JCM Feasibility Study (FS) 2014 – Final Report

MOEJ/GEC JCM Feasibility Study (FS) 2014
Summary of the Final Report“Waste Heat Recovery and Electricity Generation in Flat Glass
Production Plant”( Implementing Entity: Mitsubishi UFJ Morgan Stanley Securities Co. Ltd.)
1．Overview of the Proposed JCM ProjectCountry

Organization

Relationship with Outline of tasks
implementing
EntityHost

PT. Takasago

Sub-contractor

Technical study, Cost

country

Thermalestimation, Project

Engineering（Takasago）

implementation
schedule
development

Host

Local consultant

Sub-contractor

country

Local coordination,collection ofdata/information,

Study partners

liaison with JCM
Secretariat ofIndonesia
Hostcountry

PT.Asahimas Flat
Glass Tbk (AMG）

Cooperating

Provision of project

entitysite information,
participation in
discussion about
project
implementation plan
formulation.

Japan

Tsukishima Kankyo

Cooperating

Provision of technicalEngineering Co.,

entityinformation, support

Ltd.

for technology study

Project site

Sidoarjo, East Java Province, Indonesia

Category of project

Energy efficiency
The Project involves installation of waste heat recovery and power generation

Description ofproject

system in a flat glass manufacturing plant. The Project aims to abate the impact ofburden of rising electricity tariff while making efficient use of energy.

By

introduction of waste heat recovery and power generation system, the Project

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JCM Feasibility Study (FS) 2014 – Final Reportdisplaces a part of grid electricity consumed at the project site and therefore
contribute to GHG emissions reduction of fossil-fuel based grid connected power
plants.

Expected project
implementerJapan

Asahi Glass Co., Ltd.

Host country

PT. Asahimas Flat Glass Tbk.

Initial investment

JPY 480 million

Date ofgroundbreaking

N/A

Annualmaintenance cost

JPY 1.5 million

Construction period

Approximately 7 months

Date of projectcommencement

N/A

Willingness toinvestment

Yes

Financial plan ofproject

The project proponent plans to source 50% of initial investment from JCM

GHG emission
reductions

4,900 tCO2/year

equipment subsidy while utilizing its own equity for the remaining 50%.

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JCM Feasibility Study (FS) 2014 – Final Report

2. Study Contents(1) Project development and implementation
1) Project planning(a)Project operation plan
The proposed operation will center around AMG (Asahimas) as the project owner. AMG will
subcontract regular maintenance to the manufacturer and while carrying out daily maintenanceand management with the cooperation of the manufacturer and Takasago, the engineering
company. The Study confirmed the effectiveness of the Japanese technology. JCM
consulting will be provided by Mitsubishi UFJ Morgan Stanley Securities (MUMSS).

Figure 1 Project Operation Framework(b)Construction plan
The following items were studied in order to estimate construction schedule
Table 1 Study of construction schedule

Study item

Study outcome

Identification of installation site

Sidoarjo plant, AMG

Soil quality research of installation site to determine

No problems were found. Foundationsoil bearing, confirmation of foundation improvement

improvement is not required

requirement
Requirement for alteration of existing glass production Alteration is not required.
facility
Local procurement of construction materials and Confirmation of locally available materials.
investigation of local contractors.
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JCM Feasibility Study (FS) 2014 – Final Report

Barriers

forconstructioninrelationtolocal Confirmed restrictions due to rainy season andparticularities.

Muslim holidays.

Based on the study as conducted above, construction schedule was formulated. It is estimatedthat the minimum period required for equipment order to commercial operation start is 18
months.
(c)Management structure and track records of the project implementation entity
AMG is owned by both AGC of Japan and Rodamas of Indonesia who hold shares at 43% and40.8% respectively while remaining shares are owned by individual investors and others. Ledby robust Indonesian economy, 2013 recorded highest sales in AMG's history at IDR 3,216
billion, 7% above the target at the beginning of the year. Although the increase in sales andmarketing costs have led to slight decrease in net operating profit, assets and equity of AMG areon the rising trend due to sound sales record. Total asset is IDR 1980 billion, 4.2 times total
liability. Based on these records, it is clear the money for investment is adequately available.
Also, it is to be noted that AMG has placed "environment" as its main management issues.
AMG established targets for greening its operation and its plants have obtained environmental
certification.
(d)Evaluation of financial feasibility
The initial investment and operating costs have been estimated as follows.
Table 2 Breakdown of costs
Item
InitialDesign and equipment
investment Local materials
cost
Construction
and
trial
operation
Total
After
equipment
subsidy(50%)
O&M
Consumable supplies andCosts
spare parts(annualMaintenance labor costs
cost)
Total

