Renewable Energy Supply to the Fourisland Grids in Tonga

FinalOn-Grid Report

Renewable Energy Supply to the FourIsland Grids in Tonga

March 2010

TABLE OF CONTENTS

Acronyms and Abbreviations

Executive Summary

1Background

1.1Objectives of the Assignment

1.2Structure of this Report

1.3Acknowledgements

2Overview of the Electricity Sector in Tonga

2.1Roles and Responsibilities

2.2Electricity Sector Policy and Planning

2.3Electricity Commission

2.4Service Delivery

2.5Policy, Legislation and Regulation

2.6Grid Based Electricity Supply

2.7Development of a Reference Scenario

2.8Data Limitations and Related Areas of Uncertainty in the Analysis

3Methodology

3.1Overview

3.2Planning Framework for TPL Power System

3.3Screening Criteria for Renewable Energy Options

3.4Methodology for Defining Scenarios

4Resource and Technology Assessment

4.1Characteristics of Intermittent Energy

4.1.1Intermittent energies versus firm capacity

4.2Storage Options

4.3Battery Storage

4.4Flywheel Storage

4.5Renewable Energy Options

4.6Solar Energy

4.7Wind Energy

4.8Landfill Gas

4.9Biomass (Coconut Oil and Coconut Waste)

4.10Summary of Resources/Technologies

5Grid Integration Issues

5.1Integration of Renewable Energy Projects

5.2Grid Stability

5.3Load Dumping

5.4Technical Solutions

5.5Simulation Model

5.6Results of Simulation

5.7Cost Implications of Grid Integration

6Recommended Approach to Grid-based Renewable Energy

6.1Assumptions

6.2Lead Times

6.3Rationale for Least Cost Development Scenario

6.4Scenario Definition

6.5Cost Implications

6.6Recommended Institutional Arrangements

6.7Implementation Models

6.8Public Sector Investment and Finance

6.9Private Sector IPP investment

6.10Embedded Generation

6.11Carbon Finance (CDM)

6.12Renewable Energy Fund

6.13Risk Assessment

6.14Implementation Plan

6.15TPL Training

6.16Preparatory Activities

6.17Implementation Schedule

7Financial Analysis

7.1Framework and Assumptions

7.2Financial Model

7.3The Business-As-Usual (BAU) All-Diesel Scenario

7.4Grid-Connected Renewable Energy Investment Scenarios

7.5Financing Scenarios

7.6Results of Analysis: Tariff Impacts

8Conclusions and Recommendations

Annex I: References

Annex II:Policy, Legislation and Regulation Review

Annex III:Characteristics of the TPL Grids

Annex IV: Do Nothing Median Load Forecast

Annex V: Planning Framework for TPL Power System Parameters and Screening Criteria for Technologies

Annex VI: Characteristics of Renewable Energy Utilization

Annex VII: Storage Technologies

Annex VIII:Renewable Energy Solutions

Annex IX: Dedicated Biomass Production (Energy Cropping)

Annex X: Near Commercial and New Technologies

Annex XI: Renewable Energy Project Risks in Tonga

Annex XII Fuel Efficiency (Specific Fuel Consumption) of Cummins Generators Over Load

Figure Index

Figure 1: Surfaces Suitable for Solar PV installation in Ha’apai (Hospital and High School)

Figure 2: Sensitivity of Roadside Price for Coconuts

Figure 3: Annual Load Curve for Tongatapu

Figure 4: 50 % Reduction of TPL Diesel Fuel Consumption

Figure 5: Implementation Sequence

Figure 6: Coconut Scenario and Intermittent Renewables Scenario Compared to the BAU, Breakeven Tariffs, Full Debt Finance

Figure 7: Coconut Scenario and Intermittent Renewables Scenario Compared to the BAU, Breakeven Tariffs, 75% Debt 25% Grant Finance

Figure 8: Coconut Scenario and Intermittent Renewables Scenario Compared to the BAU, 50%-50% Debt and Grant Finance

