eonomi s of the ioenergy projets in the iovill target...

ECONOMICS OF THE BIOENERGY PROJECTS IN THE BIOVILL TARGET VILLAGES

Project Title:

Bioenergy Villages (BioVill) – Increasing the Market Uptake of Sustainable Bioenergy

Grant Agreement № 691661

Deliverable № 5.4. – Tool and report on the economics of the bioenergy projects in the villages

Lead Partner:

KEA– Climate Protection and Energy Agency of Baden-Württemberg (Germany)

Submission date: December 2017

BioVill – Del. 5.4 Tool and report on the economics of the bioenergy projects in the villages

This project has received funding from the European Union’s Horizon 2020 research and innovation programme

under Grant Agreement N° 691661

Imprint

This document is issued by the consortium formed for the implementation of the BioVill project under Grant Agreement № 691661 by the following partners: GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (Germany) WIP Wirtschaft und Infrastruktur GmbH & Co Planungs- KG (Germany) KEA Klimaschutz- und Energieagentur Baden-Württemberg (Germany) AEA Österreichische Energieagentur Austrian Energy Agency (Austria) REGEA Regionalna Energetska Agencija Sjeverozapadne Hrvatske (Croatia) SDEWES-Skopje International Centre for Sustainable Development of Energy, Water and Environment Systems - Macedonian Section (Macedonia) GEA Asociatia Green Energy (Romania) GIS Gozdarski Institut Slovenije (Slovenia) SKGO Stalna Konferencija Gradova i Opstina (Serbia)

Partner for the compilation of this document:

KEA – Klimaschutz- und Energieagentur Baden-Württemberg (Germany)

Contact:

KEA - Klimaschutz- und Energieagentur Baden-Württemberg (Germany) Kaiserstr. 94a 76133 Karlsruhe Germany Authors of the report:

Konstanze Stein (KEA), Martina Riel (KEA), Martina Krizmanić (REGEA), Valerija Vrček Habazin (REGEA), Velimir Šegon (REGEA), Miljenko Jagarčec (REGEA), Vasil Bozhikaliev (SDEWES), Ilija Sazdovski (SDEWES), Tino Aleksov (SDEWES), Ljupcho Dimov (SDEWES), Natasha Markovska (SDEWES), Sebestyén Tihamér (GEA), Miodrag Gluščević (SKGO), Slobodan Jerotic (SKGO), Dejan Ivezic (SKGO), Nike Krajnc (GIS), Polona Hafner (GIS), Darja Kocjan (GIS) Copyrights:

© 2017 by the authors. No part of this work may be reproduced by print, photocopy or any other means without the permission in written from the main authors.

Disclaimer:

Neither GIZ nor any other consortium member nor the authors will accept any liability at any time for any kind of damage or loss that might occur to anybody from referring to this document. In addition neither the European Commission nor the Agencies (or any person acting on their behalf) can be held responsible for the use made of the information provided in this document. Further information about the BioVill project on: www.biovill.eu

http://www.biovill.eu/


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2.1.1 Lekenik ............................................................................................................................ 12

2.1.2 Perušić ............................................................................................................................. 13

2.2.1 Lekenik ............................................................................................................................ 14

2.2.2 Perušić ............................................................................................................................. 15

2.3.1 Lekenik ............................................................................................................................ 15

2.3.2 Perušić ............................................................................................................................. 17

2.4.1 Lekenik ............................................................................................................................ 20

2.4.2 Perušić ............................................................................................................................. 20

2.5.1 Lekenik ............................................................................................................................ 21

2.5.2 Perušić ............................................................................................................................. 22

2.6.1 Lekenik ............................................................................................................................ 24

2.6.2 Perušić ............................................................................................................................. 24

4.1.1 Estelnic ............................................................................................................................ 34

4.1.2 Ghelinta ........................................................................................................................... 36

4.2.1 Estelnic ............................................................................................................................ 38

4.2.2 Ghelinta ........................................................................................................................... 39

4.3.1 Estelnic ............................................................................................................................ 39

