ISSUES AND RESPONSE

/ Reference in the Project Document

A.  Council Comments from Switzerland

Comments

The optimal size for such a system (including biogas recovery) is not mentioned and does not seem to have been studied. This may imply that optimum scale could be beyond the size of a single unit
Response
The preliminary selection of demonstration companies during the design of the project (for purposes of determining incremental costs) was based on the study made by SIRIM regarding the feasibility of power generation and cogeneration using palm oil industry waste including biogas generated from palm oil mill effluents (POME). In that study (Feasibility Study on Grid connected Power Generation Using Cogeneration Technology, 1999), several potential palm oil mills in the country were studied to determine the extent of power generation and/or cogeneration capacity that can be put up in their respective facilities using palm oil waste available in their own plants plus those that can be sourced from other palm oil mills. Sensitivity analyses were also made to determine the optimum power generation/cogeneration capacity in each plant considering various technical and economic parameters. Hence, even at the design stage of this project, the issue of issue of optimal size of systems that will be demonstrated has already been considered.
In the project proper, except for the PORIM Experimental Mill, the 4 other palm oil mills will be selected based on selection criteria that the project will establish. Among these are the proximity of the mill to a cluster of mills where surplus palm oil waste are available for supply, and its proximity to the grid. The realistic and optimum power generation and/or cogeneration capacity to justify capital investment will be evaluated with the assistance of an international expert.

Comments

It is not clear which kind of mechanism would allow biomass (and biogas) to be supplied by other mills/plantations to a larger plant. As far as biomass is sourced from the unit itself, it seems quite simple, but when the unit has to buy from others, the associated processes and mechanisms need to be explored, and their viability ascertained
Response
The realistic and workable mechanism that would ensure the supply of surplus palm oil waste to the mills that would venture on biomass-based power generation/cogeneration is one of the outputs of the project. See also 1st paragraph of Section E2.
To facilitate the implementation of the demonstration schemes, Component No. 4 of the project will involve activities aimed at verifying and confirming the availability of biomass to support the demo schemes in the selected sites. Long term biomass (and biogas) supply agreements for the demo plants will have to be approved and signed by each host company and the relevant palm oil mills in the vicinity.

Comments

The assumptions on biogas recovery will have to be proven on actual units with practical experience, along with the willingness and ability of operators to manage it.
Response
Various studies that were carried out in the past by PORIM (and also covered in the SIRIM study) have established the awareness and experience of many local palm oil mills about the potentials and benefits of utilizing the POME-derived biogas for energy (electricity or heat) purposes. The palm oil mills however have more than enough palm oil mill waste that they can use for their energy needs. They are also not obliged to abate the release of CH4 from their POME ponds. There is just not enough incentive for them to do POME-derived biogas recovery. Given the incentives provided under this project, many of the palm oil mills, particularly those with POME-derived biogas recovery and use experience, have expressed interest in participating in the project as host demonstration sites.
In order to ensure the proper design and operation of the POME-derived biogas recovery units, an international expert will be engaged in the evaluation of the biogas recovery scheme and will assist the local palm oil mill experts/team in the unit design.
Training will be provided for palm oil mill engineers and operators on the proper operation and safety aspects of biomass-based power generation.

Comments

Grid connected systems do not have as per now a guarantee on price.
Response
The project will recommend policies and regulations on RE electricity and will propose recommended regulatory policies on the pricing and sales of RE electricity (See also 2nd paragraph of Section E2)
To facilitate the implementation of the demonstration schemes, there were several things that have been put in place to ensure the creation of a “level playing field” for biomass-based power generation/CHP in order to be competitive with power producers using conventional fuels. This include the provision of:
a) Corporate Tax Incentives – includes tax holidays
b) Fiscal Incentives – Imported equipment that will be used in biomass energy projects will be exempted from duty and sales taxes.
c) TNB’s Purchase of RE Electricity – TNB will definitely buy the electricity generated by the biomass-based power generators.
d) Electricity Price - TNB will buy the electricity from the biomass-based power generators at MYR 0.17/kWh. This price is higher than the average price that TNB pays its IPPs that use conventional fuels (e.g., coal). / Activity 4.2.1
Activity 4.3.4
Activity 2.1.3
Activity 2.3.2
Activity 2.4.3
1st paragraph, Sec. E2
Activity 4.5.1
Activity 4.5.2
Activity 4.3.4
Activity 4.3.5
Activity 5.3.1
Activity 5.3.2
Activity 2.1.3
Activity 2.3.2
Activity 2.4.3

