam across long distance will be costly as well. Assessment of EFB fuel cost and the CHP plant feasibility will be discussed later in Section 4.8 & 4.9.

4.4.6 Assessment of Fuel Supply Chain Options Case example Sourcing EFB Fuel Supply from Surrounding non- FELDA Mills (within 20 km) As indicated in Section 4.4.2, the transportation cost of EFB fuel supply to the plant one of the major barriers due to the low bulk density of the EFB. The need to reduce transportation is especially relevant considering the increasing fossil fuel prices that will expect to continue. Thus, a case example to assess the possibilities of sourcing EFB from nearer mills was carried out in this study for the case of Penggeli. Although the EFB supplies from the FELDAs mills are claimed to be sufficient as discussed earlier, it seems more logical from a EFB supply chain point of view to source EFB from mills closer to the proposed CHP plant. This will largely reduce the high transportation cost involved and thus more cost effective. In this Penggeli demonstration case, some of the EFB is proposed to be sourced from FELDAs mills that located relatively far away i.e. 50 km. The feasibility of sourcing EFB from other mills (non-FELDA) which located within 20 km in radius is investigated below. Some of the mills that located within 20 km from the proposed power plant are plotted in the map below.

16 Personal communication with Felda Palm Industries Sdn Bhd, General Manager (Technical).



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Figure 11: Oil palm mills around Proposed Penggeli CHP As discussed in section 4.4.3, the other three independent mills, Malim Sawit, Sg. Kachur and Sibol located within 20 km from Penggeli have good potential to provide cheaper EFB sources to replace especially Kahang Palm Oil Mills (FELDA) that is located further away (50 m). As indicated in Table 3, three mills are estimated to generate a total of 115,000 tonnes of EFB per year from the vicinity of 20 km. If the Penggeli power plant manages to purchase for example 30% of these EFB, an amount of 34,500 tonnes/year can be obtained. This will be equivalent to the EFB amount generated by Kahang Mill that is located 50 km away from Penggeli. Although the EFB fuel from Kahang is expected to be provided to Penggeli free of charge, the EFB transportation cost for Kahang Mill to Penggeli is estimated to be as high as RM 35/ton17. By replacing the intended supply of EFB from Kahang Mill, the actual EFB fuel cost is expected to be lower even if a price is to be paid for EFB obtained from nearby mills. By assuming the maximum distance of 15 km where EFB should be sourced from nearer mills, the transport cost of EFB from above mentioned independent mills to Penggeli will be on an average of RM 10.50/ton. Hence an average saving of EFB fuel cost (including the transportation) from surrounding independent mills as opposed to Kahang Mill will be in the range of say RM 20-25/ton of EFB. This indicates that although Kahang mill can supply EFB free of charge, it is economically worth to pay for EFB obtained from independent mills nearer.

17 Based on RM 0.70 /ton/km identified earlier.



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An attempt to assess the different supply scenarios (i.e. EFB supplied by Malim Sawit, JTOP and a mixture from both) of EFB fuel supply with different EFB buying price is summarised in Table 6 and Figure 12 below. Table 6: Comparison and sensitivity analysis of cost savings from EFB fuel supply scenarios

Scenario Amount of EFB

Supplied by FELDA

mills (mt/yr)

Amount of EFB

Supplied by non-FELDA mills* (mt/yr)

Cost of fuel (EFB)

to purchase

** (RM)

Cost of Fuel

(EFB) transport *** (RM)

Total Cost of Fuel per

year (RM)

