Economic modeling of low-temperature
geothermal energy
Case-study location1
Activity 4.3 in WP 4
Partner: Municipality of Kocani
Coordinated by: UM
1
Dolni Podlog, Kocani, Macedonia.
Index
SUMMARY
2
1.
INTRODUCTION
3
2.
FINANCIAL INCENTIVES
4
3.
CAPITAL INVESTMENTS
5
4.
OPERATING COSTS AND EXPENSE/REVENUE MODEL WITH AN ESTIMATED ROI
7
5.
ENERGY SAVINGS
10
REFERENCES
11
List of tables
Table 1 Financing
pg.5
Table 2 Investment costs
pg.6
Table 3 Operation & Maintenance Costs
pg.7
Table 4 Financial and Economic Evaluation of 4 MWel Geothermal Power Plant
pg.8
Table 5 Debt Amortization
pg.9
1
Summary
This study establishes the economic feasibility of a new 5 MW geothermal power plant in the City
of Kocani, Macedonia.
Technologically the new power plant would be a binary plant, utilizing as its working fluid a
medium with a low boiling point. The medium (R227) would be heated by the geothermal water to
a supercritical point, whereby it would enter under pressure a steam turbine, which in turn would
power the generator. After the geothermal water transfers its energy to the working fluid, it will
be returned underground through an injection well. Due to lack of water, air cooling would be
used for the condensation part. Electricity to power the air cooling unit will consume about 7% of
the generated electricity. To increase the utilization of the geothermal energy available, it is
recommended that a small 2.2 MWth biomass boiler would be used to work in parallel. The boiler
can utilize locally available biomass.
The total cost of the proposed power plant is estimated at €11.132 million, or €2,226 per installed
kW, which is line with typical industry standards. The financial feasibility assumes the availability
of a grant to finance the geothermal works. This grant is expected to be valued at €4.8 million. The
rest of the investment costs will be financed by equity and debt (assumed terms 8 years, 8 %).
With the guaranteed off-take price of 20 Euro cents per kWh (14.6 Euro cents), the internal rate of
return for the project is 12.62 %.
2
1. Introduction
At the Kocani case study location the Organic Rankine Cycle (ORC) technology has been chosen
(binary cycle) to generate electricity from low-temperature geothermal resources combined with
biomass resource (straw bales and rice husks).
The installed capacity of the hybrid geothermal plant is 5 MW el utilizing two geothermal wells with
total flow of 168 l/s and temperature of 112oC and biomass boiler of 2.2 MWth with annual
biomass consumption of 4000 tons. Geothermal fluid is additionally heated by biomass resource
(in the biomass boiler) and then sent first to the super-heater, afterwards to the steam generator
and finally to the heater.
This additional heating of the geothermal fluid (by biomass) enables optimization of the binarycycle power plant operation by increasing the utilization of the available energy and power output
of the turbine. The biomass resource is continually utilized with the geothermal.
The new power plant would be a binary plant, utilizing as its working fluid a medium with a low
boiling point. The medium (R227) would be heated by the geothermal water to a supercritical
point, whereby it would enter under pressure a steam turbine, which in turn would power the
generator.
After the geothermal water transfers its energy to the working fluid, it would be returned
underground through an injection well.
The plant would utilize almost 50% of the heat energy contained in the geothermal water to
produce electricity.
For the condensation part, in the cooling cycle, air cooling is used. Electricity to power the air
cooling unit would consume about 7% of the generated electricity.
This economic analysis gives indication on the feasibility of such hybrid geothermal power plant
under given conditions for financing such an investment.
3
2. Financial incentives
So far, there are no any financial incentives devoted to the geothermal energy – neither for
generated heat or electricity.