B.  Council Comments from France

Comments

It would be good to provide more details on the project’s economics, taking into account electricity costs and tariff arrangements. The amount of studies and of support appears high for a target sector, which is already well ‘inventoried’.
Response
The economic feasibility analyses of the demonstration schemes were evaluated and commented on by the STAP reviewer during the project design phase. All the relevant comments and recommendation related to the economic feasibility of the demo schemes have all been addressed and incorporated in the GEF-approved Project Brief. It must be emphasized that the cost of GEF support in the demo projects (which actually make up the bulk of the GEF support cost) is only for the incremental activity of demonstrating the feasibility of utilizing POME-derived biogas for power generation/cogeneration along with the baseline use of solid palm oil biomass waste for the same purpose. While aspects of solid biomass utilization are well “inventoried”, that of POME, although also accounted for (in line with liquid waste effluent management) is not fully addressed in terms of energy utilization.
As for the demo sites, detailed technical and economic feasibility analyses, taking into account the RE electricity tariff and incentives available, will be conducted by the local agency assisted by the international expert that will be engaged under this project. Investment in a biomass-based CHP plant is high and high efficiency equipment has to be imported. The incremental cost required for the installation of the POME-biogas recovery and use facilities (in the 4 demo sites) shall be financed by the GEF support (1 demo site during Phase 1 and 3 demo sites in Phase 2).
This project will include provision of training (during Phase 2) to local equipment manufacturers on high efficiency designs and production technologies. The equipment suppliers will provide some of the training. / Activity 4.3.2
Activity 5.6.3
Activity 5.6.4

C.  Council Comments from Germany

Comments

By supporting the oil palm industry biodiversity losses cannot be excluded. Monoculture plantations like oil palms often cause biodiversity losses, in particular when primary forests are cut. In Southeast Asia there is a sequence of first exploiting illegally valuable tree species, with the purpose to burn the remaining forests and turn them into conversion areas for agricultural use. Finally the plantation of oil palm increases the risk of soil erosion.
Response
This project does not aim to promote nor encourage the creation of new oil palm plantations. The proposed project specifically aims to convert waste resources in existing palm oil mills into energy resources. The palm oil mill industry is already facing a serious waste disposal problem where the solid wastes like empty fruit bunches and pressed fibre are being either sent to landfill sites causing leachate and landfill gas problems or incinerated at the mills causing emissions leading to local and global pollution. Additionally, liquid wastes like the POME are stored in temporary lagoons that produce biogas (65% CH4) that is emitted into the environment causing global pollution, and the remaining waste still poses further disposal problems to the mills. By the conversion of these waste resources that are already being produced by existing mills, biomass-based renewable energy can be produced to displace the equivalent amount of fossil fuel burning.
Secondly, the project is aimed at supporting the ongoing Small Renewable Energy Power (SREP) Programme, which was designed to achieve the 5% renewable energy power generation target by the year 2005. The terms and conditions of the Programme stipulates that only mills located within 10km from the nearest electricity interconnection point in the distribution network will be allowed to sell power to the Utility. With this condition imposed, only existing mills located close to load centres can participate in the Programme, thus eliminating the possibility of creation of new plantations and mills for this purpose. / 4th paragraph, Sec. E2


UNITED NATIONS DEVELOPMENT PROGRAMME

Project of the Government of Malaysia

PROJECT DOCUMENT

Project number: / MAL/01/G31
Project title: / Malaysia Biomass-based Power Generation and Cogeneration the Palm Oil Industry (Phase 1) /

Summary of project inputs (in US$)

