INTERNATIONAL COAL

Coal-fired Power Generation

Compared with other fossil fuels, flaming coal produces relatively large amounts of atmospheric pollutants: carbon dioxide (CO2), nitrogen oxides (NOx), sulphur dioxide (SO2) and particulates. So over recent decades there has been a refuse in the employ of coal for power generation. But, as supplies of other easily-available fossil fuels dwindle there remain vast deposits of coal, and the International Energy Agency estimates that coal will silent be employed to generate 38% of the world's electricity in 2020.

In European Union, environmental concerns have led to limits on the emission of pollutants. A market has been established for trading CO2 emissions. A generator has to pay for CO2 emissions at the market rate, thus they can be treated as an additional fuel cost. This might be extended to SO2, but currently generators are allocated a limit (a ‘sulphur bubble') for a year running from October to October (the ‘sulphur year').

Flue-gas desulphurisation (FGD) and ‘scrubber' technology can lessen emission levels of SO2 and NOx respectively from the exhaust gases.
Coals from dissimilar regions of the world have dissimilar composition, with dissimilar calorific values and pollutant content. Combinations of coals are often employed so that tradeoffs can be made between costs, energy and the range of emissions produced.

Newly some coal-fired plants have started to ‘co-fire', blending coal with biomass. Biomass consists of waste products from forestry (e.g. wood chips), from paper production, and from agriculture (e.g. straw and olive cake). In UK the Department of Trade and Industry (DTI) has put the target that by 2010 renewable sources must contribute 10% of the UK electricity supply, and generators are paid a supplement for each MWh of power generated this way (this is known as the Renewable Obligation Certificate, ROC, and supplement). The DTI predicts the combustion of biomass, both domestic and imported, as being the fastest growing component of the renewable energy.

International Coal

International Coal (IC) operates a large (1,000 MW) coal-fired plant in UK. They occupy a team who purchase dissimilar fuels in order to maximise margin (profit) whilst keeping in environmental limits, especially on sulphur. IC has been allocated a sulphur bubble of 30 kilo tonnes for year (to the end of October). CO2 emission is taken to be 0.8 tonnes per MWh of electricity produced.

Coal is typically bought three or more months ahead of planned burn and stockpiles are kept at the plant. Stockpiled coal is stored in mixed piles; though biomass has to be stocked separately. Transport costs are factored in the fuel prices. The plant has 35% efficiency, i.e. 35% of the calorific energy released in a burn is converted to MWh of electrical power.

Power is sold to electricity markets, and fuel buying is completed on the basis of prospect prices in these markets. Each month is divided in four price bands: classified by weekend or weekday, and peak or off-peak. (Peak periods hold a 12-hour block). Therefore there are four prospect prices for every month. Power is distributed by National Grid Company which charges IC a transmission rate of 65p per MWh.

The Problem

The fuel-buying team at IC is led by the Bob Manchester. The purchasing decisions have been relatively straightforward, except as the sulphur bubble has become more restrictive, pressure is raising to show that the best fuels are being employed. Bob believes there should be a systematic manner of considering the tradeoffs involved in the decisions being made.

It is now the end of May 2005. To test the feasibility of a modelling approach, Bob desires to examine power generation to the end of October, considering the stockpile of mixed coals at the plant, three types of coal that can be ordered for burning in September and October, and wood-chip biomass which can be bought with short lead-times. Fuel is to be paid for now, ignore discounting of any of the cash flows.

Biomass is more difficult to hold than coal, having more variable combustion characteristics (low density, extremes of particle shape, tendency to entangle and demix plus moisture has a large consequence has on their behaviour), so might not provide more than 10% of the mix (by calorific value) in any of the generating periods.

Bob has provided prospect-price data (Table 2) and fuel characteristics (Table 1). The current coal stockpile at the plant (including coals previously ordered and en route) is 600,000 tonnes and there is 30% of the ‘sulphur bubble' left this sulphur year. CO2 emission is trading at 15 Euros per tonne on the European market, which IP must pay for any CO2 produced. The ROC is £45 per MWh from renewable.

He has also mentioned a couple potential future issues. SO2 emissions are a major concern for IC. One possibility is to invest in FGD. There is also the possibility that SO2 emissions may become tradable (and so a direct cost) in the way CO2 currently is. Either of these is likely to have a major impact on operations at the plant, but Bob is unsure how to start quantifying the potential benefits.

Assignment

Your charge is to

• Build and elucidate a prototype model

• Use your model to recommend a schedule of the burning and, if necessary buying, fuels

• Use your model and its results to offer:

- Any further guidance on impact of the costs of the fuels in particular, since these are prospects prices, the effects of any drops in price

- Any insights you can in the issues of FGD and sulphur-trading

Data

Table 1: Characteristics of Fuels

Table 2: Future Electricity Prices