Asian Power

ISSUE 52 | DISPLAY TO 31 August 2012 | www.asian-power.com | A Charlton Media Group publication

US$360P.A.

MONGOLIAN POWER REVIVED MICA(P) 248 /07/2011

Prophecy Coal’s CEO John LEe talks about their newest project, Mongolia’s first ever IPP in 20 years

OPINION China’s crazy coal consumption

FEATURE Asia set for gas engine plant boom

OPINION Will China slash its wind power installations?

OPINION Safety measures in Japanese reactors

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FIRST

News from asian-power.com will produce 5,000 megawatts of electricity from nuclear energy by 2030.

Finance Minister Abul Maal Abdul Muhith announced to the parliament while presenting the budget for the fiscal year to June 2013. Bangladesh will allocate 5.0% of its total expenditure for power and energy.

MOST READ Japan might ration electricity this summer

Japan pays the price for taking all its nuclear reactors offline.

The Japanese government will announce electricity rationing contingency plans by mid-June.

Since all of Japan’s nuclear reactors are non-operational, the government expects power shortages in western and northern Japan.

Kudankulam nuclear plant ready to go online

U.S. punishes China with new tariffs on wind towers

China will reel from punitive U.S. tariffs of up to 26% on its leading wind tower manufacturers.

US has imposed preliminary duties ranging from 13.7% to 26% against Chinese makers of windturbine towers who export to the USA. The move, will increase tension over trade of clean energy technologies between both nations. The new tariffs could take effect this October.

Energy-saving appliances to be subsidized

by China

China allots US$4.2B to pay for consumer purchases of energy-saving household appliances.

The subsidy for those who buy energy-saving household appliances can be as high as US$63 per unit. In addition, China is prepared to spend US$942 million cover to subsidize consumers

who buy energy-efficient vehicles.

more companies entered the market for wind turbines.

China pushes RE despite economic slowdown

China to resume nuclear power program

China refuses to give up its global lead in many renewable energy technologies to maintain long-term economic growth.

China plans to boost the development of seven strategic emerging industries including new energy in the face of a worsening economic slowdown.

Suzlon’s market share takes a beating Extreme competition causes Suzlon Energy to lose more market share in India’s wind turbine market.

The company’s marketleading share dropped for a second straight year as

Despite dangers from nuclear reactors highlighted by the Fukushima disaster, China will push through with plans to build more nuclear power plants.

It has indicated that it will lift its year-long moratorium on new nuclear power plants. China is targeting 60GW of nuclear capacity by 2020.

China is fastest growing market for natural gas

China’s switch to gas-fired power generation will significantly increase global gas demand.

The International Energy Agency says global gas demand will rise by 2.7% a

year until 2017 to hit 3.94 trillion cubic meters. China and the USA are expected to drive this growth as both nations switch from coal to gas-fired power generation.

Japan launches national energysaving campaign

How about wearing Tshirts as an energy saving method?

Japan has launched its “Super Cool Biz” energysaving campaign that, among other things, encourages office workers to wear casual clothes and T-shirts to limit air conditioner usage.

Bangladesh to get 5,000MW from nuclear by 2030 To augment electricity production, Bangladesh

Publisher & EDITOR-IN-CHIEF

MICA(P) 248/07/2011 Asian Power is a bi-monthly news magazine published by Charlton Media Group Pte Ltd registered in Singapore.

Its circulation is to leaders in the Asian power industry and is available on a controlled circulation and paid basis.

CONTACT THE PUBLISHER Charlton Media Group, #06-09 E, Maxwell House 20 Maxwell Road Singapore 069113 www.charltonmedia.com, +65 3158 1238 All editorial is copyright and may not be reproduced without consent.

Contributions are invited but Asian Power can accept no responsibility for loss.

Graphic Artist media assistant ADVERTISING CONTACTS

A controversial Indian nuclear power moves closer to becoming operational.

The Kudankulam Atomic Power Project located in Koodankulam in the Tirunelveli district of the southern Indian state of Tamil Nadu conducted a safety exercise that is one of the mandatory steps prescribed by the Atomic Energy Regulatory Board (AERB) for commissioning of the plant’s first reactor.

Japan approves feed-in tariff for renewable energy

Japan’s feed-in tariff or FIT is one of the highest in the world.

Japan’s march towards renewable energy and away from nuclear energy took a giant leap when it approved new FIT rates that will boost its use of renewable energy such as solar and wind. The incentive will see Japanese utilities buy electricity from developers of renewable energy at fixed rates lasting up to 20 years.

Costs will be passed on to consumers who will pay higher electricity bills.

Tim Charlton Richard Erpilo Daniela Gujilde Tim Charlton tim@charltonmediamail.com Laarni Salazar-Navida lanie@charltonmediamail.com Loren Laylay loren@charltonmediamail.com

ASIAN POWER 3

OPINION

JOHN GOSS

john.goss@ceejay.com.hk

China to consume 5.5b tons of coal by 2020

C

oal continues to play an essential role in the energy, economic and the environmental future of China’s rapidly developing economy. The nation’s economic growth has exceeded stated targets every year since the start of the 21st century. Many industry studies have shown that the increasing demands for coal in China reflect the country’s growth in economic activity and social development as the population’s living standards continue to rise.

China is the world’s fastest developing economy, largest energy user, and largest consumer of coal. In recent years, the Chinese government has made electricity accessible for millions of people across the country. At the same time, the government has continued to develop its industrialization process of encouraging its industries to move westward, increase urbanization in many regions, and modernize the nation, all of which needs vast amounts of energy to fuel this growth.

Clean coal investments The central government has started to rationalize China’s coal industry and is developing many new clean coal technologies. It has invested for the industry in excess of RMB 500 billion (US$79 billion) a year during its current 12th Five Year Plan (2011-2015). The level of investments into the coal industry is around the same as those for the power and oil sectors. During this 12th Five Year Plan period the coal industry in China will experience many more mergers and acquisitions and it will become increasingly internationalized, reports from the National Energy Administration (NEA) say.

