JCM Project Planning Study (PS) 2014 – Final Report

MOEJ/GEC JCM Project Planning Study (PS) 2014
Summary of the Final Report“Installation of CHP (Combined Heat and Power) system in a hotel”( Implementing Entity: Fuji Electric Co., Ltd. )1．Overview of the Proposed JCM Project
Name of participant: Fuji Electric Co., Ltd.
Roles:
Lead manager of the study
Prepare construction plan and operational plan
Examine implementation structure
Name of participant: FUJI FURUKAWA ENGINEERING & CONSTRUCTION Co.,
Ltd.
Roles:
Prepare construction plan

Study partners
Name of participant: NTT DATA INSTITUTE OF MANAGEMENT CONSULTING,
INC.
Roles:Develop MRV methodology
Prepare PDD draft
Market Survey
Name of participant: JAPAN QUALITY ASSURANCE ORGANIZATION
Roles:
Support for developing MRV methodology

Project site
Category of project

Republic of Indonesia, East Java province, Surabaya
1 Energy Industry
3 Energy demandThis project is to install a CHP (Combined Heat and Power) system at the Hotel A

Description ofproject

hotel located in Surabaya city, Indonesia. It supplies electricity generated by gas
engines to the hotel, then an absorption type refrigerating machine utilizes waste
heat from the process for air conditioning. Electric power from the system works
to offset the power consumed by the chiller to reduce CO2 emission.

Expected project
implementer

Japan

Fuji Electric Co., Ltd.

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JCM Project Planning Study (PS) 2014 – Final Report

Host country

Hotel A

Initial investment

300 (million yen)

Date ofgroundbreaking

November 2015

Annual maintenancecost

10 (million yen)

Construction period

Six months

Date of projectcommencement

May 2016

Willingness toinvestment

Yes (based on this study)

As it is a system upgrade by a private corporation, its project purchaser Hotel A

Financial plan ofproject

currently plans to finance the initial investment with its own funds. JCM facility
subsidy project is estimated to cover 50% of the initial investment amount. Funding
plan will be examined further based on detailed system design and cost estimate
produced through this study.

GHG emission
reductions

Approx. 2,800 (tCO2/year)

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JCM Project Planning Study (PS) 2014 – Final Report