% of Saving for EFB fuel procurement

Baseline EFB supply by FELDA only

200,000 0 0 2,688,700 2,688,700 -

EFB Supply by Malim only: - RM 2/mt - RM 10/mt - RM 15/mt - RM 20/mt

165,500

34,500

69,000 345,000 517,500 690,000

1,626,100

1,695,100 1,971,100 2,143,600 2,316,100

37% 27% 20% 14%

EFB supply by JTOP only: - RM 2/mt - RM 10/mt - RM 15/mt - RM 20/mt

165,500

34,500

69,000 345,000 517,500 690,000

1,783,100

1,852,100 2,128,100 2,300,600 2,473,100

31% 21% 14% 8%

EFB supply by Malim (30%) and JTOP (30%) at - RM 10/mt - RM 15/mt - RM 20/mt

165,500

34,500

345,000 517,500 690,000

1,704,600

2,049,600 2,222,100 2,394,600

24% 17% 11%

* The supply of Kahang mill which is estimated at 34,500 mt/yr is replaced by other nearby mills. ** Assume that FELDAs mills will supply EFB free of charge. ***The cost of transportation is estimated as RM 0.70/mt/km as derived from the ground study.



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0

5

10

15

20

25

30

35

40

Malim Sawit JTOP Both millsSelling prices (Assumed)

% s

avin

g

RM 2/mt RM 10/mt RM 15/mt RM 20/mt Figure 12: Scenarios comparison - EFB supplied by other nearby mills From the above analysis, it can be shown that cost saving for fuel supply will be applicable even if Penggeli CHP is to pay a price as high as RM 20 per tonne of EFB. Significant savings can be achieved if the price of EFB is lower than RM 10 / tonne. However, the earlier analysis had shown that the EFB is already being used for mulching (JTOP) and Fibre boiler fuel (Malim) having an estimated value of around RM 14 / tonne of raw EFB. Thus, a win-win situation can be achieved if the price of EFB is set above RM 15 where the Penggeli CHP will get lower price of EFB supply while the EFB supplier gets higher value out of their EFB. The analysis also shown highest saving if the EFB is obtained from Malim Sawit Palm Oil only, mostly due to the proximity of the mill from Penggeli (only 6 km). In summary, by purchasing EFB fuel from near by mills instead of Kahang, the Penggeli EFB power plant can expect between 10 to 20% fuel cost saving depending on the buying price of EFB from the these non-FELDA mills.

4.4.7 Potential Barriers of Sourcing EFB from Other Mills The results from Section 4.4.6 show a possible win-win situation. However, besides the obvious cost benefit due to logistic savings, there are several crucial considerations that can potentially become barriers to the above proposal. These barriers can be against the CHP plant operators as well as the potential EFB suppliers:

risk of inconsistent supply from other mills; difficult in reaching a mutually agreeable price and fuel standard of EFB fuel; EFB suppliers (Malim and JTop) expecting prices of EFB to increase due to for

example breakthrough in other utilisation giving higher value than the agreed price, thus unwilling to commit long term contracts. Palm oil industry has high



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expectation to the future value of EFB seeing its future potential. Hence not many mills are interested to commit in their EFB selling18.

In order to have more secure supply, sell and purchase contract need to be signed between the power plant and the mills. The EFB pricing should be based on the positive and negative factors identified to each particular mill. Besides, the contract period should be taken into consideration when determine the EFB pricing19.

4.4.8 Determining the EFB Fuel Value The equivalent monetary values of EFB found from the field study are summarised in Error! Reference source not found.. Considering the value of EFB to other mills, the EFB purchasing price should be RM 15/ton and above. The pricing of EFB however, must also be considerd from the EFB CHP plant economic feasibility point of view. If the fuel price is too high, the project will not be feasible. An assessment of the value based onenergy value, as compared to other sources of fuel e.g. coal should also be assessed (see later). When comparing coal to EFB, the coal with energy value of 31.8 MJ/ton20 is carrying about 7 times energy content of raw EFB (4.3 MJ/ton21). The current coal price is about USD $ 5022 per ton which is equivalent to about RM 190. Hence, the equivalent monetary value for one tonne of raw EFB merely based on energy content will be RM25. On the other hand, the well established coal power plants will have the advantages in economic of scale; well developed technologies hence lower installation prices. Besides, moisture and size reduction of EFB will consume almost 30% of total biomass power plant auxiliary electrical load and this reduces the total output of EFB biomass power plant23. Thus, with the fast development of EFB biomass technologies and the lowering of investments with economic of scale, the value of EFB as a fuel would definitely be higher in the near future. This will be further supported by the expected increased in fossil fuel prices and the lowering of government subsidies on fuel.