Figure 9: Coconut Scenario and Intermittent Renewables Scenario Compared to the BAU, Breakeven Tariffs, 25% Debt 75% Grant Finance

Figure 10: Coconut Scenario and Intermittent Renewables Scenario Compared to the BAU, Breakeven Tariffs, 100% Grant Finance

Figure 11: Cold and Hot Season Monthly Load Curves - Tongatapu

Figure 12: Cold and Hot Season Daily Load Curves - Tongatapu

Figure 13: Daily Load Curves Vava’u

Figure 14: Daily Load Curves for Ha’apai

Figure 15: Daily Load Curves for ‘Eua

Figure 16: NAS Battery Application

Figure 17: Comparison of NASA Solar Satellite Data and Forum Measurements

Figure 18: Daily Load Curves (Cold and Hot Season)

Figure 19: Surfaces Suitable for Solar PV installation in Ha’apai (Hospital and High School)

Figure 20: Proxy Wind Distribution Constructed From Cook Islands Wind Data

Figure 21: Small-scale Wind Cook Islands (Skystream 3.7

Figure 22: Tutonga and Tapuhia Landfills in Tongatapu

Figure 23: CNO based Biofuel Operation ‘Eua

Figure 24: Lifecycle Cost Coconut Use: Sensitivity

Table Index

Table 1: Maximum Intermittent Energy and Power

Table 2: Storage Costs

Table 3: Cost and Performance Indicators PV Solar

Table 4: Cost and Performance Indicators 1 MW Project

Table 5: Cost and Performance Indicators 300 kW Landfill Gas Project

Table 6: Coconut Resource Estimates

Table 7 : Cost and Performance Indicators Integrated CNO Projects

Table 8: Cost and Performance Indicators Associated Gasifier Projects

Table 9: Life Cycle Cost

Table 10: Maximum Renewable Energy Penetration No Storage

Table 11: Lead Time for Individual Projects (Months from 1st Quarter 2010)

Table 12: Evaluation of Grid Connected Renewable Energy Solutions

Table 13: Cost Implications of Two Scenarios (USD)

Table 14: Statement of Financial Performance (TOP$ millions, Years Ending 30 June)

Table 15: Statement of Financial Position (TOP$ millions, Years Ending 30 June)

Table 16: Statements of Movements in Equity and Cash Flows (TOP$ millions, Years Ending 30 June)

Table 17: Summary of the Baseline (All-Diesel) Case, all four TPL grids combined

Table 18: Coconut Scenario

Table 19: Intermittent Renewables (Solar) Scenario

Table 20: Financing Summary

Table 21: Breakeven Tariffs (TOP$/kWh) associated with Full Debt Finance of Assets

Table 22: Financing Summary

Table 23: Breakeven Tariffs (TOP$/kWh) associated with 75% Debt and 25% Grant Finance

Table 24: Financing Summary

Table 25: Tariffs (TOP$/kWh) associated with 50%-50% Debt and Grant Finance

Table 26: Financing Summary

Table 27: Breakeven Tariffs (TOP$/kWh) associated with 25% Debt and 75% Grant Finance

Table 28: Financing Summary

Table 29: Breakeven Tariffs (TOP$/kWh) associated with 100% Grant Finance of Assets

Table 30: Summary of risks and uncertainty in renewable energy technologies in Tonga

Table 31: Maximum Intermittent Energy and Power

Table 32: Storage Costs

Table 33: Characteristics of PV Technology

Table 34: Installed Cost for Solar PV under EU REP5

Table 35: Cost and Performance Indicators PV Solar

Table 36: Solarbuzz Module Retail Price Index

Table 37: Summary of Wind Resource Assessment at Kiikii (29 metres above ground)

Table 38: Wind Classes (metres/second):

