part 1: overview of cogeneration and its status in asia - Fire

Summary of country study – Viet Nam
With the option of reciprocating engine operating with heavy fuel oil, the IRR is generally
above the hurdle rate for the industry sector. This can be explained by the low price of heavy
fuel oil. In some cases, the hurdle rate is reached with 11 to 15 per cent increases in the
initial investment. Due to the high price of electricity charged to the commercial and service
sector, the changes of investment cost do not have much effect on the IRR.
Table 4.12 Impact of the increase (up to 15 per cent) in investment on IRR
Steam turbine
Site Alternative Fuel type Elect. Price
(VND/kWh)
% Increase in
investment (a)
177
IRR %
Textile mill “A” S.T.(TM) H.F.O. 800 15.0 19.9
Textile mill “B” S.T.(TM) H.F.O. 800 15.0 20.0
Textile mill “C” S.T.(TM) Coal 800 + 31.7
Paper mill “D” S.T.(TM) H.F.O. 800 15.0 19.8
Paper mill “E” S.T.(TM) Coal 870 + 37.1
S.T.(PM) Coal 870 + 34.9
S.T.(TM) H.F.O. 870 + 24.6
Rubber factory “H” S.T.(TM) Coal 780 + 30.9
H.F.O. 780 + 21.2
Reciprocating engine
Textile mill “A” R.E.(PM.) H.F.O. 800 11.8 26.4
Textile mill “B” R.E.(TM.) H.F.O. 800 15.0 20.1
R.E.(PM.) H.F.O. 800 + 27.7
Textile mill “C” R.E.(PM) H.F.O. 870 + 25.2
Paper mill “D” R.E.(TM.) H.F.O. 800 + 29.4
Paper mill “E” R.E.(PM) H.F.O. 870 + 40.5
Rubber factory “H” R.E.(TM.) H.F.O. 780 + 21.2
R.E.(PM.) H.F.O. 780 15.0 20.5
Hotel “F” R.E.(TM) D.O 1,540 + 29.6
R.E.(PM) D.O 1,540 + 27.5
Note:
(a): It is the percentage increase when the IRR value reaches the hurdle rate (17 per cent)
(+ means the IRR always remains above the hurdle rate; and – means the IRR always
remains below the hurdle rate)
TM: Thermal match; PM: Power match.
Fuel price escalation
In this analysis, the escalation of fuel price is varied from zero and 15 per cent per annum to
see its impact on the IRR. The results are given in Table 4.13.
With steam turbine cogeneration, the escalation rate of fuel price does not have any adverse
effect the financial attractiveness of the coal fired boiler option. This can be explained by the
low price of coal. On the other hand, when fuel oil is used in the boiler, an escalation rate of
over 8 per cent will tend to lower the IIR below the hurdle rate. At the fuel price escalation rate
of 9.5 per cent, the oil fuelled boiler option does not seem to be acceptable.
With reciprocating engine cogeneration, although heavy fuel oil is much cheaper than diesel,
many projects have IRRs below the hurdle rate with more than 10 per cent increase in the
fuel price escalation rate. In the textile “B”, even an increase of 6.6 per cent in fuel price
escalation rate can render the project unfeasible. Diesel as a fuel for reciprocating engines is
acceptable only for applications in the commercial sector where the purchased price of
electricity can be as high as 1,500 VND/kWh.