18 Anon (2005). Background report 2: Renewable energy resources. Integrated Resource Planning, Economic Planning Unit. 19 Chow, Mee Chin. (2005). An assessment of pontential and availability of palm biomass for bioconversion to bioethanol. NIRAS Consulting Engineers and Planners A/S, on Provision of consultancy services on renewable energy efficient component. 20 Karunakaran, Phubalan (2003). Industrial energy audit guidelines: A handbook for energy auditors bibliography. Pusat Tenaga Malaysia. 21 Anon. (2005). Background report 2: Renewable Energy Resources. Integrated Resource Planning, Economic Planning Unit. 22 Reuters (25 Oct 2005) at http://aseanenergy.org/news/ 23 Samad, J. A. (2005). Renewable Energy The need for further incentives. In Jurutera, February 2005.



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Although the investment cost for power plant (RM 40-60 mil) is at higher end compared to other application such as composting (RM 5-10 mil), MDF (RM 40 mil), pulp and paper (RM 50-60 mil)24 and mulching (minimal investment), the power generation is suggested as the best option by the stakeholders involved (FELDA as well as other millers) as there is more certainty in the market of the product especially the electricity25. This preference can be supported by earlier study of Ravi et al.26 that showed a higher benefit above cost for EFB to energy then mulching. The assessment of the EFB for energy above hardly include other potential benefits (including) non-financial such as :

Localisation of power and heat generation decentralised power supply, less grid losses etc.;

Reduced greenhouse gas emissions by substituting fossil fuel renewable green energy. The potential of CDM will be discussed in 4.4.9;

4.4.9 EFB Fuel Price Vs CHP Economic Feasibility A simple economic analysis of 10 MWe EFB biomass grid connected power plant had been carried out by Ir Samad23. The following assumptions were used by him:

By assuming raw EFB price at RM 15/ton; Predicting plant operation and maintenance costs based on established power

industry rates; Supply to grid at 90% of net installed capacity (i.e. no 3-tiers conditions where

differential supply limit for peak and off-peak) 100% tax exemption for first 10 years and 28% tax on profit after that; electricity sales at RM 0.17/kWh to TNB (under SREP); land cost not considered cost for land; other cost included : owners project management costs, loan interest etc.

The financial IRR of the investment before tax was estimated to be 14.7% and 13.5% after tax. The simple pay back is within six to seven years. The overall investment scenario is marginally acceptable when compared to a commonly accepted investment IRR of 15%. However, it must be noted that this IRR is based on a very important

24 Suki, Anhar, Wok, Kamal & Nor, Mohd Tusirin (2005). Biomass utilization: Prospects & challenges. Presented at International Palm Oil Congress (PIPOC), Kuala Lumpur, 25-29 September. 25 Recommendations from the Biomass EFB Stakeholder Workshop, Sofitel Johor Bahru, 8 December 2005. 26 Ravi, Menon, N., Zulkifli, Ad Rahman, & Nasrin, Abu Bakar. (2003). Empty fruit bunches evaluation: mulch in plantation vs. fuel for electricity generation. Oil palm industry economic journal, vol. 3(2)/2003.