2. Study Contents(1) Project development and implementation
1) Project planning
Project Background
In Indonesia, an insufficient supply capacity of state-owned power companies has caused unstable
power quality. An increase in the number of these distributed power generation system installations will
improve power supply stability for similar implementing operators, leading to a better power supply anddemand environment over the entire country.
Objective of the PS
This study aims to confirm the business feasibility of installing a CHP system consisting of either anabsorption type refrigerating system or a boiler at a hotel located in Surabaya, Indonesia, to secure an
independent power source. A verification study will also be conducted to see the extent of possible
CO2 emission reduction.
How the PS is conductedThis project will be carried out under a JCM facility subsidy project, through the formation of aninternational consortium. Its representative is Fuji Electric Co., Ltd., participated by Hotel A, as theimplementer in the host country, Indonesia. Fuji Furukawa Engineering & Construction Co., Ltd. will bein charge of construction. Other supporting organizations expected to participate in the project include
NTT Data Institute of Management Consulting, Inc. as the consultant for project registration and MRV
implementation, and Japan Quality Assurance Organization (JQA) stands by as TPE. The following
section illustrates its construction plan based on detailed studies.
Management system and record for the project implementers
Hotel A, which plans to adopt a CHP system, has shown a sound management system and record, witha good standing in credit limit screening (based on a leasing company study)
Business feasibility assessment
The total investment amount is currently projected at approximately 300 million yen. It includes:
approximately 100 million yen for gas engines, 50 million for refrigerating machines and instrumentation
systems, 60 million for construction/installation/piping/wiring work, 10 million for electric systems, 20
million for monitoring system/relevant field work/engineering, 30 million for VAT, and 30 million forimport taxes. The import taxes are in tentative values, to be calculated separately in detail upon further
examination.
The estimated sales income from the power cost reduction is at approximately 110 million yen. Profits
calculated by subtracting fuel and maintenance costs from the sales income is projected around 38
million yen.
Project IRR (2015) estimates 24%, assuming half the above investment of 150 million yen to be funded
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JCM Project Planning Study (PS) 2014 – Final Reportby a facility subsidy, with its investment recovery period set at four years. The natural gas cost is
linked with fluctuating IDR/USD exchange rate. The above estimate is based on Rp 10,000/USD as anaverage rate to represent exchange rate trend since 2001. If rupiah weakens more than the assumed
during the business operation, its profit will shrink, resulting in a longer investment recovery period.
Estimate results are shown below (in Indonesian rupiah).
Financing plan
As it is a system upgrade by a private corporation, its project implementer Hotel A currently plans tofinance the initial investment with its own funds. A JCM facility subsidy project is estimated to cover
50% of the initial investment amount. The maintenance cost will also be borne by Hotel A. With regard to
MRV measurement, we aim to minimize on-site work for Hotel A by installing a system that
automatically measures and collects data on many of the MRV monitoring items. While Hotel A will also
produce reports, Fuji Electric Co., Ltd. and NTT Data Institute of Management Consulting, Inc. provide
necessary assistance to reduce the work load.
Currently, we are in the consultation process with Hotel A over the estimate to finalize the order. It is
our hope to reach an agreement on the price and the project duration by the end of March.
Risk analysis
The highest risk factors entail securing natural gas supply capacity and possible cost increase during
the project. Although the gas supply company forecasts a stable supply during the five years ofinvestment recovery, there is a risk of drastic demand increase in the surrounding area to cause a tightsupply. Rising gas prices will reduce profits, and prolongs the time needed to recover the investment.
One of the countermeasures to suppress the cost involves hiring local maintenance staff. Anotherpromising option is to divert part of waste heat to the boilers.

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JCM Project Planning Study (PS) 2014 – Final Report2) Permits and License for the project development and implementation
The Surabaya Development Planning Department held a meeting with related bureaus (development
planning, environmental affairs, residence/city planning, communications information, legal affairs, andEast Java energy and minerals resources), to confirm necessary licensing and processes for the
project. The results are listed below:(Required permits and license)(1) UKL/UPL (environmental monitoring/management methods) approval: Environmental affairs
bureauThe target hotel should already have a UKLM/UPL in a normal circumstance.
No new approval is required, but the following procedure has to be followed. An approval granted inless than one month.
- Confirmation of licensed UKL/UPL.
- New CHP system specifications to be submitted (documents describing facility type, fuel,estimated environmental impact, etc.)(2) IO (Izin Operasi, operation approval of a private power generation facility by ESDM ordinance Vol.
35, 2013): Communications Information Bureau
Apply after an UKL/UPL approval by above Step 1. Duration required for approval is approximately
three months. This process should start once an agreement on facility installment is reached with
Hotel A.
Target hotel representative will take initiative in the process with necessary support provided by Fuji
Electric Co., Ltd.

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JCM Project Planning Study (PS) 2014 – Final Report

