EXECUTIVE SUMMARY

UNIDO is implementing a project under GEF-4 cycle entitled “Mini-Grid Based Renewable Energy (RE) Biomass sources to Augment Rural Electrification in ”. Previous feasibility studies identified nine Local Government Areas (LGAs) in Ondo and Ogun states with large potential for power generation utilizing biomass waste from saw-mills. UNIDO engaged an International Biomass Expert to develop business proposals for the identified LGAs.

Under this project, business proposals are developed for wood waste based biomass power plant in eight identified clusters. North and South LGAs are considered as one cluster in this business plan report. Table A provides the summary cluster characteristics from the nine LGAs.

Table A: Cluster characteristics

No. Characteristics Abeokuta Abeokuta Ijebu North Akure South Idanre Odigbo North South North

1. Age of the sawmills (years) 8 - 40 1 -40 1 – 40 1 – 40 1 – 30 1 – 30 1 – 30 1 – 30 1 – 30 15 19 63 41 36 88 26 44 52 2. No. of sawmills 15 18 63 41 36 88 26 44 52 3. No. of diesel generators (service + back-up) 50 – 250 50 – 150 60 – 150 60 – 250 85 – 250 85 – 250 85 – 250 85 – 250 85 – 250 4. Capacity of diesel generator (min- max) (kW) 1.5 – 25 1 – 25 1 – 25 1 – 25 1 – 20 1 – 20 1 – 20 1 – 25 1 – 20 5. Age of diesel generators (years)

60 60 60 60 60 60 6. Diesel consumption of 60 60 70% of power is generator for 10-hour non- available daily continuous operation with from grid on one band saw and 1 circular average (not saw (litre) consistent). Remaining hours Diesel generator is used with 2 hours break in between. No. Characteristics Abeokuta Abeokuta Ijebu Ode Ijebu Akure North Akure South Idanre Odigbo Owo North South North Average wood waste sale 1,600 1,600 1,600 7. 2,000 2,000 1,600 1,600 2,000 2,000 price/ton Naira/ton Naira/ton Naira/ton Naira/ton Naira/ton Naira/ton Naira/ton Naira/ton Naira/ton

8. Current pattern of energy use No grid No grid Sawmills The saw Sawmills are Sawmills are 20% of No grid 30% of power. power. are mills are connected to connected to power is power. power is connected connected grid. Grid power grid. Grid power available available 10 hours of 10 hours 10 hours of to grid. to grid. is available for 6 is available for 2- daily from daily from Diesel of Diesel Diesel Grid power Grid hours a day. 3 hours a day. grid on grid on generator generator generator is available power is Remaining time Remaining time average average (not use with use with use with 2 for 2 to 3 available diesel generator diesel generator (not consistent). 2 hours 2 hours hours break hours a for 2 -3 is used. is used. consistent). Remaining break in break in in between day. hours a Remaining hours diesel between between Remaining day. hours generator is time diesel Remaining Diesel used with 2 generator time generator hours break is used. diesel is used in between. generator with 2 is used. hours break in between.

Above 135 Above 135 115 Above 135 105 9. Weighted average cost Above 107 Above 107 66 105 of electricity (Naira/kWh) 50 10 10 30 10 11. No. of wood working units in 25 10 30 40 the cluster The waste generated from each sawmill was estimated through the average log processing capacity of each sawmills. The waste generated includes sawdust, wood off cuts, wood barks, plain shavings, wood rejects, etc. The summary of all wastes – wood waste, slabs, sawdust that are available for power generation is provided in Table B.

Table B: Total waste available for power generation from sawmills Waste type & South Ijebu Ode Akure North Akure South Idanre Odigbo Owo

Quantity available for power generation (ton)

Wood waste 11,722 27,797 20,375 20,181 64,348 9,730 28,098 23,497

Sawdust 9,890 23,454 17,192 17,028 54,294 8,210 23,708 19,826

Slabs 6,593 15,636 11,461 11,352 35,828 5,473 15,805 13,217

Total 28,205 66,886 49,028 48,561 154,470 23,413 67,611 56,541

At present sawdust is burned and some part of the wood waste is used in bakery and other commercial enterprises for heating applications. However, the government is planning to introduce LPG and other clean cooking fuel for cooking application. Once the clean cooking fuels usage is adopted, the current use of wood waste in such cooking practice will be significantly reduced.