4.3.2 Ghelinta ........................................................................................................................... 42

Contents

Contents ................................................................................................................................................................... 3

List of Figures ............................................................................................................................................................ 5

List of Tables ............................................................................................................................................................. 6

Abbreviations and acronyms ..................................................................................................................................... 7

Executive Summary ................................................................................................................................................... 8

1 Introduction ...................................................................................................................................................... 11

1.1 The BioVill project .............................................................................................................................. 11

1.2 Scope of the task/deliverable ............................................................................................................ 11

2 Economic assessment of the bioenergy concept in the Croatian target villages ................................................. 12

2.1 Technical concept and other infrastructure ..................................................................................... 12

2.2 Potential investor ............................................................................................................................... 14

2.3 Economic project calculation ............................................................................................................. 15

2.4 Potential financing concept ............................................................................................................... 20

2.5 Operation and maintenance concept ............................................................................................... 21

2.6 Summary ............................................................................................................................................. 24

3 Economic assessment of the bioenergy concept in the Macedonian target village ............................................ 25






3.6 Summary ............................................................................................................................................. 32

4 Economic assessment of the bioenergy concept in the Romanian target villages .............................................. 34





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4.4.1 Estelnic ............................................................................................................................ 45

4.4.2 Ghelinta ........................................................................................................................... 46

4.5.1 Estelnic ............................................................................................................................ 46

4.5.2 Ghelinta ........................................................................................................................... 47

4.6.1 Estelnic ............................................................................................................................ 47

4.5.2 Ghelinta ........................................................................................................................... 48



4.6 Summary ............................................................................................................................................. 47

5 Economic assessment of the bioenergy concept in the Serbian target village .................................................... 49






5.6 Summary ............................................................................................................................................. 55

6 Economic assessment of the bioenergy concept in the Slovenian target village ................................................ 56






6.6 Summary ............................................................................................................................................. 61

References .............................................................................................................................................................. 62


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List of Figures

Figure 1: Planned buildings for connection to district heating grid, Kichevo ............................................................. 25

Figure 2: Possible trench for district heating grid, Kichevo (Source: ArcGIS) ............................................................. 26

Figure 3: Location of the biomass / CHP plant and heat consumers in Estelnic ........................................................ 34


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List of Tables

Table 1: Overview about technical parameters in target villages ................................................................................. 8

Table 2: Calculated investments and potential investors in target villages ................................................................. 9

Table 3: Parameters of the economic calculations for the bioenergy village projects ................................................ 9

Table 4: Potential operators for the planned DH systems in target villages .............................................................. 10

Table 5: Specific fuel costs, Croatia (Source: REGEA, City gasworks Zagreb, Ministry of Economy) ........................ 14

Table 6: Estimation of investment costs for biomass DH system in the municipality of Lekenik ............................. 15

Table 7: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Lekenik ............................................................................................................. 16

Table 8: Cash-flow analysis, Lekenik ............................................................................................................................. 17

Table 9: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Perušić ............................................................................................................. 18

Table 10: Cash-flow analysis, Perušić ........................................................................................................................... 19

Table 11: Operation and maintenance costs in the first year ..................................................................................... 19

Table 12: Annual maintenance costs assessment; Lekenik ......................................................................................... 22

Table 13: Facilities in the cogeneration plant, Perušić (Source: Viševica Energo Ltd, according to the main design) ............................................................................................................................................. 22

Table 14: Overview of technical characteristics, Perušić (Source: Viševica Energo Ltd, according to the main design) ............................................................................................................................................. 23

Table 15: Estimated investment costs for biomass district heating system, Kichevo ............................................... 28

Table 16: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Kichevo ............................................................................................................ 28

Table 17: Cash-flow analysis, Kichevo .......................................................................................................................... 29

Table 18: Operation and maintenance costs of biomass district heating system, Kichevo ...................................... 32

Table 19: Suitability of building typologies for a biomass-fuelled heat supply system in Estelnic ........................... 35