Massive coal consumption The country’s coal output during 2010 is reported as 3.24 billion tons which accounted for 43.4% of the world’s total output of coal. In the past few years, the consumption of coal in China has increased by around 200 million tons annually. These high levels of coal consumption now account for approximately 44% of global coal consumption. In a move to reduce its carbon emissions, the government aims to cap China’s coal output to below 3.9 billion tons by the end of 2015. The government is encouraging its coal companies to seek coal resources abroad to ensure China has a sound and stable energy supply.

The new Chinese coal industry The new look of Chinese coal industry be made up of 10 large coal companies, each capable of producing 100 million tons of coal per year. Then there will be another 10 smaller coal companies, each capable of producing 50 million tons of coal per year. These 20 coal companies will be responsible for some 60% of China’s coal output. The central government will continue to promote mergers and acquisitions in the domestic coal industry with the aim of developing large coal companies and shutting down the small coal mines to eliminate outdated and inefficient coal mines.

The NEA estimates that the nation will be consuming 5.5 billion tons of standard coal by 2020 and then the con-

4 ASIAN POWER

sumption figure rises to 7.5 billion tons by 2030. The 2030 coal consumption figure will be equal to the estimated coal usage of the 34 member countries of the Organization for Economic Cooperation and Development. As the environment becomes a central issue within energy usage, China has made some significant moves to increase its energy efficiency. These moves involve application of new advanced technologies, especially where coal resources are concerned as coal supplies over 70% of China’s energy needs.

Another significant development in China’s coal industry is the formation of a joint venture (JV) between China Coal Energy and one of its power generation customers, China Power International Development (CPID) in Shanxi Province. This JV is the latest in a series of investments by Statebacked coal mining companies into China’s power producers which demonstrates the coal companies confidence in the future of coal fired power generation. In recent years, the nation’s coal fired power generators have experienced low levels of profitability due to tight State control on power tariffs amid rising inflation and the constant increases in the cost of thermal coal.

China, as the world’s largest energy consumer, should stick to its existing industrial upgrading, energy conservation and emission reduction targets within the government’s overall economic growth model. All of these advantageous actions are taking place as the country leads the global development of effective clean coal technologies installed in its modern coal plants. The country is embracing new clean coal technologies, such as coal-to-gas, coal-to-chemicals and coalto-liquids, to increase and enhance the nation’s energy availability and security in an environmentally friendly manner.

The rest of the world should learn some lessons from China’s economic achievements powered by coal.

The country’s coal output during 2010 is reported as 3.24 billion tons which accounted for 43.4% of the world’s total output of coal.

VENDOR VIEW

Using transmission protection technology in distribution relays As the development of ‘micro-grids’ indicates a need for improved distribution system technologies, Alstom Grid provides a solution.

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iCOM P40 Agile, Alstom Grid’s recent offering in its substation automation solution range, lives up to its name as the well-known MiCOM P40’s smaller, lighter ‘sibling.’

Alstom Grid recognises the mission critical status of substation automation technologies and continues to adapt leading edge transmission technologies for distribution systems and industry.

There has been increasing pressure on energy operators from governments and environmental groups to improve system efficiency while also ensuring reliable supply. As more and more operating companies worldwide embrace the concept of the Smart Grid, and offer consumers access to flexible energy supply agreements, the composition of distribution systems will change. One expected change is the development of ‘micro-grids’ defined as interconnected loads and distributed energy resources acting as integrated systems and operating in parallel with the main grid or in islanded mode.

Certain generic features, such as programmable scheme logic and supervision functions that have until now primarily been used in transmission systems, are already being sought at medium voltages.

It may seem fairly simple to use existing transmission protection relays in distribution systems, but it is necessary to consider the possible limitations alongside the benefits - of transmission protection technologies when applied to distribution systems.

Programmable scheme logic Programmable scheme logic is a transmission protection technology that enables relay users to configure individual protection schemes to suit their unique application. This extremely flexible system, based on programmable logic gates and delay timers, allows users to create their own scheme logic design no matter how complex. The inherent flexibility of programmable scheme logic makes it a technology with obvious applications for distribution systems and - when built into distribution relays - improves power reliability and quality.

Supervisory functions As distribution systems take on a more critical status, it is vital that a greater degree of supervision is built into secondary devices to enable earlier triggers for predictive maintenance. Some supervisory functions already in use in transmission systems such as supply supervision, condition monitoring and trip circuit supervision can be set in a distribution relay, Programmable scheme logic can also be used effectively in this context. A voltage transformer supervision (VTS) feature is used to detect failure of alternating current voltage inputs to the relay. VTS logic in the relay is designed to detect voltage failure

MiCOM P40 Agile of Substation Automation Solutions business and automatically adjust the configuration of protection elements whose stability would be at risk.

enabling of predictive maintenance and ‘self healing’ responses to system disturbances.

Communication infrastructure Distribution systems are becoming smarter and, accordingly, they need a communications infrastructure that is strong and reliable. Serial-based communications protocols such as Modbus can be augmented by more modern communication protocols such as the Ethernet-based IEC61850 to ensure protection relays can feed as much information as possible through the communications infrastructure. It is essential to provide options to suit project requirements, while maintaining the same interface to staff.

Increased availability of highly integrated relays It is possible to increase the availability and effectiveness of a single protection. The increased availability can be achieved by developing the self-diagnostic features within the relay.

These self-diagnostic features can include the relay detecting software-related fatal errors and subsequently performing a restart of the relevant process without having to reboot the entire device.

This results in full product operational status being regained within a few power system cycles; a shorter time period than the seconds it would take to reboot.

Circuit breaker fail protection Programmable scheme logic can be used once more, in this instance, to develop simple circuit breaker. Incorporating transmission protection technologies such as circuit breaker fail protection in distribution relays has several benefits including the

“Alstom Grid’s MiCOM P40 Agile has, as its name implies, the inbuilt flexibility and technological sophistication to overcome these constraints”

Conclusion The incorporation of existing transmission protection technologies into distribution relays can reap a myriad of benefits. There may be constraints, however, such as cost, size and withdraw ability. Alstom Grid’s MiCOM P40 Agile has, as its name implies, the inbuilt flexibility and technological sophistication to overcome these constraints and more, and to successfully bridge the gap between transmission and distribution relay technologies.

