ELEKTRO INDONESIA                Edisi ke Delapan, Juli 1997

Too Strict Emission Standards Push Electricity Prices Unnecessarily Upwards And May Inhibit Indonesian Coal Mine Development Plans

Besides, strict requirements will inhibit development and expansions of coal mines with coal products containing sulfur beyond 0,3%. Such mines may incur penalties when selling their products or worse may find their products rejected by domestic utilities. The question arires whether it is opportune to impose such strict measures at the current stage of development in Indonesia when inexpensive electricity is crucial for the economic development of the country and debates on the severe impacts on the environment are not yet settled.

Introduction

Table 1

The Emission Standards for Power Generation Plants (According Decree No. 13 of the Minister of Population and Environment
Parameter	1996-2000 (Mg/m3)	2000 unward
Particulate Sulphur dioxide Nitrogen Oxide Capacity	300 1500 1700 40%	150 7509 850 20%

This consideration has been based on the fact that coal, next to gas utilized in a combined cycle plant, is the most competitive fuel for electricity generation. Besides, coal reserves are in abundance with an R/P ratio of more than lox those of gas and oil combined. Such a policy has the aim to assure the availability of abundant and reliable electricity at competitive prices which would be conducive for the improvement of the national prosperity and well being of the population.

In fact coal fired power-plants for the Jawa-Bali system will increase from 20,6% of total generating capacity at the end of the 5th plan to about 57% at the end of the 8th plan. Too strict emission standards as will be applied in year 2000, according to Decree No.13 of the Minister of Environment dated 7 March 1995 will push down the allowable S content of coal fuel for power plants to extremely low levels ( ± 0,33% ).

Only part of the total Indonesian coal mine output can qualify to the requirement stipulated above (0.33% S) while the balance with still relatively low S contents of 0.5% to 0.8% has to be disqualified.

Several existing contractor mines, most of the small private mines (so called KP-Mines) and predictably most of the coming new 2nd as well as 3rd generation coal contractor mines would not be able to comply with the low S contents mandated by the new emission standard decree.

As a consequence, those mines are forced to sell their product at discount prices (due to the excess of S) since power plants but specifically IPPs have to comply with an electricity selling price ceiling which is recently imposed by the government (the current selling price ceiling is US$ 0,06/Kwh for Java island). In the worse case they will be flatly rejected by those plants which are not equipped with CCT devices. On the other hand, the new strict regulation dictates power plants to install costly FGD and SCR devices-adding up to 15-20% of the construction cost of a complete plant-pushing electricity cost prices up by 25-35% (see detailed calculation in the next chapter).

Seen from the current stage of economic development - Indonesia has the lowest income percapita among the ASEAN member countries except for Vietnam - and the current insignificant amount of coal consumed i.e. 0,3% compared to total world consumption in 1995 rising to an estimated 0,85% by year 2000, by then emitting only 0,15% of total greenhouse gases, Indonesia deserves more lax emission standards. The year 2000 emission standards stated in above decree are even more strict than those of the USA where coal with 0,7% S content can be burnt without applying FGDs. (The US emission limit for S is 1480 mg/m3).

This indeed is ironical since the industrialized countries, of which the US is a prominent member, are responsible for 80% of total S0₂ emissions and more than 75% of the increase in manmade greenhouse gas concentrations. Therefore a looser emission regulation for Indonesia, a developing country, is quite appropriate; it would improve the prospects of many coal mines, increase their competitiveness and keep electricity prices at levels beneficial for the economy and affordable by the general public. In later years, for instance during he 8th Five Year Plan when the Indonesian people enjoys a higher per capita income and amounts of coal burnt have indeed reach such alarming levels, introduction of stricter standards would be less harmful for the general public and the economy in general.

Even in such circumstances certain allowances should be given to smaller plants operating in isolated areas.

Indonesia has set an annual GDP growth target of 7,1% for the second twenty five year plan starting with April 1994. This target of long term economic growth can only be met when aside from a positive political and economic climate, investment continues to flow in at a satisfactory level and energy supply to fuel this growth will be made available in sufficient amounts and at competitive prices.

Demand of energy in the form of electricity is expected to grow until 2008 at an average two digit rate as can be seen in the next Table 2.

Table 2 Summary of Demand Projection
.	Year	Energy Demand (Twh)	Peak Load (MW)	Av. AnnualGrowth (%)
Java	1993/94 1998/99 2003/04 2008/09	31% 69.8 105.3 158.6	5,757 13,329 20,288 30,404	- 17.0 8.6 8.5
Outside Java	1993/94 1998/99 2003/04 2008/09	7.1 18.4 32.1 43.26	1,691 3,962 6,729 10,940	20.9 11.8 10.6
Indonesia	1993/94 1998/99 2003/04 2008/09	38.9 88.2 137.4 41,3	7,448 17,291 27,017 30,404	17.8 9.3 9.0

Expressed differently additional generating capacity required in average will be respectively 476MW/year during the 6th FYP, 621 MW/year during the 7th FYP and increasing to 925. MW/year during the 8th plan. The government through PLN has been steadfast in adopting a policy to firmly continue expansion and construction of more coal fired plants throughout Indonesia as can be seen in following map T (attached).