3) Advantage of Japanese technology
This new main low-carbon technology encompasses CHP system’s components; gas engines, anabsorption type refrigerating machine, and managing EPC (engineering, procurement, and construction).
No market has been developed yet in Indonesia.
As for gas engines, a survey on captive power generation in Indonesia conducted in 19981 revealed theratio by fuel type for captive power generation as follows; 60% for diesel, 22% for steam-power, 11% forgas turbines, and 6% for hydro-power, based on generated power capacity. While nearly no gas engine
installation has been made, future expansion is anticipated as GE has implemented gas engine powered
generation system at Plaza Indonesia in recent years, and announced its intention to cultivate this newmarket. GE is projecting a strong presence by aggressively promoting its gas engine system throughvarious activities including hosting a CHP information seminar at a hotel in Jakarta. GE is expected to
become our fierce competitor with localized services including engineering, provided by its Indonesian
representative Navigat Energy.
With regard to absorption type refrigerating machines, a BSRIA study shows the small Indonesianmarket with approximately 700 million yen annual sale, indicating being at its initial phase ofdevelopment. Top five companies are Shuangliang (China), Broad (US), Huin (China), LS (Korea), andThermax (India), for which 90% of the total share is accounted. Following key players are Hitachi and
McQuay (Daikin). Absorption type refrigerators have already had a long technology development history,
and a significant lead in efficiency is not attainable using the single-effect system with 0.6 to 0.8 COP
that is planned to be adopted for this project, in particular.
To maintain competitiveness, our knowledge and expertise gained through this study, together with
JCM’s support, will build an EPC (engineering/procurement/construction) system featuring Japanesetechnologies. The source of engineering superiority lies on the technological capability that Japanese
corporations have long cultivated. Procurement also incorporates expertise of Japanese businesses inselecting the optimum engine and refrigerating systems tailored to the specific hotel’s electricity andthermal demand and other requirements. Work related to construction and maintenance will be basedon advanced Japanese management technique for high quality services as it also aims to attain lower
cost through localization.
Competing products will differ by how the CHP system succeeds in its diffusion process. In cases
where CHP system successfully expands its market share, its competitor will be non-Japanese gas
engines and absorption type refrigerating systems. If CHP fails to take hold in the market, electric
power will be purchased from system power (PLN) and turbo-type refrigerating system will be adopted.
While continued improvements are observed in surrounding environments of CHP systems, it still has alow penetration rate, and only few implementation examples are available especially when limited toconsumer business field (Frost & Sullivan forecasts only a 70MW increase during 2014 in Indonesia2). At
the same time, sharp increases in electricity prices, stable, improved gas supply situations centered on
East Java area are serving as a favorable tailwind. In such a background, JCM’s support is expected togive crucial momentum to the popularization process of CHP systems.
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JCM Project Planning Study (PS) 2014 – Final Report

4) MRV structure
Development of MRV structure
We install a monitoring system which automatically measures and collect relevant data, to be
individually confirmed by an engineering department employee of the hotel as data collection staff. The
verified data then is approved by a person in charge of the facilities department as project manager. Fuji
Electric Co., Ltd. and NTT Data Institute of Management Consulting, Inc. provide support in compilingreports, reporting, and verification. JQA stands by as TPE.
Selection of measuring instruments for monitoring
Device options of measuring instruments for monitoring (power meters, flow meters, and thermometers)
have been already selected based on examinations to secure compatibility with JCM methodology.
Capacity building
Capacity building is carried out under the following two aspects; 1) MRV concept in JCM and 2)
monitoring system usage methods. Depending on the situation, JQA conducts capacity building on
Aspect 1 in this study associated with JCM methodology and PDD plan for hotel personnel. As for
Aspect 2, Fuji Electric, Co., Ltd. explains the system overview. Following the actual system installation,
Fuji Electric, Co., Ltd. will provide training for hotel employees on how to measure and store monitoring
records.

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JCM Project Planning Study (PS) 2014 – Final Report

5) Environmental integrity and Sustainable development in host country
Expected negative impact and its countermeasures
Possible adverse environmental effects include air pollution by gas engine exhaust, noise, and vibration.
Measures to prevent such negative factors will be enforced observing the standard parameters definedby the Indonesian Environment Ministry. Regular monitoring of the relevant parameter is also being
examined.
Air pollution
Noise

Vibration

A denitration device installed to reduce NOX emissions［Outdoors］Cooling tower → Sound proof walls are installed［Indoors］Engine exhaust sound → Silencer installed (2-stages),
Exhaust fan → Rubber material is installed around the fan（soundabsorption material）
Vibrationproof rubber and coils are installed

Estimated positive effects and measures to ensure them
Positive effects include a securing stable power source by means of an on-site gas engine system, anda reduced environmental load by means of an absorption type refrigerating system. This study examinesa system to allow the Fuji Electric, Co., Ltd. Tokyo main office to monitor operating status. The
incorporation of this system will detect errors and malfunctions at the facility, and ensures expectedfavorable results.
Contributions for sustainable development in host country
In preparation for the future energy demand increase, Indonesia must effectively utilize precious
domestic natural resources including natural gas. This project will enable utilization of energy fromnatural gas, with the incorporation of a system with high overall energy efficiency.