(as per attached budgets)
Project short title: / Biomass Cogeneration (Phase 1) / Phase 1 Phase 2
UNDP/GEF: / 4,000,000 / 4,032,000
Estimated start date: / 1 January 2002
Estimated end date: / 31 December 2003 / Co-financing:
Government (in cash): / 3,025,600 / 6,662,570
Management arrangement: / National Execution / Government (in kind): / 804,820 / 189,250
Designated institution: / Ministry of Energy, Multimedia and Telecommunications / Private Sector (in cash): / 6,518,500 / 15,370,700
Private Sector (in kind): / 385,270 / 189,250
Project site: / Pusat Tenaga Malaysia (PTM)
Total / 14,734,190 / 26,443,770

Classification information

ACC Sector and subsector: 5 Energy; 40 New & Renewable Sources of Energy
DCAS Sector and subsector: 8 Energy; 47 New & Renewable sources of Energy
Government Sector and subsector: Ministry of Energy, Telecommunications
& Multimedia/ Energy Sector
Primary areas of focus/sub-focus / 3. Promoting Environmental & Natural Resources Sustainability
Secondary areas of focus/sub-focus: 21 Promotion of sustainable energy &
atmospheric quality
Primary type of intervention: / Program Support
Secondary type of intervention: Program Technical Support
Primary target beneficiaries: Government
Secondary target beneficiaries: / Government Organization
LPAC review date: / 11 October 2001
Program Officer:
Brief description:
This project aims to reduce the growth rate of GHG emissions from fossil fuel fired combustion processes & unutilized biomass waste through the acceleration of the growth of biomass-based power generation & combined heat & power
(CHP). It also aims to develop & exploit the energy potentials of biomass waste realized through the successful implementation of programs such as: 1. Information services & awareness enhancement; 2. Policy studies & capacity building; 3. Financial assistance for biomass energy projects; 4. Demonstration schemes; and 5. Biomass energy technology development. The description of Phase 2 activities has been included in this project document (Annex 7) to provide information on the context of the larger project. However, the financial commitment under this project document is limited to Phase 1 activities only.
On behalf of: / Signature / Date / Name/Title
Government
Designated Institution
UNDP

CONTENTS

A. CONTEXT…………………………………………………………………………………1

A.1 DEVELOPMENT PROBLEM BEING ADDRESSED………………………………..1

A.2 PREVIOUS EXPERIENCES AND LESSONS ………………………………………8

A.3 DEVELOPMENT OBJECTIVE ……………………………………………………….10

A.4 NATIONAL STRATEGY TO ACHIEVE THE DEVELOPMENT OBJECTIVE …..10

A.5 BENEFICIARIES ………………………………………………………………………11

A.6 REGULATORY FRAMEWORK ………………………………………………………13

A.7 NATIONAL RESOURCES …………………………………………………………….14

B. STRATEGY FOR USE OF UNDP RESOURCES …………………………………...14

B.1 PROJECT LINKAGE TO THE UNDP MANDATE ………………………………….14

B.2 NEED FOR UNDP INTERVENTION ………………………………………………...15

B.3 PROJECT DESCRIPTION …………………………………………………………... 16

B.4 EXPECTED OUTCOME ………………………………………………………………18

C. IMMEDIATE OBJECTIVES, OUTPUTS, INDICATORS AND ACTIVITIES ………18

PHASE 1

C.1 Component 1: Biomass Information Services and Awareness

Enhancement Program ………………………………………………18

C.2 Component 2: Biomass Policy Study and Institutional Capacity Building ……….25

C.3 Component 3: Biomass Initiatives Financing Assistance Program ………………31

C.4 Component 4: Biomass-based Power Generation and CHP Demonstration …...38

C.5 Component 5: Biomass Energy Technology Development Program …………....44

D. INPUTS …………………………………………………………………………………. 49

D.1 GOVERNMENT OF MALAYSIA INPUTS …………………………………………..49

D.2 PRIVATE SECTOR INPUTS …………………………………………………………49

D.3 GEF INPUTS …………………………………………………………………………..49

E. RISKS AND SUSTAINABILITY ………………………………………………………..51

E.1 RISKS AND STEPS TAKEN TO MINIMISE THEM ………………………………..51

E.2 SUSTAINABILITY …………………………………………………………………….. 52

F. MANAGEMENT ………………………………………………………………….………53

F.1. STAKEHOLDER ANALYSIS …………………………………………………………53

F.2 IMPLEMENTATION ARRANGEMENTS …………………………………….………55

G. MONITORING AND EVALUATION ………………………………………………… 60

H. LEGAL CONTEXT ………………………………………………………………………62

I. WORK PLAN …………………………………………………………………………….. 62

J. BUDGET ………………………………………………………………………….………63

ANNEXES ………………………………………………………………………………… 66

Annex 1: TOR (Implementation and Monitoring)