Table 20: Technical parameters of biomass based DHS in Estelnic ............................................................................ 35

Table 21: Suitability of building typologies for a biomass-fuelled heat supply system in Ghelința .......................... 37

Table 22: Estimation of investment costs for biomass DH system in the municipality of Estelnic, GEA ............................................................................................................................................................... 40

Table 23: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Estelnic .......................................................................................................... 41

Table 24: Cash-flow analysis, Estelnic .......................................................................................................................... 42

Table 25: Estimation of investment costs for biomass DHS in the municipality of Ghelinta .................................... 43

Table 26: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Ghelinta ........................................................................................................ 44

Table 27: Cash-flow analysis, Ghelinta ......................................................................................................................... 45

Table 28: Annual maintenance costs assessment, Estelnic ........................................................................................ 46

Table 29: Annual fuel and maintenance costs assessment of DHS, Ghelinta ............................................................ 47

Table 30: Estimation of investment costs for biomass DH system in the village of Kostojevići ................................ 51

Table 31: Structure of the investment in DH system, Kostojevići ............................................................................... 51

Table 32: Cash-flow analysis, Kostojevići ..................................................................................................................... 52

Table 33: Estimation of annual operation and maintenance costs, Kostojevići ........................................................ 54

Table 34: Estimation of investment costs for biomass DH system, Dole pri Litiji ...................................................... 57

Table 35: Technical characteristics and related investments of the biomass heating system, Dole pri Litiji ...................................................................................................................................................... 58

Table 36: Cash-flow analysis, Dole pri Litiji .................................................................................................................. 59

Table 37: Estimation of annual operation and maintenance costs, Dole pri Litiji ..................................................... 60


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Abbreviations and acronyms

a Year (lat. Anno) AEA Austrian Energy Agency (Austria) CHP Combined Heat and Power DH District Heating DHS District Heating System EE Energy Efficiency EIB European Investment Bank EPC Energy Performance Contracting EBRD European Bank for Reconstruction and Development ERDF European Regional Development Fund ESC Energy Supply Contracting ESCO Energy Service Company EU European Union GEA Asociatia Green Engergy (Romania) GGF Green for Growth Fund GIS Gozdarski Institut Slovenije (Slovenia) GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (Germany) IPARD Instrument for Pre-Accession Assistance in Rural Development IRR Internal Rate of Return KEA Klimaschutz- und Energieagentur Baden-Württemberg (Germany) KfW Kreditanstalt für Wiederaufbau kW Kilowatt L Litre MBDP Macedonian Bank for Development Promotion NPV Net present value ORC Organic Rankine Cycle PE Public Enterprise PPP Public-Private Partnership REGEA Regionalna Energetska Agencija Sjeverozapadne Hrvatske (Croatia) RES Renewable Energy Sources SC Steering Committee SDEWES-Skopje International Centre for Sustainable Development of Energy, Water and Environment

Systems - Macedonian Section (Macedonia) SEFF Sustainable Energy Financing Facility SKGO Stalna Konferencija Gradova i Opstina (Serbia) SME Small and Medium-sized Enterprise VDI Verein Deutscher Ingenieure e.V. WeBSEFF Western Balkans Sustainable Energy Financing Facility WIP Wirtschaft und Infrastruktur GmbH & Co Planungs-KG (Germany)


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Executive Summary

The overall objective of the BioVill project is to support the development of regional bioenergy concepts and the establishment of bioenergy villages in the seven selected target villages in Croatia, Macedonia, Romania, Serbia and Slovenia, by identifying suitable biomass value chains according to local and regional needs and transferring existing experiences from Austria, Germany and other European countries to the South-Eastern European partners. This report presents a detailed documentation of the economics of the bioenergy projects as well as of the current stage (until August 2017) of the development of the bioenergy concepts in the target villages. It further refers to already taken decisions, solved problems and lessons learnt but also to still existing challenges and the potential risks as well as risk mitigation measures, to be applied during the further planning process.