The electricity demand in the different clusters is due to the presence of circular saws, band saws, auxiliary loads and the wood working factories. The electricity demand in different clusters is given in Table C.

Table C: Total and actual electricity demand in the clusters

No. Cluster Total demand (kW) Actual demand (kW)

1. Abeokuta North 615 492

No. Cluster Total demand (kW) Actual demand (kW)

2. 779 623

Sub-Total 1,394 1,115 3. Ijebu Ode 3,800 3,040 4. Ijebu North 2,656 2,124 5. Akure North 2,481 1,985 6. Akure South 6,690 5,352 7. Idanre 1,017 815 8. Odigbo 4,528 3,622 9. Owo 3,826 3,061

A minimum of 2 MW a n d m a x i m u m o f 1 0 MW power plant size is considered for implementation, based on the fuel availability in the LGAs and the load demand available in each cluster. The quantity of estimated annual wood waste generated from each cluster exceeds the power plant requirement for, ensuring the fuel security for the continuous operation of the power plant for each cluster. Apart from this, around 10% of the fuel requirements can be from other biomass residues such as forest logging wastes, cassava rhizome, palm tree trunks, palm shell, rice straw, etc. The wood wastes available from sawmills from other LGAs in the state also can be utilized for the power plant. These possibilities of other biomass fuel availability for power plant usage can be studied in detail during power plant implementation.

Gasification and steam thermal technologies were considered for power plant. Gasification technology has not been successful for sawdust fuel and to certain extent for other wood wastes as well. Steam thermal technology is proven one for such biomass power generation for

more than 100 years. Hence, steam thermal technology is chosen for this project. The technical parameters for steam thermal system are summarized in Table D.

Table D: Technical summary of the 2 MW steam thermal power plant Parameter Abeokuta Ijebu Ode Ijebu North Akure North Akure South Idanre Odigbo Owo North & South

Gross power generation, MW 2 5 5 5 10 2 5 5

Parasitic load,% 12 10 10 10 8 12 10 10

Capacity utilization factor, % 95 95 95 95 95 95 95 95

Net power generation, MW 1.760 4.5 4.5 4.5 9.20 1.760 4.5 4.5

Transmission loss, % 5 5 5 5 5 5 5 5

Net power available for sales, 1.672 4.275 4.275 4.275 8.74 1.672 4.275 4.275 MW LHV of fuel, MJ/kg 12 12 12 12 12 12 12 12

Annual operating hours 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000

Fuel required per hour, tons 3.5 8.75 8.75 8.75 17.5 3.5 8.75 8.75

Fuel required per year, tons 26,600 66,500 66,500 66,500 133,000 26,600 66,500 66,500

Water required, m3/hr 12 30 30 30 60 12 30 30 Land required, acres 10 25 25 25 40 10 25 25

Man-power requirement, 40 45 45 45 50 40 45 45 numbers

The power plants may be located near each LGA sawmill cluster. The state governments can provide land for the power plant site as its contribution to this project. For Nigerian conditions, EPC approach is the most recommended one. The project can follow international practice/rules in EPC selection and contracting. This would also ensure plant construction and commissioning activities in compliance with international standards. The summary of electricity off-take from the power plant is provided in Table E.

Table E: Electricity off-take from power plant Parameters Unit Abeokuta Ijebu Ode Ijebu North Akure Akure Idanre Odigbo Owo North & South North South Gross electricity MW 2 5 5 5 10 2 5 5 generation MWh/y 15,200 38,000 38,000 38,000 76,000 15,200 38,000 38,000

Parasitic load & MW 0.328 0.725 0.725 0.725 1.26 0.328 0.725 0.725 transmission losses MWh/y 2,493 5,510 5,510 5,510 9,576 2,493 5,510 5,510

Net power available for MW 1.672 4.275 4.275 4.275 8.74 1.672 4.275 4.275 sales MWh/y 12,707 32,490 32,490 32,490 66,424 12,707 32,490 32,490

The existing electricity generation cost of different consumers using diesel generators and grid power can also be taken into account in fixing the sale price of electricity. This price varies from 70 Naira/kWh to 135 Naira/kWh. The short description of such electricity costs is provided in the main report.