For more information, contact Soon-Wi Lee at +65 9231 2770 or soon-wi.lee@alstom.com ASIAN POWER 5

FEATURE: Asian gas engine plant

Asia set for gas engine plant boom as renewables get a boost Indonesia pioneers the installation of a 110MW gas engine-based plant powered by Wärtsilä generator sets.

A

first for Asia, Indonesia will install a 110MW gas enginebased power plant to provide grid stability and peak load power.

This is the first time that a gas-fired plant based on engines will be installed to meet daily power peaks in Indonesia, and it is a nascent market set to grow, according to Wärtsilä Marketing Director Kenneth Engblom.

PT Perusahaan Listrik, the state-owned utility company, will utilize the new facility primarily to supply power during the evening peak load hours. It will be powered by eleven 20-cylinder Wärtsilä 34SG generator sets in V-configuration, operating on compressed natural gas and providing an output of 110 MW. Wärtsilä will also supply the necessary auxiliary equipment as well as building materials.

Everything is being delivered on a fasttrack basis, as the plant is scheduled to be built and fully operational before the end of 2012. Wärtsilä already has a strong presence in Indonesia, with some 2.8GW of installed power in operation. These, and all Wärtsilä installations, are supported by the company’s global service network. Wärtsilä has service agreements for over 350MW of power-generating ca-

6 ASIAN POWER

pacity in Indonesia.

The move to gas-fired engines Engblom told Asian Power Magazine that the need to provide grid stability by being able to quickly cycle up or down engines is important. “Gas-fired engines are much more efficient at doing this than typical steam plants which are inefficient at smaller loads, and nuclear cannot do this at all,” he says. In Europe the move towards installing smaller gas engine utilities is boosted by co-generated utilities which have to contend with wind and solar sources. These utilities can stop producing electricity as the weather changes. In Asia, the demand for grid stability power plants is not the same yet, but this may change as weather-dependent renewables such as solar and wind take a larger share of the generating market.

Flexible tools In other parts of Asia, gas engines can provide utility operators that necessary flexibility at peak times. Engblom says that Wärtsilä has the most number of engines deployed in Asia, and is in a good position to meet utilities needs for flexible power.

The problem of integrating renewables to

Wärtsilä has service agreements for over 350MW of power generating capacity in Indonesia.

the grid is a growing one in Europe and it will eventually affect Asia, too.

“With a lot of wind and solar power coming into the grid in Europe, it causes a lot of regulation problems. Wind is not dispatchable; the wind blows when it wants to and suddenly stops. There is a need for a lot more quickly dispatchable power generation than before. Also, it has to be flexible. It needs to run in the morning at hours when everyone uses a lot of electricity. Mostly, you have less demand at day time. Then you turn it up again in the evening. Existing base load combined cycle gas turbines or stem plants are not good at this. So our idea for smart power generation means operational flexibility – you can run it, and then stop it whenever you want. It needs to be efficient at any load as gas is expensive. Partial load efficiency is as important as full load efficiency,” says Engblom.

“In China and some other Asian countries, they are putting in a lot of wind and solar energy. They will need more flexible power generators in the near future. As this continues, utilities in Asia will soon realize they will have similar problems that are seen in Europe today. Wärtsilä is here and eager to support the Utilities and Electricity regulators in this area.”

Demand for larger utility plants Engblom says Wärtsilä is seeing more demand for larger combustion engine utility plants, and the largest they are building todate is a 430MW plant for a mine site in the Dominican Republic which is based on their 22MW engine. “In Turkey, we have a lot of plants that both serve the utility and industry-sized 50 to 250MW so it is in that range.” Wärtsilä’s strength is that it has been manufacturing gas engines since 1993 and also offers dual fuel usage engines which are popular in Asia and other markets transferring from liquid fuels to gas.

“These can run heavy oil or diesel for now.

When the gas becomes available, it can easily be switched over,” adds Engblom.

“Our R&D has focused on gas and dual fuel technology for a very long time. To make an efficient engine is a sum of parts, trial and error and lots of running experience. Compared with other engine manufacturers, we are slightly more fuel-efficient and we are the forerunners in operational flexibility. For fuel flexibility, our dual fuel engine is also very popular. We are the first in the market with large gas engines and dual fuel engines. I think it’s fair to say that we have the most experience.” Engblom says Wärtsilä is unique because it can offer complete turn key solutions to utility operators, including full project management and EPC capabilities. The plant in Indonesia is a good demonstration of its capability in the Asian market.

co-publised corporate profile

Yellow brick road to proficiency InstaForex equips and educates traders with excellent online instruments for a successful Forex trading.

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ore and more people around the globe prefer investing in Forex. Nevertheless, only a few of them enter the market with professional skills of investing. Forex is mostly considered as something very simple and easy to understand. In a measure it is so, because to get involved in currency trading one needs an electronic device with the access to the Internet, an uploaded trading platform and a certain deposit. However this is enough to begin the journey only, with no respect to the result achieved.

To be sure of the outcome, add learning to your experience. Even those who are totally green on Forex realize it, thus driving up the demand for education related to private investments.

Absolutely all education projects are holding out promises to instantly teach a newbie how to earn on Forex, which actually is possible, though not for every education program. The “intolerable” burden can be shouldered only by the education projects, that are launched on the basis of large brokers and delivered by guru of trading and experienced analysts with reliable reputation; others are obviously availing of the “the magic words” with the mere purpose of marketing.

Providing excellent education Forex education is a series of tutoring services

and products devoted to providing basic knowledge sufficient to work as a professional trader.

Now we will discuss market offers as exemplified by a large broker InstaForex, which aside from providing comfortable trading conditions, renders top-notch quality education services.

On the official website of InstaForex Company you can familiarize yourself with the general terms of Forex trading, market strategies, technical and fundamental analysis as well as with step-by-step video instructions explaining the principles of working with the trading platform.

It is a peculiar kind of a library with loads of reference materials useful for self-education.

Every professional lecturer or tutor gives hints for individual studies at schools. Learning Forex trading one can attend workshops and trainings at companies’ offices or even online webinars.

“Forex education is a series of tutoring services and products devoted to providing basic knowledge sufficient to work as a professional trader.”