Table 39: Wind Cost and Performance Indicators 1 MW Project

Table 40: Wind Cost Assumptions 1 MW Project for suitable Generators

Table 41: Methane Generation Unit Cost and Performance Indicators

Table 42: Overview Land Use Tonga

Table 43: Coconut Resource Estimates

Table 44: : Coconut Resource Estimates

Table 45: Senile Coconut Resource Estimates

Table 46: Transport Cost for Coconuts

Table 47: Cost and Performance Indicators of Proof of CNO Concept

Table 48: Flow of Materials Proof of Concept Plan

Table 49: Cost and Performance Indicators of Proof of CNO Concept

Table 50: Production Cost Saafa Grass

31/25157Final On Grid Report, Renewable Energy Supply to the FourIsland Grids in Tonga

Acronyms and Abbreviations

AC / Alternate Current
ADB / Asian Development Bank
ADO / Automotive diesel oil
Ah / Ampere hours
AusAID / Australian Agency for International Development
BOO / Build Own Operate
BOOT / Build Own Operate Transfer
BOT / Build-Operate-Transfer
CA / Concession Agreement
CDM / Clean Development Mechanism
CNO / Coconut Oil
CPI / Consumer Price Index
CROP / Comparative Research Programme on Poverty
DC / Direct Current
DoD / Depth of Discharge
DSM / Demand-side management
EIA / Environmental Impact Assessment
EIB / European Investment Bank
EU / European Union
FEA / Fiji Electricity Authority
FOB / Freight On Board
GIS / Geographical Information Systems
GoT / Government of the Kingdom of Tonga
GroFed / Tonga Growers Federation
IC / Internal Combustion (engine)
IEC / International Electrotechnical Commission
IPCC / Intergovernmental Panel on Climate Change
IPP / Independent Power Producer
I-TEQ / International Toxic Equivalent
IUCN / International Union for Conservation of Nature
kV / Kilo Volts (thousands of volts)
kW / Kilowatt
kWh / Kilowatt Hour
kWp / Kilowatt Hour peak for PV panels under standard conditions
LWG / live weight gain (cattle)
MoF / Ministry of Finance
MJ / Megajoule
MLA / Multilateral Lending Agency
MWh / Megawatt hour (1000 kWh)
MAFFF / Ministry of Agriculture and Food, Forests and Fisheries
Ng / Nanogram
Nm3 / Normal Cubic metre
NPV / Net Present Value
NZAID / New Zealand Agency for International Development
O&M / Operation and Maintenance
PPA / Power Purchase Agreement
PV / Photovoltaics
RAV / Regulated Asset Value
RE / renewable energy
REEEP / Renewable Energy and Energy Efficiency Partnership
SME / Small and Medium Scale Enterprise
SPC/SOPAC / Pacific Community / PacificIslands Applied Geoscience Commission
OSCAR / Ocean Surface Current Analysis Real Time (National Oceanic and Atmospheric Administration)
TPL / Tonga Power Limited
TOP / Tonga Pa’anga
ToR / Terms of Reference
TOISEP / Tonga Outer Islands Solar Electrification Programme
UNDP / United Nations Development Programme
UNFCCC / United Nations Framework Convention on Climate Change
US / United States (of America)
USD / United States Dollar
VCNO / Virgin Coconut Oil
WB / World Bank
Wh / Watt hours

1 TOP = 0.50 USD

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31/25157Final On Grid Report, Renewable Energy Supply to the FourIsland Grids in Tonga

Executive Summary

The Government of the Kingdom of Tonga (GoT) is seeking to reduce both the cost of electricity supply and Tonga’s vulnerability to oil price shocks. In recognition of the vulnerability of Tonga’s electricity sector to oil price rises the GoT has, in its National Strategic Planning Framework of 2009, set a target to generate 50% of Tonga’s grid based electricity from renewable energy resources by 2012. This represents a clear direction from the GoT that reducing the vulnerability of the country to future oil price volatility is a key objective. It also represents a major challenge.

