The Energy Commission - A short guide to how it makes its decisions

AS the industry regulator, the Energy Commission (EC) charts the direction of the domestic power sector. Given the nation’s aggressive planting-up efforts over the past five years, the EC’s challenge is to be clairvoyant in balancing economic growth and sustainability. This it does by judiciously anticipating new technologies and what should be the ideal fuel mix used by new plants.

Cheap fuel makes the need for efficient power generation less important to power producers. Will falling coal and oil prices affect investment decisions when it comes to deciding on the ideal fuel mix and the replacement of older plants?

Investments in the power sector, particularly the building of new power plants, are for meeting long-term operating requirements exceeding a period of 20 years. Thus, efficiency, reliability, security and economy will continue to be the key criteria in our investment decision-making for the power sector.

The recent steep fall in oil price is projected to be only a transitional or short-term phenomenon, and the power sector will always be exposed to the risks of high fluctuations of energy prices in the future. As recent evidence shows, the oil price has started to move up again, and Brent crude now hovers around US$55 per barrel.

Should the regulated price of gas be allowed to increase at the planned rate, to maintain pressure on the industry to pursue higher efficiency?
The Energy Commission: The implementation of the subsidy rationalisation plan as announced by the government in 2010 should be continued in order to encourage the industry to be more innovative and efficient in using gas, especially given that a greater percentage of the country’s gas supply will need to be imported to meet demand in the future.

What is the EC’s role in encouraging energy efficiency in power generation?
Energy efficiency in power generation mainly covers the performance improvements of the three major types of power plants: hydroelectric, coal-fired and gas-fired. These plants supply the entire base-load power requirements of Peninsular Malaysia.

Distillate and oil-fired plants are still available in our system but they are run only when there is insufficient capacity to meet demand. CO2 emissions from these plants are considered high and their fuel is costly. The EC therefore does not encourage the building of new plants based on distillate or oil.

Except for hydroelectric plants, fuel cost constitutes up to 86% of power generation cost. Therefore, the EC’s role in encouraging energy efficiency in power generation starts at the planning and implementation stage, with the choice of new plant technology. This choice is taken with the aim of maintaining the right fuel mix for national security while achieving a competitive consumer tariff as a result of a reduced fuel bill per unit of electricity generated. Higher efficiency also translates into a reduction in CO2emissions and our power plants have always improved in their thermal efficiency, plant by plant.

Also, in the event of any corrective action affecting consumers such as the fuel subsidy rationalisation plan, the EC closely monitors the electricity sector to ensure its smooth implementation and provides constructive feedback to the government.

Energy efficiency has become the new buzzword for businesses and should be even more important for power generation. How can power plant developers increase the efficiency of their plants? What sort of technologies can be used?
New technologies are being evaluated and contracts awarded through a competitive bidding process by the EC. Developers must put together a bid with the technology that gives the best plant efficiency with low life-cycle cost and package it with a financing option that can give them the most promising levellised tariff.

Developers that fail to offer a competitive tariff will never be considered for an award as consumers need to be protected from any pricing that is not market-discovered. On that note, even directly awarded projects have to meet a price that has been determined through an open tender.

How efficient are the new technologies compared with previously?
Higher efficiency translates into a reduction in CO2 emissions, which is the current buzzword. Putting aside the savings in fuel costs, let us look at the reduction in CO2emissions per unit of electricity generated for both coal-fired plants as well as combined cycle gas-fired plants.

The EC is pleased to see a progressive reduction in CO2 emission per unit generated by 3%, 11%, 20% and 22% respectively for coal-fired plant technologies used in 2001 and 2003, and to be used in 2015 and 2017. This compares with our first coal-fired plant of the early 1990s.

The same is true for gas-fired plants, where CO2 emissions per unit of electricity generated were and have been reduced progressively by 19%, 23%, 30% and 34% respectively for technologies used in 2002 and 2010, and to be used in 2015 and 2018. This compares with our first combined-cycle plant of the mid-1980s.

While there is still much room for improvement in coal-fired plant technology from the use of new materials that can withstand higher working temperatures, gas turbine technology may see a slower growth in development after the next step in turbine-inlet-temperature increase (of 1,700°C) is attained.

How does Malaysia compare with other countries?
Malaysia is ahead of any other Asean country when it comes to deploying the latest technology for a super-sized 1000mw coal-fired supercritical/ultra-supercritical plant as well as 500+mw H-class combined cycle plants that cross the 60% efficiency barrier.

What are the main limitations on a power plant’s efficiency?
The main limitations are in the losses incurred in the conversion of energy from its initial form as fuel to its usable form as electricity. Conversion of fuel into heat is deemed quite efficient, but it is not very efficient to convert the energy of steam or gas into electricity as it involves rotating a turbo-generator of an industrial size. Other limitations are ambient environmental conditions and coal quality.