According to the analyses and techno-economical calculations realized in work package 4 of the BioVill project, the local stakeholders in the target villages elaborated various technical options for a local biomass based heat and power production, i.e. the implementation of biogas plants, biomass/woodchip boilers, biomass based CHP plants, district heating networks as well as decentralised biomass based heating systems. A preliminary design of the possible technical solution was done, but needs to be further detailed and adapted to the energy demand of the heat consumers during the next planning stages. As shown in the summary tables below, the partners decided for different technologies as well as for different ways, how to deal with the risk of too large capacities of the heating systems and the related high investment costs.

Croatia Romania

Lekenik Perušić Estelnic Ghelinta

Technology for Centralised Heat & Power Generation

- 2 wood chip boilers (base load)

- Fuel boiler (peak load)

- DHS (app. 1,126 m)

Concept 1: - Wood chip boiler

(base load) - Fuel boiler (peak

load) - DHS (app. 9,084 m) Concept 2: - (CHP to be

examined)

- Wood chip boiler (base load)

- Fuel boiler (peak load)

- DHS (app. 678 m)


- Fuel boiler (peak load

- DHS (app. 365 m)

Total Capacity 1,240 kW Concept 1: 5,030 KW Concept 2: 2,500 kWel /

7,500 kWth

4,000 kW 1,920 kW

Connection Concept

Public and private buildings

202 buildings Municipal, commercial and private buildings

Enlarging existing school network

Decentralised Heat Generation

Mayor’s office

Macedonia Serbia Slovenia

Kichevo Kostojevici Dole pro Litiji

Technology for Centralised Heat & Power Generation

- wood-chip boiler (base load) - Existing fuel boiler (peak load)

- wood-chip boiler (base load)

- Existing fuel boiler (peak load)


- Fuel boiler (peak load) - DHS (app. 890 m)

Total Capacity 8,000 KW 1,450 KW 750 KW

Connection Concept

Start with a smaller biomass boiler (1 MW) and supplement later with a 4 MW biomass boiler

Enlarging the existing DHS and reconnecting former / connecting new consumers

Municipal ,industrial and private buildings

Decentralised Heat Generation

CHP in new industrial area

Table 1: Overview about technical parameters in target villages

Furthermore, for each of the technical options, the necessary investment costs for the implementation of the planned DH systems were calculated. Since the technology, size and capacity of the planned DH systems varies strongly between the target villages and the price levels for the technologies and the energy resources are very different in the countries, the calculated investment costs range from 280,000 Euro in Serbia to more than


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12.5 million Euro in Croatia. In the planning process, the local stakeholders discussed also different options for an potential investor for the DH system. The currently pursued strategies in the villages show different approaches, as can be seen in the following table.

Croatia Romania


Calculated investments (in EURO excl. VAT)

590,000 - 5,242,800 (concept 1 - DHS)

- 12,500,000 (concept 2-CHP)

970,000 705,071

Potential investors Municipality - For DHS: Municipality

- For CHP: company Viševica Energo Ltd

Municipality Municipality



Calculated investments (in EURO excl. VAT)

687,528 280,000 417,373

Potential investors Two options: - Public Enterprise (PE) by the

Municipality - Public-Private Partnership (PPP)

Three options: - Energy cooperative - BB Therm / Municipality - Private company

- Private partner for heat generation facilities

- Municipality for DHS - Cooperative for

production of woodchips

Table 2: Calculated investments and potential investors in target villages

Based on the individual conditions in the villages and the selected technical solutions, the BioVill partners carried out an economic calculation for the planned concepts. The results of these calculations are first indicators for the feasibility of the projects, but need to be refined step by step during further planning process in the next months. All analysed options show positive results, i.e. the net present value in a period of 25 years is greater than zero and the internal rate of return ranges from 4.8 to 9.3 percent. Only the calculation for Dole pro Litiji with investment costs presents negative results and a discounted payback time longer than 25 years.