Annex 2: Output Indicators and Workplan (based on Original Project Planning Matrix)

Annex 3: Terms of Reference (Consultants and Sub-contract)

Annex 4: Project Budget

Annex 5: GHG reduction Table

Annex 6: Original Project Planning Matrix (as reviewed by GEF Council members)

Annex 7: Expected Outputs, Indicators and Activities for Project Phase 2

Annex 8: Letter of Intent from Bank Pembangunan


ACRONYMS

BOD / Biological Oxygen Demand
BPGCP / Biomass Power Generation and Cogeneration Project
BPIMB / Bank Pembangunan & Infrastruktur Malaysia Berhad
CETDEM / Centre for Environment, Technology and Development Malaysia
CETREE / Centre for Education and Training in Renewable and Energy Efficiency
CHP / Combined Heat and Power
CH4 / Methane
CIDA / Canadian International Development Agency
CO2 / Carbon Dioxide
COGEN / Cogeneration
CPO / Crude Palm Oil
CTA / Chief Technical Advisor
DANCED / Danish Cooperation for Environment and Development
DOE / Department of Environment
DSM / Demand Side Management
EE / Energy Efficiency
EFB / Empty Fruit Bunches
EBF / Energy Business Fund
EC / Energy Commission
EPU / Economic Planning Unit
ESCO / Energy Service Company
ESI / Energy Services Industry
FMM / Federation of Malaysia Manufacture
FRIM / Forest Research Institute of Malaysia
GDP / Gross Domestic Product
GEF / Global Environmental Facility
GHG / Green House Gases
GoM / Government of Malaysia
GW; GWh / Gigawatt; Gigawatt-hour
H2S / Hydrogen Sulphide
HAZOP / Hazardous Operating Procedure
IAPG / Inter Agency Planning Group
ILSAS / Institute Latihan Sultan Ahmad Shah
IPP / Independent Power Producer
IRPA / Intensify Research Priority Areas
JBEG / Department of Electricity and Gas Supply
Ktoe / KiloTon of Oil Equivalent
KW / Kilowatt
LPAC / Local Project Appraisal Committee
MACRES / Malaysian Centre for Remote Sensing
MECM / Ministry of Energy Communication and Multimedia
MEOT / Minimum Energy off Take
MESITA / Malaysian Electricity Supply Industry Trust Account
MIEEIP / Malaysian Industrial Energy Efficiency Improvement Project
MITI / Ministry of International Trade and Industry
MoF / Ministry of Finance
MOSTE / Ministry of Science, Technology and Environment
MOU / Memorandum of Understanding
MPI / Ministry of Primary Industry
MPOA / Malaysian Palm Oil Association
MPOB / Malaysian Palm Oil Board
MT / Metric Ton
MTIB / Malaysian Timber Industry Board
MW; MWh / Megawatt; Megawatt-hour
NEDO / New Energy and Industrial Technology Development Organization
NPD / National Project Director
NSC / National Steering Committee
PDF-A / Project Development Facility phase A
PM / Project Manager
PMC / Project Monitoring Committee
PMT / Project Management Team
POME / Palm Oil Mill Effluent
PPA / Power Purchase Agreement
PTM / Malaysian Energy Centre
RE / Renewable Energy
RPR / Residue to Product Ratio
SCORE / Small Committee on Renewable Energy
SEB / Sabah Electricity Sdn Bhd
SESCO / Sarawak Electricity Company
SIRIM / SIRIM Berhad
SPP / Small Power Producers
SMIDEC / Small and Medium Industry Development Corporation
TNB / Tenaga Nasional Berhad
UNDP / United Nations Development Programme
UNFCCC / United Nations Framework Convention on Climate Changes
UKM / Universiti Kebangsaan Malaysia
UNITEN / Universiti Tenaga Nasional
UPM / Universiti Putra Malaysia
USM / Universiti Sains Malaysia
UTM / Universiti Teknologi Malaysia

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