Currently, a proposal is submitted for feed-in tariff system for electricity and combined heat and
power generation from geothermal resources in Republic of Macedonia. The proposal is based on
the study “Methodology for Setting a Feed-In Tariff Promotion of Geothermal Energy in the
Republic of Macedonia” where a two-step feed-in tariff is suggested according to the size of the
plant:

20 €c/kWh for plants up to 5 MWel,

15 €c/kWh for plants above 5 MWel.
The above mentioned proposal also takes into consideration cogeneration and combination of
geothermal energy with other RES. Therefore the economic modeling of the Kocani hybrid power
plant is made by the use of the above (proposed) tariffs.
4
3. Capital investments
The estimated costs of the power plant are high, although in line with industry standards. The
economics of the power plant operation will depend on three factors:
1.
Availability of guaranteed off-take price for the generated electricity in the amount
of 20 c€ per kWh.
2.
Availability of long term (at least 8 years) credit for approximately 70% of the project costs
at no more than 8% interest rate.
3.
Availability of a grant for the geothermal investigation works and the exploration well.
Table 1 Financing
Financing - €
Capital Costs
Project Development Costs
Other Costs
Total Costs
Grant for geothermal works
Equity Investment (15 % of Project Costs)
Bank Credit
10,265,850
240,000
505,945
11,131,795
4,818,000
1,669,769
4,644,026
5
Table 2 Investment costs
No.
Item
1. Exploration well
2. Production and injection well
3. Geophysical field work
4. Geothermal works engineering
5. Geothermal water production equipment
6. Binary cycle power plant
(turbine; biomass boiler; heater 1; heater 2;
super-heater; air cooling unit; ancilary and
other equipment)
7. Equipment transportation costs
8. Land costs
9. Transformer station and power line
10. Construction works
11. Power plant engineering
Installation and startup
12. Contingency (5%)
TOTAL CAPITAL EXPENDITURES
13.
14.
15.
16.
17.
18.
Project Development and Management Costs
Interest during construction
Working capital
Customs duties
Financing fee (0.5%)
Insurance (1.25%)
TOTAL PROJECT COSTS
Costs per kW installed
Cost [€]
1 400 000
2 800 000
500 000
118 000
159 000
4 000 000
125 000
30 000
125 000
230 000
140 000
150 000
488 850
10 265 850
240 000
303 293
120 000
23 000
179 652
11 131 795
2 226
6
4. Operating costs and expense/revenue model with an estimated ROI
Table 3 Operation & Maintenance Costs
1. Geothermal Water Production
Fixed costs
€/yr
12,000
Variable Costs
€/kWh
0.003
Pumping units electricity
consumption
kW
668.8
2. Power Plant
Variable (Service Contract)
€/kWh
0.005
Variable (Consumables)
€/kWh
0.004
Fixed
€/kW-yr
8.00
Fixed
€/kWh*8000 hrs
0.0005
Total O&M Costs (without electricity)
315,225
€
Air cooling el. consumption
kW
288
3. Fuel
Price
€/t
300.00
Costs
1,146,240
€
4. Electricity
Price
€/kWh
0.062
Costs
440,203
€
5. Salaries
327,360
€
Direct Costs Total
2,229,028
€
6. Other Costs
Depreciation
474,033
€
Energy costs
12,000
€
Overhead
25,000
€
Other Costs
20,000
€
Total Costs
2,760,061
€
7