InstaForex offers both. One can be a part of a workshop or a consultation in a representative office of the broker. As compared to lectures at college, such studies always comprise practical part. Practical tasks are employed since the very first day of study. People, who have no time to spend at the desk, can attend webinars and online conferences wherever they are.

Nowadays online education is growing rapidly, possibly, because interactive webinars that are delivered with the help of a video conference call allow using the latest methods of teaching and Internet technologies.

Practicing without losing Speaking of practice we should mention demo accounts. InstaForex does not recommend trading on a real account right after taking up an education course. Firstly, the broker offers to register a demo account with virtual deposit which allows practicing without losses. Of course, working on a real trading account to obtain more professional skills can be effective, however, like any other education class, it rarely brings satisfaction. That is why after demo accounts one can be sure of trying mini accounts, where a trader is working with real money, but with insignificant sums.

And yet even after a trader has started working with considerable deposits, InstaForex goes on developing its customers by presenting the most important, central and timely information about events on Forex in the format of daily news releases, regular reviews made by the famous analysts, newsticker etc.

To crown it all, with InstaForex a trader is certain to choose not only a reliable and verified broker for comfortable trading, but also a guide in the world of professional trading, a coach, if you prefer.

ASIAN POWER 7

OPINION

Brett A. Perlman Wind integration key to future growth in Chinese and global wind industry

W

hile China has been a world leader in developing renewable energy, it now appears that integration of renewable generation is presenting the country with a whole new range of technicalities that threaten to slow the torrid pace of growth not only in the China, but across the world.

China’s wind power market Recently, Chinese government officials have issued a number of new policies aimed at pushing wind developers to shift their focus from building more wind farms toward ensuring that more of the wind-generated electricity can flow safely into power grids.

As a result of these directives, the National Energy Administration recently announced that it will approve about 40% less wind power capacity in 2012 than it did last year. In particular, six Chinese regions that have great wind resources are forbidden from approving new installations.

As the Chinese market slows, major wind turbine producers are feeling the pain from declining demand. For example, Sinovel Wind Group Co., China’s largest turbine manufacturer, experienced slower growth last year causing a drop in nearly half of its sales revenue compared with 2010, primarily as a result of the slowdown in the Chinese market. Similarly, Xinjiang Goldwind Science & Technology Co. last year earned about one-quarter less income than a year earlier for similar reasons. Smaller local Chinese turbine manufacturers have also seen a sharp drop in their orders, and many of them have begun running out of business.

So why the slowdown?

The cause of this slowdown can be attributed to several problems. First, because China’s existing grid is unable to handle the unpredictable off-and-on nature of wind power, building more wind farms means wasting more wind-generated electricity.

There is also an issue of grid safety. When more wind turbines are connected, the less stable the grid becomes.

One example occurred last year when equipment at one wind farm in western China’s Gansu province broke down and caused a chain reaction that knocked out hundreds of wind turbines across the region and threatened the electricity supply of a transmission network that covers about one-third of the nation.

The State Electricity Regulatory Commission (SERC) blamed these problems primarily on the absence of Low Voltage Ride Through (LVRT) systems, which allow wind turbines to continue operating during and after voltage dips so the grid can adjust more quickly and provide a high level of grid safety and stability.

Yet, China is not the first country to encounter such problems. Spain, Germany and other European countries with high growth wind markets also have had to solve this technical challenge in order to continue to grow.

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How did it go in Spain?

In Spain, the Spanish grid operator, Red Eléctrica de España, turned to small innovative start-up companies to solve this problem. One such company, Wind to Power System (W2PS), a Spanish power electronics company focused on grid integration of renewable energy and power quality, has become the market leader in Europe for turbine independent LVRT retrofit solutions.

The company is now expanding into China and they are already manufacturing LVRT solutions for the Chinese market locally. In addition to providing power electronics gear, they also produce testing equipment which are large containers capable of generating voltage dips for testing wind turbines in the field. They are currently selling this testing equipment to regional and provincial Electric Power Research Institutes (EPRI’s) in China.

At a recent seminar at the Spanish Embassy in Beijing, which was attended by Chinese government officials and executives from power companies, universities, EPRI’s and industry associations, Alberto Carbajo, Director General for Operations of Red Eléctrica de España, presented the Spanish case study in how LVRT solutions solved wind integration problems in the Spanish market and allowed wind energy to surpass 20% as a percentage of total installed capacity.

Since China is now introducing a grid code similar to Spain, it can be expected that this solution will also ensure China’s improvement of grid integrity and power quality, just as it did in the Spanish market While solving wind integration problems may seem like a minor technical challenge, it is becoming clear that it is the key to continued growth in wind development not only in China, but in the global wind market as well.

Brett A. Perlman is Board member of Wind to Power Systems and former U.S. state utility regulator.

As the Chinese market slows, major wind turbine producers are feeling the pain from declining demand.

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ASIAN POWER 9

CEO INTERVIEW

Mongolia approves construction of first ever IPP in 20 years understand the disadvantage of having a power plant in the vicinity. We have to find a way to compensate them. We also have several projects in Canada in which we face very similar issues and we’ve found that through information sharing and direct engagement, we’ve been able to create good dialogue about all aspects of current and future operations. Compared with Canada, I think Mongolia is an even easier framework. We’re planning on working with local communities. We already have a consultant living with them to deal with their concerns. Eventually, I believe that they will make good judgement over the economic investments versus the negative things that come with the projects.

There are some animals that drink from the underground water just next to the mining site but we are planning to construct wetlands to treat wastewater.

John Lee, CEO of Prophecy Coal’s

A young CEO at 38, Prophecy Coal’s John Lee speaks proudly of their minemouth power plant project, a first of its kind for Mongolia, and one designed to augment and ultimately replace the country’s aging power supply infrastructure.

What makes Chandgana power plant exceptional?

The 600MW project is in central Mongolia and it does have a resource that follows Canadian Independent Standards, Coal 43-101, similar to the Australian George Standard of 1.2B. The coal is very shallow and easily extracted. We are currently in phase one of development of this 600MW thermal coal power plant that will be ramped up to 4200MW after phase two.

We received a mining and construction license in November, making it the first independent power plant project which received licensing in 20 years.