Amount(thousand
US$)
2,900
420
670
4,000
2,000
6.7
5.8
12.5

One half of initial investment cost is planned to be subsidized by the Japanese government's
JCM support scheme while the remaining cost will be met by project owner's own funding.
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JCM Feasibility Study (FS) 2014 – Final Report

Financial viability was studied by looking at the IRR and payback period. The following
assumptions in addition to the initial costs mentioned above have been taken into account tocalculate IRR and payback period.
Table 3 Assumptions for IRR and payback calculation
Item
Cost

Value

Depreciation cost
Amountofelectricity
consumption reduced

Unit
thousand
0.2 US$/year

6,400

IncomeAmountsavedofelectricity

tariff
571

Comment

Useful life= 20 years
Basedon
project
MWh/year estimationBasedonlatestthousand Category
T3
rate
US$/year published by PLN

IRR and payback are calculated as approximately 21.76% and 3.5 years respectively.
Sensitivity analysis was also conducted taking into account possibilities of further increase inelectricity tariff and project electricity generation. As for the likelihood of such increase taking
place in the future, although electricity tariff increase rate is not certain as the prices are set tofloat and will be determined by a variety of economic indicators, it is highly likely considering
the electricity tariff for Category T3 which is applied to the project site was increased byapproximately 28% during the year 2014. The project electricity generation increase is almost
certain as the nature of glass melting furnace leads to increasing waste gas temperature over time.
Nevertheless, since the electricity tariff fluctuation remains to be seen, efforts will be made on
reducing initial investment cost by increasing the local portion of procurement.
Table 4 Result of IRR and Payback calculations
Case 1Case 2
Case 3
Case 4

Case
Base case
8% increase of electricity tariff
10% increase in projectelectricity generation
Case 2 and Case 3

IRR
21.76%
23.55%

Payback (years)
3.5
3.2

24.00%
25.95%

3.2
2.9(e)Financial scheme
The costs of initial investment and operation and maintenance are estimated in Table 2. In
addition, MRV costs including costs of the third party entity and MRV consultant are estimatedat JPY 10 million for validation and additional JPY 10 million for verification.
Project proponent aims to obtain 50% of initial investment cost from JCM equipment subsidy
program. The remaining costs other than separate Japanese government support for MRV costs
will be borne by AMG's own financial sources.

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JCM Feasibility Study (FS) 2014 – Final Report(f)Risk analysis
Although the following risks are foreseen in the project, measures are already being planned
to minimize their impacts on the project; therefore. the effect on JCM project feasibility is
negligible.
Ensuring stable electricity generation throughout the year
There are concerns of power outage and suspended cooling water supply. Such risk will
be minimized by installing appropriate equipment and back-up equipment in order toprevent damage to the project operation.



Local construction
There are concerns of increase in construction costs due to conflict over space with otherplant equipment. Such risk will be minimized by clearly indicating construction zone
well in advance. There are also concerns of construction delay due to in-house
restrictions. In-house restrictions will be studied and taken into considering whenplanning construction in order to minimize such risk.

Equipment subsidy
The project financial plan risks drastic change if JCM equipment subsidy is nor procured
as planned. By engaging in thorough discussion with Japanese government and its related
entities in advance, the risk will be minimized.

(g)Other
Nusantara Carbon Scheme (NCS), Indonesia's own market mechanism planned for GHG
emission credits was studied. Based on the study, it has become clear that project proponent
may transfer credits to NCS other than the credits to be transferred to the Japanese government.
The presence of local demand for carbon credits will increase the value of the project as a wholeand may provide greater incentives for project implementation.
2) Permits and License for the project development and implementation
As environmental impact assessment (EIA) is required only for power generation projects of
100MW in installed capacity or more based on Indonesian Ministry of Environment's order
No.11.2006, EIA is not required for this project. Business license is also not required as the
project does not sell electricity to PLN and it has been confirmed by Indonesian Investment
Coordinating Board (BKPM).
3) Advantage of Japanese technology
The targeted technology for waste heat recovery and electricity generation under the FS is
Organic Rankine Cycle (ORC) technology. As opposed to the conventional steam turbine
technology, ORC uses an organic working medium with lower boiling point than water,
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JCM Feasibility Study (FS) 2014 – Final Report