Table 4 Financial and Economic Evaluation of 4 MWel Geothermal Power Plant
Item
Unit
2015
2016
INPUT DATA
Capacity utilization 85%
Electricity
MWh
22,338
22,338
Biomass consumption
t/y
3,821
3,821
Electricity off-take
€/kWh
0.20
0.20
price
TOTAL REVENUE
€
4,467,600
4,467,600
EXPENSES
Operation and
€
2,229,028
2,229,028
maintenance
Other costs
€
531,033
534,767
Total costs
€
2,760,061
2,763,794
TAXES (10% income tax
rate)
Net earnings before
€
1,359,237
1,388,846
Taxes
Depreciation
€
474,033
477,767
Taxable Income
€
885,204
911,079
Total taxes
88,520
91,108
TOTAL PROJECT COSTS:
11,131,795 €
PROFIT AND LOSS STATEMENT
Operating income
€
4,467,600
4,467,600
Operating expenses
€
2,760,061
2,763,794
Operating profit
€
1,707,539
1,703,806
Interest paid
348,302
314,960
€
Net earnings
€
1,359,237
1,388,846
Income tax paid
€
88,520
91,108
Net profit
€
1,270,717
1,297,738
CASHFLOW
Operating income
Net income
€
1,270,717
1,297,738
Depreciation
€
474,033
477,767
Investment expenses
€
60,000
60,000
Financial activities
Long-term credit
€
444,559
477,901
repayment
Financial activities
€
-444,559
-477,901
total
Cashflow
€
1,240,191
1,237,604
Cash at the beginning
€
0
1,240,191
of the year
Cash at the end of the
€
1,240,191
2,477,795
year
EQUITY AND PROJECT INTERNAL RATE OF RETURN (IRR)
Equity Investment -€ 1,669,769 (2014)
Project Costs
-€ 11,131,795 (2014)
Equity cash flow
€
1,240,191
1,237,604
-€ 1,669,769 (2014)
Project cash flow
€
2,033,052
2,030,464
-€ 11,131,795 (2014)
Equity IRR
74.12%
Project IRR
12.62%
2017
22,338
3,821
0.20
2019
2020
2021
2022
2023
2024
Net output 3 MW
22,338
22,338
3,821
3,821
2018
22,338
3,821
22,338
3,821
22,338
3,821
22,338
3,821
22,338
3,821
0.20
0.20
0.20
0.20
0.20
0.20
0.20
4,467,600
4,467,600
4,467,600
4,467,600
4,467,600
4,467,600
4,467,600
4,467,600
2,229,028
2,229,028
2,229,028
2,229,028
2,229,028
2,229,028
2,229,028
2,229,028
538,500
2,767,528
542,233
2,771,261
538,467
2,767,494
538,821
2,767,848
539,267
2,768,294
539,667
2,768,694
540,067
2,769,094
540,467
2,769,494
1,420,955
1,455,752
1,500,939
1,545,113
1,592,533
1,643,590
1,698,506
1,698,106
481,500
939,455
93,945
485,233
970,519
97,052
481,467
1,019,473
101,947
481,821
1,063,292
106,329
482,267
1,110,267
111,027
482,667
1,160,923
116,092
483,067
1,215,439
121,544
483,467
1,214,639
121,464
4,467,600
2,767,528
1,700,072
279,117
1,420,955
93,945
1,327,009
4,467,600
2,771,261
1,696,339
240,587
1,455,752
97,052
1,358,700
4,467,600
2,767,494
1,700,106
199,166
1,500,939
101,947
1,398,992
4,467,600
2,767,848
1,699,752
154,639
1,545,113
106,329
1,438,783
4,467,600
2,768,294
1,699,306
106,772
1,592,533
111,027
1,481,507
4,467,600
2,768,694
1,698,906
55,316
1,643,590
116,092
1,527,497
4,467,600
2,769,094
1,698,506
0
1,698,506
121,544
1,576,962
4,467,600
2,769,494
1,698,106
0
1,698,106
121,464
1,576,642
1,327,009
481,500
60,000
1,358,700
485,233
60,000
1,398,992
481,467
60,000
1,438,783
481,821
60,000
1,481,507
482,267
60,000
1,527,497
482,667
60,000
1,576,962
483,067
60,000
1,576,642
483,467
60,000
513,743
552,274
593,694
638,222
686,088
737,545
8
-513,743
-552,274
-593,694
-638,222
-686,088
-737,545
0
0
1,234,766
1,231,660
1,226,764