Croatia Romania


Discounted pay-back time (years) 23.0 16.7 12.1 12.4

NPV (Euro) 39,119 576,387 90,302 235,335

Internal rate of return (%) 5.4 6.4 8.4 9.3

Macedonia Serbia Slovenia1


Discounted pay-back time (years) 4.5 10.5

With reinvestment >25 Without reinvestment 12

NPV (Euro)

249,626 59,900

-19,752 in year 25 +28,000 in year 20 (before reinvestment)

Internal rate of return (%) 7.1 8.7 4.8

Table 3: Parameters of the economic calculations for the bioenergy village projects

However, the financing of the planned investments still needs to be clarified in all target villages in the further planning process. All project partners stated the need for subsidies, mostly investment subsidies, to improve the economic results and thus, the feasibility of the planned projects. According to the framework analyses, prepared by the BioVill project, the current availability of and preconditions for subsidies and grants vary

1 Since the results of the Slovenian project calculation depend very much on the reinvestment calculation, results before and after

reinvestment are documented.


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significantly between the target countries, despite the fact that in almost all partner countries relevant support programs exist. The local partners with support of the BioVill project will elaborate other eligible financing sources in the next months.

Already in the current planning stage, the operation of the future DH system and the maintenance of the technical equipment have to be considered. Thus, local actors also discussed potential options for the DH system operation, taking into account that an efficient operation of the technical devices needs relevant resources and experienced staff.

Croatia Romania


Operator (also responsible for maintenance)

Municipal company Private company Viševica Energo ltd

Municipal company Municipal company



Operator (also responsible for maintenance)

The investor (Public enterprise or private company)

Probably private company Private company

Table 4: Potential operators for the planned DH systems in target villages

To sum it up, for all target villages potential concepts and feasible solutions for the establishment of a bioenergy village were identified. Though, these concepts need to be further detailed and specified in the following planning steps in order to confirm the positive results of the calculations and to provide the basis for the elaboration of economic viable business models. The analyses also show, that in the current stage of the project, the local stakeholders still face challenges and open questions regarding the project implementation, e.g. exact number of building owners, willing to connect to the DH system; reliable biomass price; total amount of investment costs; availability of subsidies and support programs etc., which have to be clarified in order to ensure a successful project implementation. The results presented in the report will now be used to inform key stakeholders and decision makers in the target villages and in other relevant institutions and to lobby for support of the implementation of the bioenergy projects. Furthermore, the lessons learnt will be spread among the partner villages and other interested communities.


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1 Introduction

1.1 The BioVill project

BioVill is a three years project supported by the European Union's Horizon 2020 research and innovation programme with a budget of around 1.99 million Euro. The project started in March 2016 and is implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH in collaboration with 8 partners from the BioVill target partner countries Croatia, Macedonia, Romania, Serbia and Slovenia, as well as from Germany and Austria.

Many South East European countries have high biomass potentials, but these potentials are often not or only inefficiently used for local energy supply and regional economic development. Thus, the overall objective of the BioVill project is to support the development of regional bioenergy concepts and the establishment of bioenergy villages in Croatia, Macedonia, Romania, Serbia and Slovenia. This will be achieved by identifying suitable biomass value chains according to local and regional needs and transferring existing experiences in Austria, Germany and other European countries to the South-Eastern European partners. Thereby the market uptake of domestic bioenergy supply chains will be increased and the role of locally produced biomass as a main source of energy supply and added value for the local and regional economy will be strengthened.

Core activities of the BioVill project include national and local framework analyses, technological and economic assessments of local bioenergy value chains, development of the institutional set-up and energy management concepts for the potential bioenergy villages as well as capacity building on financing schemes and business models. As a key factor of success the BioVill project uses a multi stakeholder approach fostering the involvement and active participation of the citizens and all relevant stakeholders in the planning and implementation process.

Major results of the BioVill project will be the initiation of at least five bioenergy villages in the target partner countries up to the investment stage for physical infrastructure, the raise of public acceptance and awareness of a sustainable bioenergy production and its commercial opportunities as well as increased capacities of users and key actors in business and legislation to sustainably manage bioenergy villages and to enact national and EU legislation. Altogether, the BioVill project will contribute to the expansion and sustainability of the bioenergy markets in Europe and the European Union.