therefore, is capable of converting low-mid temperature waste heat, which is what glass melting
furnace typically emits, into electric energy. At the given waste gas temperature range of
300-500 degrees Celsius, ORC is capable of generating power at 15% efficiency whilesteam-turbine system is only able to generate power at 10%. ORC can also minimize cost andhandling work of large boilers that steam-turbine system would require, which is estimated at 1.4
times the equivalent cost of ORC of the same specifications.
When compared to ORC of other countries' manufacturers, the Japanese product is designed
and manufactured to meet higher safety standards of Japan, such as malfunction detection systemand control system and is regarded as highly competitive. Moreover, compared to US or Italy
made ORC which have high global market shares, Japanese product has an advantage of using
safe and inexpensive working fluid. Based on the survey of international literature on ORC, it
is estimated that when the proposed project is implemented as JCM project, the Japanese ORC
can be introduced at 25% lower cost compared to a typical global standard ORC of similar
specifications.

Figure 2 Process flow
Source: Tsukisima Kankyo Engineering

Figure 3 The image of ORC plant in Ibaraki, Japan
Source: Tsukisima Kankyo Engineering4) MRV structure
Monitoring will be conducted by onsite by AMG with onsite support by Takasago if necessary.
MUMSS will provide support in devising monitoring plan to be submitted to the third party
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JCM Feasibility Study (FS) 2014 – Final Report

entity. MUMSS will also act as the main liaison with the third party entity for carrying out
verification activities.

Figure 4 MRV implementation plan

The monitoring item of the project is electricity generated by the project plant and themonitoring equipment is electricity meter. Two electricity meters will be installed including
one for back-up. The electricity meter used in the project is to meet international standards andcalibration will be conducted in accordance with the manufacturer's specifications. Continuous
monitoring results will be relayed to a computer system which will automatically record
monitoring data. The monitoring system will be automated as much as possible in order tominimize the burden on local operation.
5) Environmental integrity and Sustainable development in host country
The project aims towards introducing state-of-the-art high efficiency equipment that reduces
electricity consumption in an energy intensive production site and is in line with Indonesian
government policy for climate change mitigation and its roadmap for the industry sector. When
implemented, the project would make a great model case as there is still vast amount of untapped
waste heat in production sites, especially the low-mid temperature waste heat the projecttechnology targets. Such technology is capable of balancing technological and industrial
development and climate change mitigation.
Although the project has little or no impact to the surrounding environment because no
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JCM Feasibility Study (FS) 2014 – Final Report

additional gas will be emitted from the ORC introduced by the project activity, in order to ensure
environmental integrity, measures will be taken with regards to the working fluid of the ORC.
The ORC to be introduced in the project will utilize "R245fa", a HFC gas. Although it isconsidered safe gas and appropriate for use in production site due to its non-flammable nature, it
has high global warming potential. In order to prevent leakage, the project will employ
non-seal method in construction. Even though there will be no leakage or requirement for
additional filling during normal operation, gas monitoring and volume check will be conducted
regularly to ensure no leakage takes place. At time of overhaul and decommissioning, the gas
will be stored in the designated tank to be installed in the project site. Any gas remaining in theequipment will be collected by specialists. The technology provider will offer training andknow-how required in relation to the handling of the HFC gas. The collected HFC gas can be
destructed in the cement kiln of Holcim Indonesia that provides manifesto as proof of destruction.
In summary, the use of "R245fa" will be controlled to avoid leakage during operation and project
proponents will make sure they will be properly destructed at the time of decommissioning.
6) Toward project realization (planned schedule and possible obstacles to be overcome)The next steps and issues to resolve will involve finalizing a sound financial plan including
efforts to reduce initial cost by increasing the share of local procurement and utilizing JCM
equipment subsidy. The foreseen schedule is as follow.
 March-April 2015
 Confirmation of costs for project investment decision
 Formulation of consortium for equipment subsidy
 Preparation for equipment subsidy application
 March 2015~continous Formulation of response measures to minimize the aforementioned technical risks
 March 2015~continous Brushing-up the applicability conditions of MRV methodology.
 April 2015

 Estimated time for equipment subsidy application
 June 2015
 Begin the process of application for MRV methodology for approval.
 August 2015
 Estimated time for equipment subsidy selection result that allows for equipment orderplacement

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JCM Feasibility Study (FS) 2014 – Final Report(2) JCM methodology development
The JCM methodology was developed on the basis of the approved JCM methodology"ID_AM001: Power Generation by Waste Heat Recovery in Cement Industry" which is applied
to a technology similar to the proposed project.
1) Eligibility criteria
The proposed eligibility criteria are as follows. The criteria are established in order to makeexplicit applicable technology and to ensure calculation methods described below are applicable.
Criterion 1

The project utilizes waste heat of temperature ranging from 300 to 500 degrees
Celsius from the flat glass production facility by waste heat recovery (WHR)
system to generate electricity.