1,222,382
1,217,685
1,212,619
2,000,028
2,000,108
2,477,795
3,712,561
4,944,221
6,170,985
7,393,368
8,611,053
9,823,672
11,823,701
3,712,561
4,944,221
6,170,985
7,393,368
8,611,053
9,823,672
11,823,701
13,823,809
1,234,766
1,231,660
1,226,764
1,222,382
1,217,685
1,212,619
2,000,028
2,000,108
2,027,627
2,024,520
2,019,625
2,015,243
2,010,546
2,005,480
2,000,028
2,000,108
Table 5 Debt Amortization
Debt Amortization Table - €
Date of Loan
Loan Amount
Annual Interest Rate
Term of Loan (years)
Number of Payments per Year
Total Number of Payments
Interest during construction
Total Interest
Financing fee
Insurance premium
Payment
Number
0
1
2
3
4
5
6
7
8
INPUTS
01.06.2014
€ 4,644,026
7.50%
8
1
8
€ 303,293
€ 1,698,860
€ 23,000
€ 179,652
Payment
Amount
Interest
Principal
Reduction
792,860.67
792,860.67
792,860.67
792,860.67
792,860.67
792,860.67
792,860.67
792,860.67
348,301.92
314,960.02
279,117.47
240,586.73
199,166.18
154,639.10
106,772.48
55,315.86
444,558.75
477,900.65
513,743.20
552,273.94
593,694.49
638,221.57
686,088.19
737,544.81
Credit
Balance
4,644,025.64
4,199,466.90
3,721,566.24
3,207,823.04
2,655,549.10
2,061,854.61
1,423,633.04
737,544.85
0.04
9
5. Energy savings
Energy savings:
- take into account an optimized geothermal power plant parameters
- according to thermodynamic efficiency
- compared with other types of power plants, such as fossil fuel power plants
Table 6 Final consumption of electricity in R.Macedonia in the period from 2013 to 2017
2013
2014
2015
2016
1. Power energy - domestic
6,907
7,013
7,264
7,211
production [GWh]
2. Domestic power from fossil fuels
5,761
5,696
5,856
5,686
[GWh]
3. Domestic power from RES [GWh]
1,146
1,317
1,408
1,525
4. Net imported power [GWh]
2,121
2,766
2,744
2,972
5. Power produced by the hybrid
22.338
22.338
22.338
22.338
geothermal binary plant [GWh]
6. Participation of 5 in 1 [%]
0.323
0.318
0.307
0.309
7. Participation of 5 in 2 [%]
0.388
0.392
0.381
0.392
(saved conventional power)
8. Participation of 5 in 3 [%]
1.95
1.70
1.59
1.46
9. Participation of 5 in 4 [%]
1.05
0.81
0.81
0.75
(saved imported energy)
2017
7,444
5,689
1,755
2,853
22.338
0.300
0.392
1.27
0.78
10
References
[1]
M. Astolfi, L. Xodo, M. C. Romano, E. Macchi, Technical and economic analysis of a solargeothermal hybrid plant based on an Organic Rankine Cycle, Geothermics 40, 2010, 58-68.
[2]
L. Böszörményi, G. Böszörményi, Hybrid energy technologies for an efficient geothermal
heat utilization, European Geothermal Conference, 2003. Retrieved from
https://pangea.stanford.edu/ERE/pdf/IGAstandard/EGC/szeged/O-8-03.pdf
[3]
K. Z. Iqbal, L. W. Fish, and K. E. Starling, Development of binary cycle simulator, School of
Chemical Engineering and Materials Science, The University of Oklahoma, Norman,
Oklahoma
[4]
Energy Agency of Republic of Macedonia, Energy balance for Republic of Macedonia for the
period from 2013 to 2017, www.ea.gov.mk
[5]
H. Ziegler, Methodology for Setting a Feed-In Tariff Promotion of Geothermal Energy in the
Republic of Macedonia, By order of International Finance Coporation, on behalf of the
Ministry of Energy of the Republic of Macedonia, 2013
11