There are four existing power plants in Mongolia, but they have been there as far back as the 1970s and, in technical terms, are already very aged. There are some other projects which were licensed in 1990s but are currently inactive.

The initial 600MW capacity will be dedicated toward domestic consumption. Proposed output increase to 4200MW would enable Mongolia to export power directly into China via existing ultra high voltage lines.

As opposed to many other mine yards that are concentrating production on the Mongolia-Chinese border, with China being their main customers, this project is unique because it is centrally located near existing infrastructure. So, there is a road going right by it. There is a 45kb transmission line and the 220kb line is only about a hundred kilometers away.

It is very accessible, and the railways are just 100 kilometers away. We have all the elements, I mean, not necessarily immediately adjacent, but within reach which makes this project a lot more attractive than some of the other projects which are located farther away. Because our coal resources are so abundant and accessible, we can make double-digit of return of investments of around 20% at a very supportable rate at 70 kWh. 10 ASIAN POWER

What was the target funding cost of the project and where does your project financing stand now?

The target cost is $1 billion. Together, we were able to raise over $80 million in the last two years.

But when it comes to project financing, we haven’t begun the fund meeting yet because there are different elements that are needed to be in place, primarily, obtaining a mining license.

Prospective investors to the project are mostly from Asia. We have interested parties from Singapore, Malaysia, Thailand, Japan, Korea, and China.

How do you address social and environmental issues in obtaining a mining license?

In terms of pollution concerns where herders living nearby would be likely affected, we have to inform the local community of the benefits and also clearly make them

Why did you choose to invest in Mongolia?

Mongolia’s economy is growing and there is a severe power shortage that has been forecasted. Mongolia was lacking foreign investments until around mid of 2005.

Coal is a commodity good in early 2000. Prices of coal had more than doubled, tripled or even quadrupled in many cases and Mongolia is really one of the last frontiers in resource exploration. In the last 10 years, Mongolia has received billions of dollars in terms of coal investments which consequently boosted the mining industry and coming along with that is economic growth. Mongolia’s GDP has more than doubled in the last five years and the reason for why Prophecy got into this is because of some incidents when we were able to get hold of this coal access, and we were debating internally on what to do with the coal that we have. It’s not high-quality ranking coal but Mongolia said that they want to create a market for their own coal. Therefore, the idea of a power plant came about and just at the time when Mongolia needs a lot of power to sustain its growth.

There is virtually no large scale IPP market here today. Mongolia

There are some animals that drink from the underground water just next to the mining site but we are planning to construct wetlands to treat wastewater.

has had no power infrastructure in the last 20 years and the government is only beginning to regulate the industry. As the country’s economy grows, it is going to need power and so the prospect should be good. Currently though, there are always obstacles about the government not getting used to the idea of power from the private sector and there’s a lot of learning curve that has to be met – i.e. how does the IPP work?

What is your vision for the Mongolian power sector?

Not necessarily a vision, rather a social responsibility. We are guests in this country and we are very fortunate to have inherited these huge deposits of coal. I think there is some social responsibility to return these assets to Mongolia, especially to the people. I want to stress how we differ from the other Mongolian stories which you probably heard about.

Our vision is investing on Mongolia, and creating the energy infrastructure to make Mongolia energy eminent. We have about three site technologists today to help us achieve that vision. We are not transforming Mongolia into something different, but we want to help Mongolia sustain its growth, which at this rate would not be sustainable if they didn’t

have the matching growth drivers. So far, the economy has doubled from $4 billion to $9 billion in the last five years, but it’s a snail’s pace. If only the additional demand for electricity would be met without importing more from Russia, I believe we could double GDP from $9 billion to $20 billion in the next five years.

It would not be such an easy solution. It requires a long-term development plan. We’re very fortunate to have a government that recognizes the need and is working very closely with us to the utmost possible extent.

Aside from electricity, how would the society benefit from the project?

We have to help the government find a way to create employment for the people in order to bring the economy into the middle income rank. During construction, we’ll hire 2000 people that will be a mixture of expats and Mongolians. We’re hiring expats but the goal is to hire them and then quickly execute knowledge transfer to the locals. The target is to have 95% of the permanent positions in the operation occupied

by Mongolians. In fact, as part of this goal, we are sponsoring local scholarships, conducting training programs and eventually in due

time, we’ll hire them.

Another point is a special contribution to the economy. Our coal has been extensively traced to be very clean and conforms with all the international environmental standards.

Is there public opposition on building the mine-mouth power plant project with regards to the use of coal?

In Mongolia, there is a crucial need for power. There are very frequent blackouts. The public in general is supportive with all the mining activities coming out this year and to power-generating projects. Mongolia is not exactly a rich country and coal power remains to be the cheapest, most affordable, most reliable and the most accessible in the market.

And not to mention, experts are in agreement that with the latest technologies available, we can develop coal-fired power plants with high efficiency and low emission.

How would you attract talent to work for the power plant considering that the site location is 300km away from the main city, Ulaanbaatar?

Mongolians are nomads and they’re happy to live in Gers. People have no problem living in rural areas. In fact, there are almost a billion people living in the countryside. The power plant operation requires around 450 people and I don’t think that would be hard to fill.

The cultivated area of the country is only 60kms away, so there’s no issue as far as keeping people is concerned.

ASIAN POWER 11

OPINION

Frenk Withoos Are safety measures neglected in Japan’s Oi Nuclear reactors?

I

n July, the new Feed In Tariff (FIT) for renewable energy sources will come in effect. Under the new FIT, utilities are required to buy solar, wind, geothermal and hydro power at a fixed tariff and are allowed to pass on such cost to the consumers.

FIT and the solar market The FIT will have most immediate impact on the Solar Photovoltaic market. While the other renewable sources have also attractive rates, either lengthy environmental procedures or less favorable conditions play their part. Solar tariff is applicable for installation larger then 10kW and the utilities will pay 42 yen (around 52 US cents) per kWh for 20 years, which is almost twice the current rate in Germany. German tariffs are actually lowered every year (2004 = 54 euro cents / kWh ; 2012 = 21,99 euro cents/kWh for rooftop > 100kW) to encourage more efficient production of renewable energy.