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JCM Project Planning Study (PS) 2014 – Final Report6) Toward project realization (planned schedule and possible obstacles to be overcome)In view of attaining a JCM facility subsidy business approval for fiscal 2015, we plan to conclude an
MOU with Hotel A. (Target: by the end of March 2015)
Following the MOU conclusion, we plan to provide support to obtain necessary licenses and permissions(captive power operation license and environmental impact survey).

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JCM Project Planning Study (PS) 2014 – Final Report（2）JCM methodology development
1) Eligibility criteria
This methodology development aims to investigate the CHP system installation project using gas
engines and absorption type refrigerating systems. The eligibility criteria under examination are as
follows:
System performance and technological advantages are considered to set benchmarks in Requirements
2 and 5 (absorption type refrigerating systems) and Requirement 6 (gas engines).
Although absorption type refrigerating systems enhance their COP values as it upgrades todouble-effect and triple-effect systems, upon consideration of thermal demand and cost balance forthe implementing facility, we are examining the possibility of a single-effect absorption typerefrigerating system with relatively low COP value. Advanced technological performance and higher
COP values are difficult to be set as requirements in this case. Benchmark COP values have been
determined on a basis of a local survey of the absorption type refrigerating system market in Indonesia.
We have listed products from the top share companies, to determine appropriate benchmarks.
Similar situations are also observed for gas engines, a small market share in Indonesia. We searched forgas engine suppliers (representative, etc.) in Indonesia, to verify their local development records. Gas
engines supplied by these manufacturers are compiled into a list to set power generation efficiency
benchmarks.

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JCM Project Planning Study (PS) 2014 – Final Report

2) Calculation of GHG emissions (including reference and project emissions)
Reference emission amount setup and calculation

REp = REelec + REcool………………

(Eq. 1)

Where,

REp

Total reference emissions during a given period p

REelecReference emissions from consumption of grid(tCO2/p)electricity during a given period p

REcool(tCO2/p)Reference emissions from the production of chilledwater during a given period p

REelec = EGp, net * EFelec(tCO2/p)………………

(Eq. 2)

Where,

EGp, net

Amount of net electricity generated by gas engine
generator which displaces grid electricity during a(MWh/p)given period p
CO2 emission factor of regional grid electricity inIndonesia(tCO2/MWh)EFelecREcool = ECRE * EFelec………………

(Eq. 3)

Where,

ECRE

Amount of electricity consumption equivalent to the
COP of reference centrifugal chiller and the amountof electricity consumption equivalent to theheat (MWh/p)

capacity of chilled water produced by project

Absorption Chiller
ECRE ={ CGPJ / (3.6 * 10-3) } / COPRE………………

(Eq. 4)

Where,Heat capacity of chilled water produced by
Absorption Chillers during a given period p

CGPJ
3.6 * 10

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Conversion factor from TJ to MWh
I-21(TJ/p)(TJ/MWh)JCM Project Planning Study (PS) 2014 – Final Report

COPRE

COP of reference centrifugal chiller under the
standard temperature conditions

CGPJ=∑{ CWPJ,l * C * (TCW, PJ, in, l – TCW, PJ, out,l) }(-)………………

(Eq. 5)

Where,CWPJ,lC

Amount of chilled water produced by Absorption

Chiller during the monitoring interval l(ton)Specific heat capacity of the chilled water(= 4.1868 ×10 -6)

TCW, PJ, in, l

TCW, PJ, out,ll(TJ/ton)Average inlet temperature of the chilled water
entering the Absorption Chiller during monitoring(°C)
interval l
Average outlet temperature of the chilled waterleaving the Absorption Chiller during monitoring
interval l(°C)
Monitoring intervals for monitoring the amount andtemperature of chilled water produced during agiven period p(-)

Project emission amount calculationPEp = PE gen,p + PE aux,p………………

(Eq. 6)