1.2 Scope of the task/deliverable

This report presents a detailed documentation of the economics of the bioenergy projects as well as of the current stage of the development of the bioenergy concepts for the seven villages of the BioVill project in Croatia, Macedonia, Romania, Serbia and Slovenia. The bioenergy concepts comprise the planned technical and infrastructure installations, the identified potential investors, the economic results based on the calculations carried out in work package 4 of the BioVill project, the analysed financing options as well as the operation and maintenance concept. Thus, the report summarizes the planning process, which was undertaken until August 2017 for the relevant key elements of the business model for the potential bioenergy village to be established in future. This includes also a description of the targets, which the stakeholders want to achieve with the establishment of the bioenergy village.

The local and national framework conditions are very different and the stakeholders in the partner villages face various challenges in the implementation of the bioenergy villages approach and have to find individual solutions for it. Thus, the report also reflects on existing challenges and risks, proposals how to deal with them and solutions, which have been found or mitigation measures which were implemented already. From this, lessons learnt shall be derived and disseminated, that may help other interested stakeholders to avoid similar pitfalls and to improve the development process for a bioenergy village.


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2 Economic assessment of the bioenergy concept in the Croatian target villages

2.1 Technical concept and other infrastructure

2.1.1 Lekenik

Potential technical solutions for the municipality of Lekenik to become a bioenergy village are based on wood and wood residues as primary energy source. This focus has been determined by the stakeholder participation processes and discussion with local experts. Using other biomass sources such as agricultural residues or bio waste is considered as not feasible at the moment. Due to the high number of public buildings, the preferential bioenergy technology is a district heating system in the center of Lekenik. Discussions have shown that a biomass heating plant will the suitable solution for Lekenik. The report “Opportunities to set up biomass-based CHP plants and small district heating networks in the target villages” analyses the opportunities to set-up a biomass small district heating network in the municipality of Lekenik and describes the results of the techno-economic analyses and calculations on different opportunities in detail.

Lekenik has a high number of large-scale public buildings. Educational, cultural, social welfare and sport institutions are situated near of the village center. The high density of potential energy consumers offers the opportunity of implementing a district heating plant based on biomass combined with an efficient DHS. This will potentially connect 14 public buildings in the centre, such as the SOS Children’s Village Lekenik – consisting of six semi-detached and eight detached buildings, the Social Centre of the SOS Children’s Village, the Lekenik kindergarten, the Lekenik Football Club, the Mladost Primary School and the Lekenik National Library. Including private buildings, the network will connect 18 buildings with a total area of 13,118 m2. The biomass heating plant will have a peak load capacity of 900 kWth and a length of 1,126 m. An optimal routing of the network will minimize thermal losses and increase the economic viability of the system. The implementation of DH will surely provide many positive effects, such as creating and securing jobs, environment benefits and increasing the competitiveness of forestry sector. In November 2016, the municipality of Lekenik conducted the survey on awareness and attitudes about biomass energy for setting up a bioenergy village (BioVill project, 2016 a) in one of the settlements were the bioenergy village approach shall be implemented. The results confirm that the majority of respondents from Lekenik are interested in changing the current way of heating to a more efficient and sustainable (biomass based) way. Also 43% expressed their willingness to connect their house to a district heating system based on biomass and 28% of them were not yet sure and answered “Maybe”. Only 8 respondents answer with “No”. In remote areas, BioVill activities are focused on replacing old heating systems on heating oil and natural gas. The preferred technologies will be modern and more convenient firewood/biomass boilers using electronic control and gasification technologies. Additionally, comfortable heating systems based on pellets are an opportunity to replace inconvenient stoves in households of elderly citizens.

Buildings, which are planned to be connected to a district heating system, are currently using fossil fuels. The buildings’ annual heat demand is 1,088 MWhth/y and the total annual energy costs amount to 67,000 EUR/y without VAT. The amount is calculated on the basis of the prices of liquefied petroleum gas 0.61 EUR/kg and extra light oil 0.53 EUR/l excl. VAT. After implementation of the biomass DH plant the biomass fuel costs are expected to be 30,000 EUR/y (2020); total annual expenses are expected to be 96,000 EUR/y.