To achieve this objective the development partners are working with the GoT to develop and implement the Tonga Energy Road Map. The relevant target established as part of the Tonga Energy Road Map is to achieve a 50% reduction in diesel consumption. This is considered technically feasible by 2014/15,through a combination of demand side management (DSM), efficiency improvements (loss reduction) at Tonga Power Limited (TPL) and introducing grid connected renewable energy supply. However, there are constraints to achieving this target that will need to be managed.

This report specifically addresses the issues and options for utilising grid connected renewable energy in Tonga. Outputs from other studies being conducted under the Tonga Energy Roadmap development have also been incorporated into the findings where appropriate, in order to ensure an integrated approach is taken. Based on initial assessments, renewable energy options identified for Tonga are: landfill gas utilization, solar energy, biomass options and wind(although confirmation of the resource potential is required).

All technology options have been screened for their impact on diesel fuel consumption and lifecycle costs. The table below summarizes the lifecycle costs of the various technology options at a range of discount rates. In addition, the options have been tested for compatibility with the existing grids and defined in a conservative manner with respect to grid stability.Note that the costs presented below will need to be reassessed and confirmed following further resource assessments.

Lifecycle Cost of Renewable Energies (USD/kWh) at 5, 3 and 8 % discount rate

Project / Annual Output kWh / Lifecycle Cost USD/kWh
5% / 3% / 8%
Coconut Use PoC / 2,584,200 / 0.357 / 0.353 / 0.363
Full Scale Coconut Use / 15,505,200 / 0.341 / 0.337 / 0.347
Gasifier PoC / 917,700 / 0.154 / 0.149 / 0.163
Gasifier Full Scale / 5,506,200 / 0.132 / 0.128 / 0.140
CNO and Gasifier Combined PoC / 3,501,900 / 0.304 / 0.299 / 0.311
CNO and Gasifier Combined full / 21,011,400 / 0.286 / 0.282 / 0.293
Solar Proof of Concept / 788,400 / 0.346 / 0.283 / 0.451
Large Solar and Storage / 21,024,000 / 0.754 / 0.674 / 0.889
Landfill Gas 300 kW / 675,396 / 0.178 / 0.154 / 0.218
Wind 1 MW / 1,927,200 / 0.177 / 0.158 / 0.208

Based on the initial analysis, the least-cost option includes landfill gas utilization, although its contributionis limited. Coconut Oil (CNO) used in conjunction with gasification of coconut shells (integrated use of coconut resource) is the next realistic option from a cost perspective. PV solar energy also offers significant opportunities if storage is not required, but gets very expensive with storage. Wind energy utilization also holds some promise,and is less costly, but it is unlikely that the wind regime on Tongatapu is good enough to produce lifecycle costs below those computed for integrated coconut use.Wind energy projects would have to be preceded by detailed on site resource assessments to determine if it is a viable option.

Considering the available and accessible data, it is concluded that a least-cost development strategy should prioritize the integrated use of coconuts whereby CNO would fuel TPL’s MaK generator and husks and shells would be used to generate electricity in gasifiers. Lifecycle costs of this option are lower when compared with solar PV with large storage and total funding requirements are less than half of the cost associated with the solar plus storage scenario. Calculations indicate the superior position of integrated coconut use over intermittent renewable energies (solar/wind)does hold over a wide band of assumptions for the most sensitive cost parameter for coconut use, that is the roadside cost of nuts.

In practical terms, reducing Tonga’s diesel oil use for power generation by 50% following a least-cost development plan will require a phased approach and will likely consist of a combination of the above renewable energy options supported by demand side management (DSM) and loss reduction within TPL as priority actions. While cost is an important factor in deciding how to proceed, other factors and constraints will also influence the final strategy implemented under the Energy Road Map.