Where,

PEp

Total project emissions during a given period p

PE gen,p

Project emissions from natural gas consumed by gas
engine generator during a given period p

PE aux,p(tCO2/p)(tCO2/p)

Project emissions from electricity consumed byauxiliary equipment of project Absorption Chiller (tCO2/p)
during a given period p

PE gen,p = FCPJ,p * NCV p / 106 * CEF * 44 / 12………………

(Eq. 7)

Where,

FCPJ,p
NCV p
CEF

Amount of natural gas consumed by gas engine
generator during a given period p
Net calorific value of natural gas consumed
Default emission factor of natural gas
I-22(Nm3/p)(MJ/m3)(tC/TJ)JCM Project Planning Study (PS) 2014 – Final Report

PE aux,p = ∑( ECaux, i, p * EFelec )………………

(Eq. 8)Where,

ECaux, i, p

Amount of electricity consumed by auxiliary
equipment i of project Absorption Chiller during a(MWh/p)given period p

Calculation of emissions reductions
Emission reductions are calculated as the difference between the reference emissions andproject emissions, as follows:

ERp = REp - PEp………………

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JCM Project Planning Study (PS) 2014 – Final Report3) Data and parameters fixed ex ante
Three pre-project parameters are being examined: reference refrigerator COP, grid emission factors,
and carbon emission factors
As for the reference refrigerator COP, due to the fact this project is for a renovation on an existing
facility, we have decided to substitute chilled-water production of a refrigerator with that of the largest
refrigeration capacity in order to ensure maintainability of substituted refrigerators. It adopts thereference refrigerator COP value that corresponds to the largest refrigeration-capacity refrigerator.
Grid emission factor is determined by the latest data at validation defined in “Emission Factors ofElectricity Interconnection Systems,” in accordance with an approved methodology ID_AM001 “Power
Generation by Waste Heat Recovery in Cement Industry” and ID_AM002 “Energy Saving by
Introduction of High Efficiency Centrifugal Chiller,” as long as there is no special command from theconsortium.
Relevant data for natural gas carbon emission factor is taken from the “2006 IPCC Guidelines for
National Greenhouse Gas Inventories, Volume 2, Table 1.4.”

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JCM Project Planning Study (PS) 2014 – Final Report（3）Development of JCM Project Design Document (PDD)
1) Environmental impact assessment
According to the Ordinance Vol. 11, 2006, of the Environmental Minister, which defines businesses andactivities mandated with appropriate environmental impact assessment, this project does notconstitute the projects that require permission or license such as relevant assessments for conducting
business.

2) Local stakeholder consultation
This project does not involve any interested parties other than those related to the hotel as the CHP
system is installed on the hotel property, with no possible impact to local stakeholders beyond the hotel.
Personnel at the hotel have expressed favorable comments regarding cost reduction and stable power
supply.

3) Monitoring plan
An engineer and a hotel resident manager will be in charge of monitoring at the project site. The
engineer will review directly-collected data for any abnormality or error. The data is then approved by
the resident manager. The manager is also responsible for the monitoring process including calibrating
facilities and meters. He/She will be held accountable for the project planning, enforcement, monitoring
results and any reported details.
All the data except gas net heating values provided by gas companies will be automatically measured,
collected, and saved by the monitoring system.

4) Calibration of measuring instruments
There are no adequate domestic regulations in place on calibrating measuring instruments for CO2
emission measuring in Indonesia. Therefore, the meters used in this project will comply withinternational standards, and calibration frequency will follow specifications and warranty provided by
the relevant manufacturers. This method has also been adopted at an approved JCM methodology
ID_AM001 Ver. 1.0 “Power Generation by Waste Heat Recovery in Cement Industry.”

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JCM Project Planning Study (PS) 2014 – Final Report

Conclusion and Next stepThrough this study, we have confirmed the advantages in cost and CO2 emission reduction, realized
through the installation of CHP system using either an absorption type refrigerating system or a boiler
at a hotel located in Surabaya, Indonesia, and to secure an independent power source.

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