The prefeasibility study takes into account existing spatial plans as well as already constructed facilities. Consumers with the boiler room will be connected to the DHS in the shortest way. The diameter of the pipes depends on the energy transferring fluid, flow and return temperatures, and the pressure drop.

The prefeasibility study also considers the basic technical solutions that are applied in the heat supply systems with the following characteristics of the heating system:

• Two-pipe steam system;

• Temperature regime 90/70 °C;

• Underground pre-insulated piping system;

• Individual connection of stand-alone facilities.

The modelling of the heating network for district heating systems also includes substations (energy transfer stations). The required power of the substations is determined by the actual heat energy demand in the


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buildings. The substation can be mounted on a wall or in a closed room. It is equipped with a heat exchanger, a circulation pump, a calorimeter, a measuring and control instrument and other necessary equipment.

The prefeasibility study analyses the economic efficiency of implementing the biomass district heating system in the municipality of Lekenik. The total investment costs in new biomass DHS are estimated on app. 594,000 EUR, excl. VAT. The majority of the investment costs involve the biomass boiler and heating grid network.

A good annual efficiency of the whole system has to be realised in order to ensure an economic plant operation. The annual efficiency for the biomass boiler and the heating grid depends on the localization of the biomass plant, the connection density and the degree of capacity utilization (full load hours). These impacts will be considered during the project implementation strongly. The lessons learnt of the project will be disseminated to other stakeholders to maximize the project success and its impact.

Members of the local bioenergy working group pointed out their concerns regarding limited financing options for bioenergy projects in Croatia. Thus, this issue will be the main focus in the next weeks.

2.1.2 Perušić

In Perušić all rural households use firewood for heating (wood stoves), while public buildings and industrial areas are heated by gas and fuel oil.

The conducted survey in municipality of Perušić showed that citizens and stakeholders in the village want to change their current way of heating (BIOVILL project, 2016 a). They expressed high interest in a sustainable and efficient biomass heating system. With regards to their willingness to connect their houses to a district heating system, the most of the answers were also positive (52% -yes; 39% - maybe and 9% - no). Perušić has a significant potential of biomass for energy production because it is located in a region with a long tradition of the local community to use the local wood resources. Existing climate conditions, in particular the long winters, request a significant amount of energy and a reliable source, but on the other hand, they also cause higher heating costs. Since many elderly people live in Perušić, the inhabitants find it difficult to cut the firewood by themselves.

The energy infrastructure is an important part of the development of the municipality of Perušić. Therefore the district heating network powered by cogeneration plant on biomass represents a viable solution for the citizens of municipality of Perušić. Energy savings and financial savings are expected for the local population, for entrepreneurs and public institutions. There exist two options: In option one the municipality will install and operate a district heating system. The envisaged DH network will at least connect 202 buildings within three phases. The total assumed annual space heat demand of all three phases is assumed on 12,367 MWh/y. The total connected consumer peak load is calculated with 8,245 kW. A trench length of 9,084 m was assumed for the DH grid. Furthermore, the district heating plant has to compensate the supplied heat load for the grid losses, which are estimated to be 18% of produced heat. It is also taken into account that the cumulated consumer peak load is never demanded at the same time. Taking into account the assumed grid losses and simultaneity factor (50% of load is required at one time) the district heating plant needs to supply a peak load of approximately 5.03 MW at the boiler fringes. Therefore the 5.03 MW peak load of the district heating plant is not fully covered by wood-chip boilers, to allow longer operation of smaller, cheaper biomass boilers. A total nominal wood-chip boiler capacity of 3.4 MW (a 2.4 MW and a 1 MW biomass boiler) and a fuel oil fired boiler capacity of 1.75 MW. The latter boiler due to sizing of the biomass boilers will cover approx. 6% of the total annual heat supply of the DH grid. Underground heating network is planned on the system with water temperature regime of 90/70 °C. Pre-insulated steel pipes with alarm system for water leaks will be installed.