The adoption of such policy stems from the fact that among the several options of energy resources, coal provides the least costoption for electricity generation next to gas utilized in a combined cycle plant.

Cost comparison of based-load power generation using various fuels at a discount rate of 12% is shown in the following Table 3.

Table 3
Base Load Generation Comparison. Discount Rate 12% (1991's cost)

.	.	Unit	CCPP 600MW	CFPP 600MW	CCPP 600MW	GThPP 55MW	MMCFPP*2 600MW	Nuclear PP 600MW
1.	Capital Cost*1	$/kW	700	1,204	700	1150	1,363	2,598
2.	Maintanance: Fixed Costs Variable Costs	$/kW-Y mills/kWh	14.00 0.10	18.06 0.07	14.00 1.42	27.26 0.17	27.26 0.20	51.96 0.05
3.	Econ, Lifetixne	Year	20	25	20	25	25	25
4.	Capital Cost	mills/kWh	18.62	26.54	18.62	20.92	30.05	51.59
5.	Fuel Cost	mills/kWh	20.56*4	14.91*3	28.44*7	33.49*6	9.77*5	10.00
6.	Maintanance Costs	mills/kWh	2.72	3.19	4.04	3.45	6.09	8.14
7.	Total Generation Cost	mills/kWh	41.89	44.65	51.10	57.86	48.20	69.73

Source: Zuhal, Ketenagalistrikan Indonesia, April 1995

Table 3 shows that total generating cost per Kwh of electricity generated by coal fired power-plants (CFPPs) is 44,65 mills or 4,465 cents ($). This competitive advantage of coal will be substantially reduced when SO_x and NO_x equipments are added. Installment of fluegas desulphurization (FGD) and selected catalytic reduction (SCR) would add-up another 15% to 20% of the total construction costs of CFPPs and besides would increase total generation cost by 12 to 16 mills (1,2 ˘ to 1,6 ˘) or in the Indonesian case as presented above an addition of 27% to 34% per Kwh. Such additional costs would erase any competitive advantage a coal fired plant may have with regard to other modes of electricity generations like geothermal and oil fueled power plants. In fact from the cost break-down in the last table it can be concluded that those ładditional costs˛ are comparable to the cost of coal fuel required to generate 1 Kwh of electricity. This means that providing CFPPs with FGD and SCR devices would be comparable to doubling the price of coal fuel.

A comparison with electricity prices in other Asian countries (1995) shows the following Table 4.

Table 4

Country	Suplier	Average Price Rp/Kwh
Singapura Philipinaes Thailand Malaysia Hongkong Taiwan Indonesia	PUB Meralco MEA TNB CLPC Taipower PLN	194,24 237,42 166,95 177,02 191,49 171,19 164,75

Therefore in order to remain competitive it is predictable that PLN as well as the IPPs would prefer to be supplied with coal which complies with the requirements of the emission regulation i.e. coal with around 0,3 S-content, directly supplied from the concerned mines or by blending with extra low sulphur coal to prevent the installment of costly CCT equipments. But most of the existing Indonesian coal mines (see table, attached regarding quality characteristics of Indonesian coal) with the exception of PT Adaro, PT. Kideco, and some of the Tanjung Enim mines are coals with S-contents higher than 0,3%S, namely 0,5% to 0,8%S.

Those coals with 0,5% to 0,8% S-content and causing emission levels of 950-1500mg SO₂ /m³, are in the international coal market still labeled as low-sulphur coals (less than 1% S) and the international coal traders today including Japanese and Europeans are quite keen to buy and import such coal. These coals ironically would not be acceptable in the domestic market after 2000, except by those CFPPs which are provided with FGDs and SCRs and most probably at discounted prices. Such a situation would reduce or diminish the profitability and prospects of those mines, scaring off would be investors. It is interesting to note that the United States which in 1995 consumes and burns 750 million T of coal (65x the current Indonesian consumption level) allows emission levels by year 2000 at levels of 1,2 lb SO₂/MBTU (1480mg/m³) which is comparable to 0,7% S-content in coal.

This has probably to do with the policy to boost domestic coal development, since the USA is to promote vigorously the use of coal fuel in the next decades due to the low R/P ratios of its gas and oil reserves, while public opinion is against the expansion of nuclear energy.

The United Kingdom, Germany, Italy more over Taiwan apply a range of SO₂ limits which maximum goes far beyond the tight limit set for Indonesian coal in year 2000. (For existing plants resp :2000-3000 mg/m2, 400-2500 mg/m³, 400-2000 mg/m³ and 2145-4000 mg/m³).