Criterion 2

WHR system consists of thermal oil boiler and power generation unit.

Criterion 3

WHR system utilizes only waste heat and does not utilize fossil fuels as a heatsource to generate power.

Criterion 4

The glass factory where the project is implemented is connected to a grid systemand the theoretical maximum electricity output of the WHR system, which is
calculated by multiplying maximum electricity output of the WHR system by the
maximum hours per year (24 * 365 = 8,760 hours), is not greater than the annual
amount of the electricity imported to the glass factory from the grid system:(1) During the previous year before the validation, if the validation of the projectis conducted before the operation of the project, or(2) During the previous year before the operation of the project, if the validation of
the project is conducted after the operation of the project.

Criterion 5

The WHR system is designed to be connected only to an internal power grid of theglass factory.

Criterion 6

In case working fluid containing greenhouse gas is utilized in the WHR system,
the structure of the WHR system prevents leakage of such gas from the system.

2) Calculation of GHG emissions (including reference and project emissions)
Waste heat recovery for electricity generation is not a common technology in glass production
plants in Indonesia. Therefore, the reference scenario is the continued use of grid electricity.
Reference emissions are emissions from grid electricity consumption that would be displaced by
the project activity and are calculated as the amount of electricity generated by the projectmultiplied by the CO2 emission factor of the grid supplying electricity to the project site.
To ensure conservative calculation of reference emissions, electricity consumption by auxiliary
equipment is calculated at its maximum output capacity, to conservatively estimate the net
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JCM Feasibility Study (FS) 2014 – Final Reportelectricity supplied by the project activity.
As there is no fossil fuel usage as a result of the project activity, there are no project emissions.
Therefore, the amount of emissions reduction equals reference emissions.
Reference emissions are calculated in the following manner.
RE

 EG

p

p

 EF

grid

Where,
Parameters

Explanation

Unit

ValuesappliedRE

Reference emissions during a given time (tCO2/p)

p

4,900

period p
EG

The quantity of net electricity generation (MWh/p)

p

6,020

by the WHR system which replaces gridelectricity import during a given time
period p
EF

CO2 emission factor for an Indonesian (tCO2/MWh)gridregional

grid

system,

from

0.814

which

electricity is displaced due to the project
during a given time period p
Determination of EGp
EG

p

 EG

SUP

, p

- EC

AUX

, p

Parameters

Explanation

Unit

ValuesappliedEG

SUP,

The quantity of the electricity supplied (MWh/p)p10,400from the WHR system to the glass
production facility during a given time
period p
EC

AUX,

The quantity of electricity consumption (MWh/p)

p

4,380

by the WHR system except for the
direct captive use of the electricity
generated by itself during a given time
period p
Determination of EC
 EC

EC
AUX,

p

CAP

Parameters

AUX, 24 ( hours

p

/ day

)  D

p

Explanation
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Unit

ValuesJCM Feasibility Study (FS) 2014 – Final ReportappliedEC

CAP

The total maximum rated capacity of (MW)0.5equipments of the WHR system which
consumes

electricity

exceptforthecapacity of equipments which use theelectricity generated by itself directlyDp

The number of days during a given time (day/p)

8760

period p3) Data and parameters fixed ex ante
ParameterEF

grid

Description of data

SourceCO2 emission factor for an Indonesian The most recent value available
regional

grid

system,fromwhich at the time of validation iselectricity is displaced due to the project applied
during a given time period

and

fixed

for

the

monitoring period thereafter.
The

data

is

sourcedfrom“Emission Factors of Electricity
Interconnection
National

Systems”,

CommitteeonNational Council on Climate
Changeunlessinstructedbyotherwise
the

Joint

Committee.
EC

CAP

The total maximum rated capacity of Rated capacity of all installed
equipments of the WHR system which equipments of the WHR system
consumes

electricity except

forthe whichcapacity of equipments which use the except
electricity generated by itself directly

consumesforequipments

theelectricity
capacity

which

use

of
the

electricity generated by itself
directly.

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