The Solar market is forecasted to grow from around 5GW today to 28GW by 2020, majority of the growth will be related to the consumer rooftop applications, still a considerable amount of mega-solar projects (> 1MW) will come on the market.

Restarting Oi nuclear reactors?

Not only the new FIT tariffs got lot of attention recently, also the Oi Nuclear reactors 3&4 restart is capturing many headlines. The country is split over the recent approval given for the restart. Majority of the Japanese believe it is too early, while the related businesses and governmental agencies are very much in favor.

While the Oi units did meet the required new safety standards (by computer simulation) according to the Nuclear Safety commission, none of those measures, (such as a higher seawall, a seismically isolated emergency command center and filters to remove any radioactive substances in the case they are vented from the reactor core to the atmosphere during an emergency), have actually been implemented.

Kansai Electric Power Company (KEPCO) has committed to implement them over the next three years, but in the current climate, not many people actually believe this will happen. The minister of economy, trade and industry (METI), Yukio Edano, was quoted saying “We have not necessarily gained acceptance from every member of the public, but we think we have garnered a certain level of understanding.” Actually a recent poll published on 4th of June resulted in 71% of the Japanese public do not agree with the restart.

Debates hinder power generation improvements Unfortunately the long debate over the restart and the extensive lobbying effort by KEPCO, have prevented actions to further improve the power generation capacity, such as installing additional thermal generation sources and interconnections. Also the much discussed restructuring of the Utility market did not make much progress.

While a METI committee on industry reform is examin12 ASIAN POWER

ing two proposals for splitting off power generation from transmission operations, the hurdles remain tremendously high with the utility industry putting up fierce resistance.

Renewables get a boost The expected boom in the renewable power generation can only be sustained if the utility industry is restructured. To integrate all those fluctuating and remote generation sources requires additional investments in the transmission and distribution grid. As currently the utilities have no direct incentive to integrate those renewable, it is even more unlikely they will make additional investments in the grid. It is far more easier and commercially interesting to return to the nuclear power generation era simply by arguing that the power grid is not able to integrate so much renewable energy.

Further the current business model has created a relative expensive generation and transmission as well as an inflexible network. Since the FIT cost is being passed on to the consumers, it is even more urgent to split the generation and transmission businesses to create more competition in the utility market, which in return will reduce the cost for the consumer.

Some are even drawing parallels between the KEPCO actions, in delaying any potential solutions to reduce any power shortfall in the summer, to the slow progress being made to reform the overall Utility industry.

It will be in nobody’s interest to support this “let’s keep talking and it will go away” scenario. The new FIT can be a serious game changer if the environment and stakeholders can truly support it. Let’s hope common sense will prevail.

Frenk Withoos, Vice President, Power Product and Power System Division, ABB

The Solar market is forecasted to grow from around 5GW today to 28GW by 2020

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With current capacity of around 28,500 MW, and despite current energy imports from neighbouring Celebrating its 20th Anniversary in 2012, POWER-GEN Asia has established itself as the premier conference and exhibition countries, Thailand see a shortfall in capacity in the next fewhas years.

Celebrating its 20thwill Anniversary in 2012, POWER-GEN Asia established itself as the premier conference and exhibition countries, Thailand will see a in capacity in next few years. countries, Thailand will see a shortfall shortfall in transmission capacity in the the next fewhas years.industries. itself as the premier conference and exhibition dedicated to its the20th power generation and and distribution Celebrating Anniversary in 2012, POWER-GEN Asia Celebratingto its 20th Anniversary inand 2012, POWER-GEN Asia has established established as the premier conference and exhibition dedicated the power generation transmission and distribution industries. itself Celebrating its 20th Anniversary inand 2012, POWER-GEN Asia has established itself as the premier conference and exhibition dedicated to the power generation transmission and distribution industries.

Celebrating its 20th Anniversary inand 2012, POWER-GEN Asia has established itself as the premier conference and exhibition dedicated to the power generation transmission and distribution industries.

Celebrating Anniversary in 2012, POWER-GEN Asia established itself as conference and exhibition dedicated to its the20th power generation transmission distribution industries.

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Attracting 7,000 delegates and attendees from over 60 countries from across South East Asia and around the world, co-located POWER-GEN Asia and Renewable Energy World Asia is the annual meeting place for senior executive and industry leaders.

Attracting 7,000 delegates and attendees from over 60 countries from across South East Asia and around the world, co-located POWER-GEN Asia and Renewable Energy World Asia is the annual meeting place for senior executive and industry leaders.

Attracting 7,000 delegates and attendees from over countries from across South East Asia and around the world, co-located POWER-GEN Asia and Renewable Energy World Asia60 is the annual meeting place fortopics senior executive and industry leaders.

Attracting 7,000 delegates and attendees from over 60 countries from across South East Asia and around the world, co-located The conference has become the major annual platform for the industry to discuss and issues of the day and is regularly POWER-GEN Asia and Renewable Energy World Asia is the annual meeting place for senior executive and industry leaders.

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Joint opening Keynote SeSSion – WedneSday 3rd october – 9am Ministers and Governors of the region’s utility companies.

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Environmental Protection, Fuels & Grid Power Generation & Plant&Flexibility, Technologies Environmental Protection, Fuels & Grid Technology Technology ••• Operation, Optimization Servicing.

Power Generation & Plant&Technologies Operation, Optimization Servicing.

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FEATURE: Indian coal power plants

Coal to be India’s default baseload capacity option

This can be possible with over $154b capex expected between 2012 and 2020. By ADRIAN JOHN

I

n spite of current market conditions in India, favourable project economics are set to support coal power as the default baseload capacity option with over $154 billion capex expected between 2012 and 2020.

Since market restructuring that principally began with the Electricity Act 2003, India’s power capacity has grown at a strong CAGR of 6.8% – growing from 130GW to 220GW at year-end 2011.

During this period coal power capacity has grown at a CAGR of 6.4% – from 65GW in 2003 to 107GW at year-end 2011. However, with insufficient generation capacity, a history of project delays and missed government capacity additions targets, as well as severe problems with the transmission and distribution networks, India’s power market faces many challenges that must be addressed to ensure that economic growth is not unduly impeded.