The use of Integrated Gasification Combined Cycle (IGCC) and Fluidised Bed Combustion technologies can improve efficiency when using different quality fuels. However, capital cost, reliability and availability have been the challenges faced by the development and commercialisation of these technologies.

In the case of hydro turbines, the “head” created by the water does not pose any loss, but in rotating the turbine and discharging the water at the tail end, the plant suffers some losses. Replacing old turbines will see a significant improvement in plant efficiency, as has been done by Tenaga Nasional Berhad for its hydroelectric plants.

The conversion of an existing hydroelectric plant into a pumped storage scheme does not increase plant efficiency as it merely uses cheap electricity, presumably from a nuclear plant that has to run throughout the night, to pump water up to a higher reservoir.

How does the EC decide on whether to build new plants or to renew older, less efficient ones?
There is always a cut-off point when it is no longer cost effective to build a new plant. Normally, this is dictated by the cost of imported fuel. New plants require capital-cost recovery whereas existing plants are already paid for and thus the cost of extra fuel incurred by an old plant can be offset by the absence of debt repayment that would be needed for a new one.

In the interests of consumers, the EC is looking at what consumers have to pay for electricity. While the idea of having the latest and most efficient power plants all over the country is a good one, the incremental improvement in efficiency may not translate into a reduction in consumer tariffs. For this reason, it may be better to keep the old reliable power plants in the system. After all, based on experience, replacement parts for plants using mature technology can be sourced cheaply from third parties, including local engineering companies, thus keeping operation and maintenance costs low.

Ramesh Singaram

Coal prices have been on a downward trend, and now oil prices are adjusting to a new normal low. How will this affect the development of new technology for power generation?
Ramesh Singaram: Coal will still be a key fuel for emerging economies, regardless of the fluctuation of oil prices. While oil prices have been on a downward trend, the global demand for oil will put pressure on pricing, therefore the longer-term price outlook may not be as low as what we see today.

With regard to power generation, natural gas is a cleaner fuel of choice and its prices vary, depending on the source, and do not necessarily move linear to oil prices. In the near term, we expect the supply of liquefied natural gas to outpace demand, and favourable gas prices will continue. Gas-based power generation is expected to grow in emerging and developed economies as a viable replacement to nuclear power, and the market/consumers will continue to expect lower tariff. Lower tariff is possible only when three elements work together — sustainable/predictable gas prices, lower capital cost and high combined cycle gas turbine plant efficiency. The OEMs have to continue investing in technology at the appropriate economies of scale, which in turn supports lower capital cost and improving efficiency at the plant level.

Will underdeveloped countries fall back on cheaper, less efficient means, delaying the development of replacement generation capacity?Will they use older, cheaper and less efficient designs for new plant-ups?
For developing countries, electrification is the highest priority. They have to resort to what is readily available, but there is a strong consideration for a fuel mix that may include coal, natural gas, diesel, renewables and so on. Developing countries are becoming more responsible in adopting best practices related to emission compliance and conforming to global standards such as those set by The World Bank.

Renewable energy is capital-intensive and it is a challenge to meet the current tariff regime in certain countries. As these countries adopt various technologies, it is important to consider the life-cycle cost of the solution being implemented. What appears “economical” in the near term (initial expenditure) may not be the most economical solution when seen from the life-cycle perspective, and this is even before considering the negative value of intangibles like emissions.

What about renewable energy? It has hit a brick wall in developed countries like Australia and Germany. Would this be an opportunity for equipment suppliers like GE to expand fossil fuel products in these markets?
Renewable energy will always be a priority when natural resources are accessible and can be easily developed, for example, the availability of wind zones or water catchment areas to build dams to generate hydro power. One of the key challenges with renewables is the unpredictable nature of natural resources. Therefore, it is essential to include gas-based capacity in the power generation portfolio as it is ideal for alleviating shortages, thus providing a balance to the electricity grid.

It is being debated that energy storage may eventually be able to cover a certain portion of the unpredictable renewable supply, but this technology is still in its infancy, and power generation using fossil fuel is important to ensure stable and reliable supply.

Are you seeing a strong shift to coal?
Coal will be one of the key fuels in most countries as it is easily and economically available, and likely to play a major part in the overall power generation ecosystem. Coal plants tend to take a longer time to build, is capital-intensive, requires a lot of space and is typically operated on a base load mode. In Asean, some countries use more coal for power generation, while others use less. It all depends on each country’s overall charter.

How does all this affect the development of new technologies?
New technologies must continue to evolve, be it related to coal, gas or renewables, for power generation. As lifestyles continue to improve for the overall population, electricity consumption will rise. Based on economic growth, electrification and demand, globally, we expect around 3,400gw of new power generation orders over the next 10 years.

Availability of fossil fuel is limited, and therefore regardless of market conditions, technology must improve to reduce fuel consumption. Fossil fuel constitutes 50% to 80% of the operating cost of a plant, therefore, efficiency is paramount.

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