In order to determine the optimal energypathway for Tonga, an analysis was undertaken on a set of scenarios to provide insights into the technical and financial implications of different options. The Business as Usual scenarios and two feasible renewable energy scenarios were established using load forecasts and available resource data. These scenarios are:

• Business as usual (BAU) - Responds to increased load requirements through diesel expansion and does nothing with respect to renewable energy and efficiency;
• Business as usual with TPL efficiency and DSM (conservationscenario)- DSM and supply side efficiency at TPL reduces diesel consumption by 18%. There is no addition of renewable energy to the grid;
• Coconut (CNO) scenario -a portfolio pathway that combines the conservation scenario with renewable energy investment mostly reliant on the use of coconuts including both coconut oil (CNO) use as a diesel substitute and conversion of husks and shells to energy. Solar PV and Landfill gas also provide contributions;
• Intermittent Renewables (solar/wind) scenario–combinesthe conservation scenario with investments in intermittent forms of renewable energy (solar and/or wind) and introduces battery storage at a large scale. Landfill gas again provides a small contributionthis scenario.

By combining the Business as usualwith TPL efficiency and DSM (conservation)scenario with either the Coconut scenario or the Intermittent Renewables (solar/wind) scenario, a reduction in TPL’s fuel consumption by 50 % can be achieved, as shown in the following graph.

The implementation sequence of the two different renewable energy scenarios is determined by the need for project preparation work including data collection, resource assessments, addressing land allocation issues and feasibility and design work. It is important this work is done to maximize the effectiveness of proposed strategies. A three phase implementation schedule is outlined below.

In phase one, preparatory activities would create the basis for detailed design of renewable energy investments. Phase two, launched towards the end of 2010, would involve design and installation of first generation projects including landfill gas and proof of concept installations for solar PV and integrated use of coconuts. And finally, in phase three, large-scale second generation renewable energy projects would be designed and implemented following a least-cost development strategy, in line with the data and experiences gained in phases 1 and 2. The sooner the required investigations (resource assessments, institutional arrangements) can be initiated the earlier, the GoT target of 50% reduction in diesel consumption can be achieved

A detailed spreadsheet-based financial model has been prepared as a tool to assess the financial impact of adopting grid-connected renewable energy options to displace centralized diesel generation in Tonga. The model provides projections of electricity generated, distributed, and sold in all four of TPL’s grids in Tonga, electricity revenues and expenses, assets and liabilities, investment schedules, loan portfolios, cash flows, finance performance ratios, and other relevant parameters and measures from 2009 to 2020.

The two renewable energy scenarios,‘CoconutsScenario’ and ‘Intermittent renewables (solar/wind) Scenario’ were evaluated and compared in the model to the all-diesel ‘Business as usual scenario with TPL efficiency and DSM(Conservation) scenario. The BAU option reflects TPL’s current situation and describes the future without renewable energy projects. A comparison of the two scenarios shows that, while the aggregate annual electricity outputs of both are nearly identical,the coconut scenario is of substantially lower capital cost but higher O&M cost, than the intermittent renewable scenario which relies mostly on solar and/or wind.

The model’s main aimis to measure the impact that grid-connected renewable energy will have on the average tariff charged to electricity consumers. Using the financial model ananalysis of each renewable energy scenario has been undertaken, comparing the impact on tariffs depending on the nature of the funding. A renewable energy scenario is considered financially viable when the average tariff each year does not exceed the breakeven tariff for the all-diesel case. The funding arrangements considered were (a) 100% debt financed (commercials conditions), (b)100% grant financed, and (c) partly debt and partly grant-financed.

Three discrete levels of grant funding for grid-connected renewable energy were considered feasible: (a) “no grant” (equivalent to the 100% debt financing condition above), (b) US$ 20 million, (c) US$ 50 million, and (d) open-ended grant funding, i.e., grant funds are available to cover the full costs of the renewable energy scenario selected.

In assessing the break-even tariffs, the CNO scenario is by far the least-cost of the renewable energy scenarios, with average tariffs only slightly above those associated with the all-diesel case. Only under 100% grant finance, the breakeven tariffs associated with the solar scenario fall below the all-diesel case. The coconut scenario, with less than 100% grant finance, results in tariffs that are essentially equivalent to those associated with the all-diesel case.