As part of its broader energy secu14 ASIAN POWER

rity policy, the Government of India is seeking to develop a more balanced energy mix through support for nuclear, gas, hydro, wind and solar power – something that is designed to reduce an overreliance on coal.

However, as this article discusses, this will likely prove to be a difficult proposition; and in the medium-term, coal power project developments are expected to become increasingly widespread and to the detriment of investment in alternative baseload options of gas, hydro and nuclear.

Favourable coal power project economics support positive outlook Coal power has long since been the dominant baseload power source and default technology choice in capacity expansion in India. But slow development of domestic coal resources, rising domestic and international coal prices, government tariff policy, supply chain capacity constraints and the bankability of PPA agreements (among other

A recent independent market study by energy business advisors John Loffman Research forecasts in excess of $154 billion to be spent on coal power projects in India between 2012 and 2020

things) are presenting significant hurdles to timely project execution. Nonetheless, from the perspective of underlying project economics, coal power continues to be India’s cheapest busload capacity option for the foreseeable future. In fact, a recent independent market study (the India Coal Power Market Analysis & Forecast 2012-2020) by energy business advisors John Loffman Research forecasts in excess of $154 billion to be spent on coal power projects in India between 2012 and 2020.

Coal power remains a more cost effective source of electricity relative to other technology options. Although actual project economics can vary greatly from project to project depending on a range of factors. The typical values presented in the chart above help to demonstrate the difficulty facing India’s power sector, in general, and coal power market, in particular. That is to say, power projects are becoming increasingly expensive to develop, while tariff level increases to reflect this have been less forthcoming owing to policies designed to protect the interests of poorer electricity consumers.

Technologies for coal projects Supercritical 800MW coal technology currently offers the most economical option with an LCOE value of $69/ MWh, which is somewhat cheaper

FEATURE: Indian coal power plants than 600MW supercritical coal technology from China which has an LCOE value of $76/MWh. Meanwhile the commonly used domestic 500MW subcritical technology coal projects have an LCOE of $87/MWh. However, it is worth noting that when international coal prices are utilised for these calculations, the LCOEs for these three technology types is $90/MWh, $98/MWh and $109/MWh respectively. For comparison, gas power options typically have an LCOE of around $84/MWh at domestic gas prices and $102/MWh at international prices; while both nuclear and hydro are typically around $100/ MWh. Although the $220/MWh LCOE for the proposed Areva EPR 1,700MW units to be built in Jaitapur (Maharashtra) is also noteworthy as it illustrates both the potential for large variation in individual project LCOEs, as well as the willingness of the Indian authorities to support the right projects almost regardless of costs.

Nonetheless, it is natural that with the LCOEs of technologies such as nuclear and hydro power converging with coal (at international coal prices), as well as the Indian Government’s desire to develop a more diversified energy mix, that such alternative power options would receive greater interest.

This, however, is not currently the case as these other baseload power options face their own considerable issues for project development. Nuclear and large-scale hydro projects are facing increasingly vociferous public opposition, which is leading to significant project delays and cancellations; gas power projects are suffering from even worse fuel supply issues than coal – with insufficient domestic production, slow development of gas pipelines and LNG infrastructure, and high international gas prices all affecting gas power project developments. Furthermore, intermittent non-baseload wind and solar power projects, that are expected to reduce over-reliance on coal, are finding project financing (i.e. bankability of PPAs) and insufficient government support (e.g. through tax breaks and feed-in tariffs) to be significant hurdles for project execution. Consequently, all of this, in addition to the superior LCOE calculations, supports the strong view of coal remaining India’s default option for capacity additions for the foreseeable future.

So, with access to domestic fuel supplies, coal power projects have considerably lower LCOEs than all other competing technology types, but when international coal prices are considered the economics of such projects clearly deteriorates significantly.

On-grid tariff rates Although in most cases on-grid tariff rates will be set to ensure a rate of return on investment that will support growth in the power sector (typically around 15.5%), Ultra-Mega Power Projects (UMPPs) that have been won on a competitive bid basis encounter a different and difficult problem. UMPPs are central to India’s plans to increase total installed capacity in large blocks.

However, with PPAs set by the bidding process and no mechanisms currently in place to account for international coal price rises, the economics of such projects can become greatly undermined. A good example of this is Tata Power’s Mundra UMPP which has a contracted tariff of Rs 2.26/kWh, which is now viewed as economically unviable after the Indonesian government raised the price of coal exports that Mundra UMPP intends to use.

However, the CEA has supported state utilities’ resistance to Tata Power being able to increase its tariff on the basis that it would undermine the competitive bidding process.

In fact, the issue of insufficient tariff levels, coupled with high fuel prices, has affected the execution of a multitude of proposed projects, with many either being put on-hold or cancelled altogether. But recent decisions by a number of State Electricity Regulatory Commissions (SERCs) to raise tariff rates by between 12% and 37% will no

Coal remains India’s default option for capacity additions for the foreseeable future.

doubt help to improve the viability of many proposed coal power projects, as their required tariff levels become more attainable within such an improved tariff structure. Nonetheless, further and more structured tariff reforms will be required soon in order to ensure that a stable investment environment is in place to support large-scale private investment and project financing throughout the power industry.

Adrian has extensive experience within the energy industry, in particular power and oil & gas markets. He has conducted many commercial due diligence studies for investment banks and private equity firms, as well as carried out commissioned bespoke research projects for clients in power and oil & gas sectors.

ASIAN POWER 15

OPINION

Dale Gerstenslager The vicious cycle of wealth and power convection

W

e were all required to take science courses in school and one of the ones I signed up for was basic physics. In one lecture, the professor explained temperature convection, and just in case you missed or dozed off during that one, that’s where a temperature difference in gases, liquids or solids will strive to equalize through convection.

Today we are witnessing convection on a previously unprecedented global scale; the shift I’m referring to isn’t what you’d think, it’s not about climate change or temperature, but represents one of the greatest migrations of power and capital that the world has ever seen. Although the economy has put a bit of a damper on things of late the flow is still heavily eastern in direction.

The “Power” I’m referring to is in the degree of increased world influence and electric generating capacity that’s lighting up whatever device you’re looking at right now.

