Fuel savings versus capital costs

Belchatow supercritical steam power plant in Poland Alstom
Belchatow supercritical steam power plant in Poland
Credit: Alstom

Finding the optimal balance between capital cost and profit from operating your power station is vital when it comes to improving cycle efficiency, writes Nicholas Ash.

For over a century, Rankine cycle (steam) power plants have been used to generate electricity using various fuels. Over time, technology improvements have facilitated the use of higher steam pressures and temperatures, which has led to improvements in the cycle efficiency. Power plants with steam pressures in excess of the critical point of steam (supercritical) have become popular among power plant owners for their improved efficiencies and reduced emissions.

This article investigates the effect of increased efficiency on the net present value (NPV) of the plant considering the savings in fuel costs and the increased capital costs associated with installing the equipment required to improve the efficiency.

It is advantageous to maximize the thermal efficiency of a plant because less fuel is required to generate electricity compared to a similar sized plant with a lower cycle efficiency. Since the fuel cost normally makes up a significant proportion of the plant’s operating costs, this will lead to increased profit generated by the plant over its lifetime.

There are also environmental benefits of increased efficiency because a plant with a higher thermal efficiency will emit less CO2 per kW produced than a plant with lower efficiency. In recent years, governments around the world have introduced taxes or other punitive mechanisms as means to limit CO2 emission levels. These costs should be included in plant business models because they will affect the profitability of the plant.

Improvements to the cycle efficiency require additional capital investment, so there is a point where the reduction in operating costs resulting from increased efficiency is offset by the increased capital cost of materials and equipment required to achieve the efficiency gains. The optimal balance between capital cost and profit from operations is investigated here by looking at the lifecycle cost of plants using NPV analysis.

This investigation considers five different plant capacities, ranging from 250 MW to 750 MW gross generating capacity. The financial implications of increasing the thermal efficiency are investigated using the plant engineering and cost estimation (PEACEà‚®) module provided with Thermoflow SteamProà‚® software. The capital costs of the plants are estimated using the PEACE module and a business model developed to determine the NPV of the plants over an assumed operating life of 30 years. For each generating capacity, 16 different combinations of steam conditions and feedwater heater (FWH) quantities are considered.

The NPVs of these 16 configurations were compared for each plant capacity to determine which would be the most profitable selection for a range of electricity and fuel price combinations ” the 16 plant configurations are referenced by abbreviations of the operating pressure and quantity of FWHs as follows: 165 bar/6 for a plant operating at 165 bar(a) with six FWHs.

Only conventional pulverised fuel boilers with one reheat stage are considered and all of the plants are selected with flue gas desulphurization and an electrostatic precipitator for emissions control. Plant performance is modelled with American bituminous coal as the fuel, having the following specifications: HHV: 28,957 kJ/kg; moisture: 6 per cent; ash: 9.9 per cent; and volatiles: 35.9 per cent.

The following constants are used in the business models:

  • Fixed O&M cost (first year of operation): $40/kW
  • Variable O&M cost (first year of operation): $0.006/kWh
  • Discount rate (per annum): 8 per cent
  • Availability factor: 94.8 per cent
  • Plant life: 30 years

Nominal escalation rates of 4.5 per cent per annum are included for the fuel price, electricity price and operating costs. The NPVs of the 16 plant configurations with these inputs are used to rank them in terms of profitability for each generating capacity.

The fuel price and electricity selling price are the two variables that have the greatest influence on the calculation of NPV. When all other variables are held constant for a given plant configuration, a three-dimensional (3D) curve of NPV can be plotted against fuel price and electricity price along the x- and z-axes in the horizontal plane.

The NPV curves for the different configuration cases are represented by planes with slopes that vary slightly for each case, causing them to intersect at various locations in the 3D co-ordinate system. These intersections can be plotted on a 2D graph to develop an ‘NPV map’ with electricity price and fuel cost plotted on the x and y-axes respectively. NPV maps can be generated to determine which configuration case results in the greatest NPV for a specific plant size with a given combination of electricity price and fuel price. They can also be used to determine how increases in the electricity and fuel prices affect the plant selection.

Two NPV maps are given for each plant capacity considered: one without carbon tax and the other with carbon tax. The NPV maps are shown alongside each other to demonstrate how the inclusion of carbon tax influences the plant selection. Only areas with positive NPV are shown on the maps.

A simple carbon tax of $14.40 per tonne of CO2 generated is applied for the entire project life. This value is calculated based on the mean value of the social cost of carbon from multiple peer-reviewed sources.

To give the NPV maps context, a dashed parallelogram is shown on each map, indicating the combinations of electricity and fuel prices that would typically be considered for each plant size. The region is bounded by inclined lines representing internal rates of return on investment of 8 per cent and 15 per cent respectively, and horizontal lines representing fuel prices of $0.50 and $3.00/GJ respectively.

The NPV maps for 250 MW plants are presented below. The NPV map without carbon tax is shown in Figure 1 and with carbon tax in Figure 2

In the NPV map without carbon tax (Figure 1), the NPV will be maximized with a 165 bar/6 plant for all combinations inside the parallelogram and most combinations where the NPV is positive. Two other regions can be observed in the top right corner of the NPV map, representing 190 bar/9 and 300 bar/7 plants. This shows that when the fuel price increases, higher-efficiency plants become more profitable.

