Economic analysis of a small-sized combined heat and power plant using forest biomass in the Republic of Korea

Abstract

Economic analysis was conducted on the feasibility of operating a small-sized (500kW/hour) gasification power plant producing heat and electricity in a rural town surrounded by forests in the Republic of Korea. Cost factors that were considered over the plant's 20-year life included wood procurement, a wood grab loader, a chipper, a chip dryer, a gasifier, a generator, land and building, wages, and office management. All the cost factors were calculated based on the 2016 market values for logs, information from machine manufacturers, and a literature review. Revenues were estimated from selling heat and electricity using the 2016 average prices that were sourced from Korea District Heating Corporation and Korea Power Exchange, respectively. Using a spreadsheet program, cash flows for costs and revenues were arranged to calculate net present value, internal rate of return, and payback period of the plant. Also, sensitivity analyses were performed on the cost of wood procurement and revenues from selling heat and electricity, which were the most significant factors affecting the economic feasibility. The results, as reinforced by the sensitivity analysis, suggest an investment in the small-sized gasification power plant may be attractive from a financial standpoint, especially if the owners are in a position to get additional revenue from heat sales and to take advantage of Renewable Energy Credits.