VIABILITY OF SUGAR MILL COGENERATION PROJECTS

THE ADVENT of the Australian Government’s 2% Mandated Renewable Electricity Target (MRET) in 2001 was expected to be the catalyst for numerous cogeneration projects in the Australian sugar industry. Renewable Electricity Certificate (REC) sales would effectively double the revenue that sugar mills could receive for their bagasse-based electricity generation, and a 2000 report by the Australian Greenhouse Office predicted that 755 MW of new sugar mill generation capacity would be installed by 2010, and would account for about 45% of the 9500 GWh of extra renewable generation required to meet the 2% target. REC prices were predicted to climb steadily to about $50 each by 2020, the final year of the scheme. REC prices have fallen dramatically in 2005 to about $26, and there is a market perception that sufficient projects have now been committed to meet future REC demand. Only about 150 MW of sugar mill projects have been committed since MRET, about 20% of the expected uptake. For cogeneration projects, the stagnation of MRET has been exacerbated by: the impending finish of the MRET scheme (2020); a sharp rise in capital costs due to a buoyant construction industry; the realisation that brownfield sugar mill sites require considerable ‘plant integration’ capital; a weakening price for nonfirm export electricity; and inability of embedded cogeneration projects to receive full transmission/network saving benefits. This paper includes a brief analysis of the MRET and NEMMCO markets and, using projected pricing ranges, assesses the economics and viability of a ‘typical’ sugar mill cogeneration project. Various operating scenarios are compared for both a single mill with limited bagasse fuel, and a group mill that can utilise excess bagasse from surrounding mills. Project returns clearly show that sugar mill cogeneration projects are currently unviable (if they need to be fully funded by electricity revenue), and no further projects can be expected within the sugar industry. An increase in the MRET scheme, both the target and duration, is essential to stimulate further investment in sugar mill cogeneration projects.