The estimated project cost for implementation of the power plant is provided in Table F.

Table F: Major project cost components

Item Abeokuta Ijebu Ode Ijebu North Akure North Akure South Idanre Odigbo Owo North & South Cost, ‘000 USD

4,000 8,750 8,750 8,750 15,000 4,000 8,750 8,750 EPC (excluding civil works)

800 1,750 1,750 1,750 3,000 800 1,750 1,750 Civil works

100 150 150 150 200 100 150 150 Site preparation

100 200 200 200 300 100 200 200 Tools and spare parts

200 200 200 200 300 200 200 200 Electricity off-take interconnection costs

Development/construction 600 800 800 800 1,000 600 800 800 support/training cost 50 100 100 100 150 50 100 100 Bank fees (for lending process)

100 200 200 200 300 100 200 200 Risk insurance

Contingency (5% of the total 298 608 608 608 1,013 298 608 608 project cost)

6,248 12,758 12,758 12,758 21,263 6,248 12,758 12,758 Total project cost

Source: Based on experience and discussion with equipment suppliers and experts

Based on the above cost components, the financial analysis was carried out to evaluate the economic feasibility of the project. The results of the financial analysis for each cluster are presented in Table G.

Table G: Results of the financial analysis for base case scenario

Item Abeokuta Ijebu Ode Ijebu North Akure North Akure South Idanre Odigbo Owo North & South

‘000 USD

Total project costs 6,248 12,758 12,758 12,758 21,263 6,248 12,758 12,758 Debt 4,373 8,930 8,930 8,930 14,884 4,373 8,930 8,930 Equity 1,874 3,827 3,827 3,827 6,379 1,874 3,827 3,827 Annual income 1,871 3,791 3,791 3,791 6,458 1,871 3,791 3,791

Annual operating costs 604 1,170 1,170 1,170 2,005 604 1,170 1,170

Gross margin 1,267 2,621 2,621 2,621 4,453 1,267 2,621 2,621 Electricity selling price 53 42 42 42 35 53 42 42 Post tax equity IRR 30.8 31 31 31 32 30.8 31 31

Pay-back period 6 6 6 6 5.8 6 6 6

Post tax debt-service coverage 1.84 1.85 1.85 1.85 1.89 1.84 1.85 1.85 ratio

NPV value after 40 152 152 152 632 40 152 152 interest and debt service

The financial analysis gives positive NPV at an electricity price of 53 Naira/kWh, for the 2 MW power plants; 42 Naira/kWh, for the 5 MW power plants and 35 Naira/kWh, for the 10 MW power plant.

The financial performance of the project presented is for a base case scenario. However, the base case financial results are largely influenced by several pertinent parameters. In order to assess the impact of the changes in the financial results, sensitivity analyses were carried out on the following important parameters:

 Total project cost;  Fuel price;  Electricity selling price; and  Currency exchange rate.

The risks and mitigation measures in implementation of the biomass power plant are analyzed with respect to the power plant development. The risk allocations measure to various stakeholders is also discussed in the main reports.

Conclusion & recommendations:

Overall, this is a best opportunity for the state governments and the private sector investors to partner for sustainable power generation and to earn decent return for their investment. The projects have positive socio-economic benefits including several direct and indirect job creations. Sawmills can benefit from sustainable income by sale of wood wastes and also from availability of reliable power supply

Ogun and governments can come up with the list of supports they can provide for project implementation and operation, so that the project can take shape at the earliest.

The net power will be available 24 hours and 335 days in a year (around 8,000 hours). The location of the power plant can be finalized by the investors after finalizing the main off-takers. Ideally, it is better to implement the power plant close to major off-takers and the fuel from the cluster can be transported. The mini-grid option can be discussed and finalized by investors after finalizing the off-takers and deciding the location of the power plant.