Figure 1
Figure 1: NPV map for 250 MW plant without carbon tax

If Figure 2 is compared with Figure 1, it can be seen that the area of maximum NPV for the 165 bar/6 plant decreases and the area for the 300 bar/7 plant increases. In addition, the 190 bar/6 plant is more : profitable than the 190 bar/9 plant when carbon tax is considered, and there are some combinations within the parallelogram where it is more profitable to select a 190 bar/6 plant rather than a 165 bar/6 plant. The introduction of a carbon tax therefore has a limited influence on the plant configuration that should be selected to maximize the NPV for 250 MW plants.

Figure 2
Figure 2: NPV map for 250 MW plant with carbon tax

These NPV maps suggest that a subcritical plant ” operating pressure less than 221 bar(a) ” is more likely to be selected for 250 MW plants than a supercritical (SC) plant.

The NPV map for 350 MW plants without carbon tax is shown in Figure 3 and with carbon tax in Figure 4. The orientation of the areas of maximum NPV in Figure 3 is different to those observed for 250 MW plants in Figure 1. The region of maximum NPV for a 165 bar/6 plant is much smaller and three SC plant configurations dominate the map beyond this limited region. Although the 165 bar/6 plant gives maximum NPV for the majority of combinations within the parallelogram, there are areas where the other three plants appear too.

Figure 3
Figure 3: NPV map for 350 MW plant without carbon tax

When carbon taxes are considered, the area of maximum NPV for the 165bar/6 plant is reduced further and two additional regions for 300 bar/6 and 300 bar/7 plants are observed. It is interesting to note that the 190 bar(a) cases do not feature at all in the NPV maps for 350 MW plants.

Five plants are represented within the parallelogram when carbon taxes are considered (Figure 4) with SC plants occupying the majority of the area.

Figure 4
Figure 4: NPV map for 350 MW plant with carbon tax

It can therefore be seen that the selection of operating pressure for a 350 MW plant is highly dependent on the project-specific financial variables. If carbon taxes are excluded, a subcritical plant will probably be selected; however, if carbon taxes are considered then a SC plant will probably be more profitable.

The NPV maps for 500 MW plants are shown in Figures 5 and 6. These NPV maps have similar arrangements to those for 350 MW plants, but fewer plant options are observed.

In Figure 5, the areas for the 165 bar/6 and 300 bar/6 plants are approximately equal, with a small area representing the 190 bar/6 plant. The area within the parallelogram is however dominated by the 165 bar/6 plant, with relatively small areas for the 190 bar/6 and 300 bar/6 plants.

Figure 5
Figure 5: NPV map for 500 MW plant without carbon tax.

When carbon taxes are included, the area for the 165 bar/6 plant decreases and the 300 bar/6 plant dominates the map. All three plants are represented within the parallelogram shown in Figure 6. If carbon taxes are included therefore, the selection of SC or subcritical technology will be highly dependent on the project-specific financial variables. If carbon taxes are excluded however, it is likely that a subcritical plant should be selected.

Figure 6
Figure 6: NPV map for 500 MW plant with carbon tax

The NPV maps for 660 MW plants are presented in Figures 7 and 8. In these NPV maps, the areas of maximum NPV for the 165 bar/6 plant are considerably smaller than in the preceding maps. In the case where carbon taxes are excluded, subcritical plants (190 bar/6 and to a lesser extent 165 bar/6) comprise the entire area within the parallelogram.

Figure 7
Figure 7: NPV map for 660 MW plant without carbon tax
Figure 8
Figure 8: NPV map for 660 MW plant with carbon tax

When carbon taxes are included, the area of maximum NPV for a 165 bar/6 plant is negligible. The 190 bar/6 plant still dominates the area within the parallelogram, but the 300 bar/6 plant is represented where fuel prices are higher.

As observed for the 500 MW plants, it seems that if carbon taxes are not considered, subcritical plants should be selected to maximize NPV, except where fuel prices are high. When carbon taxes are included however, the choice between subcritical or SC technology is dependent on the project-specific financial variables.

Finally, the regions of maximum NPV in the 750 MW NPV maps are very similar to those observed for the 660 MW plants and the same conclusions can be drawn.

Additional capital cost

Analysis of the NPV maps generated for this investigation shows that for 250 MW plants, subcritical operating conditions should be selected for most combinations of electricity and fuel prices. This shows that the savings in fuel costs and carbon taxes are generally not sufficient to justify the additional capital cost of higher efficiency plants at 250 MW.

Similarly, the NPV maps for plant capacities of 350 MW to 750 MW show that when electricity and fuel prices are relatively low, the NPV will be maximized if subcritical plants are selected.

However, as these prices increase, SC plants become more profitable.

This shows that for these generating capacities, the savings in fuel costs and carbon taxes achieved with more efficient plants offset additional capital cost.

This investigation shows that a comprehensive study is required using project-specific financial variables to predict which combination of steam conditions and FWH quantity would yield the greatest profit over the lifetime of a new power plant.

Although multiple reheat configurations were not specifically considered in this investigation, the introduction of reheat has the same trade-off between capital cost and profit from operations with a higher-efficiency plant.

Hence, reheat can be incorporated as an additional variable in the assessment of various plant configurations and the same methodology can be followed.

Nick Ash is a senior engineer at Parsons Brinckerhoff, based in Singapore. For more information, visit www.pbworld.com.

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