Eastward migration The Anglo-Spheres dependence on imports is a power and production vacuum that has been escalating for decades and one that the East has been willingly filling, putting millions to work in jobs and at wages that westerners “currently” refuse to accept. All this eastward migration or “convection” of capital and power is happening for one of two reasons; one as payments for the goods the west is importing, or two, by companies looking to get in on the boom to build infrastructure, factories and supply the goods craved by the west.

But what is missing and needed for the circle to continue to expand is power in the form of electricity. And with all this inflowing cash and demand for increasing generating capacity you would think it’s a great time to be in the power business in Asia, wouldn’t you?

From a demand standpoint the potential for power plant contracts couldn’t look brighter.

China alone is expected to add generating capacity over the next fifteen years equal to the current total of the United States and build at a 6:1 ratio. India is right behind and percentage wise most other Asian nations are forecasting similar trends.

True it’s great for many industries but when it comes to developing the power plants that are needed to power Asia’s continued growth, we have a bit of a different scenario.

Wise considerations So before you decide to hang out your shingle and build a power plant or two, consider the following.

It’s a reather capital intensive industry; the field is well served by MNC’s like Doosan, GE, Siemens, Alstom and the elephant in the room, China, has its own state companies that are turn-key capable competitors with a distinct advantage in the domestic market; and believe it or 16 ASIAN POWER

not, it’s been said by some that Chinese bids for projects in India, Vietnam… are subsidized through currency controls and supported labor?

The Asian power market is certainly dynamic, moving quickly and changing directions almost by the hour.

Everyday, there are articles on a new power plant being built here, a wind farm breaking ground there, or plans for a new nuclear power station that is going to be built in one country or another.

So while the West clamors for cheap goods and wrings its collective hands, the East is doing whatever it takes to see that new generating capacity is continually being added to the grid. The US says this is all well orchestrated and monetary policy is a key part of the mix.

The theory is that if that happens it would halt or postpone “convection” before domestic Sino-Sphere economies have attained a level that would make them self-sustaining, thus breaking the virtuous circle that is driving their development and consequently power generating capacity.

If and when western economies and lifestyles that are heavily based on services, not goods (76% in the US) become unsustainable and Asian countries reach the tipping point where they no longer depend on exports to support their economies, the West will certainly be facing a new reality and those aforementioned unacceptable jobs might look pretty good back in Hoboken or Athens.

So for now, we’ll just have to wait and see how far the pendulum swings eastward and what happens if it doesn’t swing back toward center.

Dale Gerstenslager, General Manager, Public Relations & Communications Department, Managerial Division, Doosan Heavy Industries Vietnam Ltd, (Doosan Vina)

China is expected to add generating capacity over the next fifteen years equal to the current total of the United States and build at a 6:1 ratio.

ASIAN POWER 17

OPINION

Laurie Pearson Indonesia issues sovereign guarantees for power projects

D

espite the adoption of a new electricity law in 2009 liberating the Indonesian electricity market, most electricity generated in Indonesia is sold to PLN, the state-owned utility, under 25 or 30year power purchase agreements (PPAs).

One of the challenging dynamics of the Indonesian electricity market is the fact that PLN sells electricity to consumers at less than PLN’s cost of generation and the tariff payable to independent power producers (IPPs).

The Indonesian Government compensates PLN for the difference between the cost of generation and the retail tariff by way of a subsidy known as the Public Service Obligation (PSO).

The issue of PLN’s creditworthiness and the commitment to pay the PSO has been critical for IPPs seeking project financing. Traditionally, the essential mitigant to PLN’s credit risk has been the Indonesian sovereign guarantee.

Regulation 139 In August 2011, the Indonesian Government passed Ministerial Regulation No. 139 of 2011 on Procedures for the Granting of Business Viability Guarantee of PLN for Development of Power Plants using Renewable Energy, Coal and Gas Conducted Through Cooperation with Independent Power Producers (Regulation 139).

Regulation 139 caused ripples of concern amongst the IPP industry because it suggested that the sovereign guarantee issued to IPPs for PLN’s payment obligations under PPAs would be reduced.

In particular, it appeared that termination payments under PPAs would no longer be covered. Without cover for termination payments, most international lenders and export credit agencies previously active in Indonesia were unwilling to lend without sponsor support for this risk or a stable investment grade rating for Indonesia.

Sponsors unwilling or unable to provide support were faced with the prospect of shorter tenor, higher cost lending from regional banks. As a result there were few bids for projects tendered by PLN in late 2011 including Banten, Riau and Kalsel 1.

However, recent events bode well for Indonesian power projects. Fitch and Moody’s upgraded Indonesia’s sovereign credit rating to investment grade in December 2011 and January 2012 respectively. Once lenders become satisfied that Indonesia’s investment grade rating can be sustained, the issue of PLN’s creditworthiness becomes much less significant.

In the last few weeks Indonesia’s Ministry of Finance issued sovereign guarantees covering PLN’s payment obligations under PPAs for two geothermal projects at Rajabasa and Muara Laboh. These are the first business viability guarantees to be issued under Regulation No. 139.

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A third guarantee is likely to be issued soon for a hydro project under the second Fast Track programme, which is seeking financial close in the near future.

Guarantee of payment Despite initial fears, the Ministry of Finance is willing to guarantee PPA termination payments. On the negative side, however, the guarantee does not provide blanket coverage of PLN’s obligations under the PPA. On the contrary, only specific post - commercial operation date payment obligations are covered. It is likely that the guarantee will cover the tenor of the financing, but will not necessarily cover the remaining period of the PPA. The issue of the first business viability guarantees by the Ministry of Finance and the new investment grade rating ought to provide the industry with cause for optimism.

However, readers should note that the business viability guarantee is only available for Fast Track II projects.

Several projects outside of the Fast Track II programme are being tendered without the benefit of a guarantee.

The first of these projects, Banten, a 660 MW coalfired project, is moving into the financing phase this year. This will be an interesting test for the financing market and may establish a new model for financings in Indonesia.

Laurie Pearson, Of Counsel, Norton Rose (Asia) LLP. Laurie is a member of Norton Rose’s projects and energy group based in Singapore.

Most electricity generated in Indonesia is sold to PLN, the state-owned utility, under 25 or 30-year power purchase agreements (PPAs).

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