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assumption where there are no peak and off- peak delivery conditions. As discussed earlier, the REPPA conditions for example for Penggeli, only allows peak load delivery during the peak period while as low as 50% delivery for off peak. Thus, the overall payback of investment will be greatly reduced due to this condition. In view of increasing demand in EFB for other application such as mulching, composting, paper and pulp, MDF, etc, the increase of EFB fuel price is inevitable. Therefore the uncertainty of the EFB price over long term will be the main concern and major factor that hindering EFB biomass power plants development. Considering the possibility of increase in EFB fuel price, the next constraint will be electricity sales tariff. Based on the assumption employed by the above study, a sensitivity analysis for EFB prices (Figure 13 below) was carried out (details attached as Error! Reference source not found.). It is found that if the EFB price exceeds RM20, the 10 MWe CHP becomes not feasible under the current REPPA condition.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

IRR (%) without Tax IRR (%) with Tax (28% after 10years of exemption)

Payback (yrs)

IRR /S

impl

e Pa

y Bac

k (%

/ yr

s)

RM 15/ton RM 20/ton RM 25/ton

Figure 13: Sensitivity analysis of EFB price to power plant IRR Impact of Clean Development Mechanism on Proposed CHP The utilisation of EFB as renewable fuel for substituting fossil fuel will reduce the emission of greenhouse gases to the atmosphere. This would mean that EFB CHP project such as Penggeli would be eligible for Clean Development Mechanism application where additional financing of the investments can come from the sell of carbon credits (known as Certified Emission Reduction (CERs)). An assessment of the impact of CDM on the overall project feasibility of the 10 MWe CHP plant case discussed above was carried out with different EFB fuel prices. The following assumptions were made:

CAPEX and OPEX based on the Samads case study;



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Average 80% delivery of CHP installed capacity. Power tarrifs of RM 0.17 / kwh; CERs unit price of USD 5 / tonne;

The results are plotted in Figure 14 below. It can be shown that CDM can make projects more attractive when the price of EFB fuel is between RM 15-20 per tonne. If the price of EFB exceeds RM 20, the proposed EFB CHP plant will be financially not attractive even with CDM financing. This will only change if the some of the current renewable energy supply conditions under the REPPA (such as power tariffs, maximum installed capacity of 10 MWe, delivery conditions, other incentives) are changed.

Assessment of CDM on CHP Project

0

5

10

15

20

25

5 10 15 20 25 30

Price of EFB / tonne

Proj

ect I

RR

(%)

IRRIRR with CDM

Figure 14: An assessment of CDM on EFB CHP plant with different fuel price SUMMARY

If EFB price is less that RM 15, then other competitive usage would be economically equally attractive for the EFB suppliers while the EFB CHP plant would be feasible;

If EFB price is between RM 15-20, the results above showed that the CHP plant would be economically not feasible unless with CDM financing;

If EFB price exceeds RM 20 per tonne, EFB CHP plant below 10 MWe will not be feasible even with CDM financing. The conditions offered to EFB as renewable fuel must be improved!



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5. Conclusions and Recommendations

5.1 Conclusions This study concluded that there are indeed many existing barriers hampering the development of EFB as renewable fuel in Malaysia. Most of the barriers associated with the supply chain of EFB identified from earlier study by DANIDA RE/EE in 2004 were thoroughly assessed in this study and further confirmed. The main categories of barriers include perception and acceptance, accessibility to fuel supply, economical and technical barriers. The study, based on individual consultation meetings, visits as well as the case of demonstration site, further confirmed and illustrated the barriers identified were valid, applicable and requires a variety of measures and actions from different levels in order to overcome the barriers. For the case of the demonstration (Penggeli) site, in terms of acceptance, most of the stakeholders consulted were reasobably interested in utilising EFB as a renewable fuel. However, key barriers were identified and mainly associated at the end of supply chain with the overall economic viability of the EFB CHP plant and accessibility to reliable fuel supply being the two most crucial barriers. It appears that the major bottleneck of establishing such an EFB energy plant is the economic barriers identified associated with low return of investment due to the low SREP tariff and rigid conditions under the REPPA. Based on the current SREP and REPPA conditions, there is need to ensure a minimal size of power plant (need to be more than 10 MWe) to ensure the financial feasibility of the project. However, the current approval is normally less than 10MWe installation (for the case only 9 MWe at peak loading for Penggeli case) and further delivery conditions such as the 3-tier system where peak and off-peak loading is imposed. With the less delivery due to this limitation in supply to

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