In the second option the domestic wood processing industry Viševica Energo Ltd. in cooperation with the municipality will set-up a biomass heat plant and a biomass CHP plant linked with a small district heating network in the village Perušić. an ORC CHP plant with an electrical capacity of 2,500 kWel and a thermal capacity of 7,500 kWth is planned. The investor owns a wood processing industry plant, situated nearby the area of the district heating grid. In the beforehand described scenario of the stand-alone biomass DH plant two biomass boilers, with 3.4 MWth and a 1.75 MWth fuel oil peak/back-up load boiler were foreseen to supply the required boiler fringe peak load of 5 MWth. In the newly defined “biomass DH + biomass CHP” scenario the DH buildings (boiler house, fuel storage) disappear completely, as the whole heat demand of the DH grid (incl. peak load) is delivered by the new biomass CHP and the boilers already installed at the wood-based industry site. At the site currently 5 MWth are supplied for in-house heat demand (based on biomass and natural gas) throughout the year. An additional heat supply up to 5 MWth is foreseen during the heating season. The existing two to three boilers have a nominal capacity of at least 4.25 MW. The new biomass CHP will add another 7.5 MW nominal


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heat capacity. Therefore, the installed heat supply facilities are sufficient to cover in-house and external peak heat demand and for supplying heat for stage three of the DH grid development. The biomass can be delivered by local forest owners and by sawmills.

With the construction of the district heating network and cogeneration plant on biomass the inhabitants have the opportunity to increase their quality of life – instead of chopping wood into logs and taking care of lighting the old wood furnace, heat is now available by simply pressing a button. The price of heat is cheaper then fossil fuel options while the regulation system enables each customer to define the desired comfort levels but also monitor the consumed heat on a constant basis.

Apart from providing cheaper and environment friendly heating, an additional benefit of the new biomass heating plant is that it creates new economic effects in the region – local forest owners can supply the plant with their own biomass and either receive heat for a lower cost or directly get paid for the delivery.

For the territory of Croatia, all prices for different wood and fossil fuels are shown below (excluding VAT):

Woodchips Firewood Pellets Natural gas Heating oil

Prices in EUR/kWh

0.016 0.017 0.0430 0.045 0.056

Table 5: Specific fuel costs, Croatia (Source: REGEA, City gasworks Zagreb, Ministry of Economy)

The price of woody bioenergy is below the prices of natural gas and heating oil. Taking into account the cost of transport for biomass fuels, which accounts to approximately 10% of the price, woodchips, pellets and firewood are still below the price of fossil fuels. Based on the price comparison, biomass is in a favourable position to compete with fossil fuels in Croatia.

According to our first communal biomass heating plant in Pokupsko municipality in Croatia, price ranges between 0.04 EUR/kWh for households (without tax) and 0.05 EUR/kWh for public buildings (without tax). Thus, a household in a standard house pays 725 EUR/y excl. tax for 18.1 MWh/y. Since the plant in Popupsko is owned and operated by the municipality, the cost of heating is kept low to be attractive to current and potential future customers.

All households Perušić, which use firewood as primary heating fuel, will get a more comfortable heat supply and will pay according to their consumption. The main challenges are the relatively high investment costs for the district heating network as well as the cogeneration biomass plant. However, the availability of EU structural funds, subsidies and financing from private partners (contracting model) are considered as a possible solutions to this challenges.

2.2 Potential investor

2.2.1 Lekenik

The overall goal is a complete replacement of fossil energy through bioenergy. Members of the local bioenergy working group pointed out their concerns regarding limited financing options for bioenergy projects in Croatia. Therefore, further activities will especially focus on providing information on possible financial subsidies for implementing a district heating system in the Lekenik municipality. Considering the limited financial resources of the municipality, but also based on discussions with key stakeholders and private entrepreneurs located in the area who might be interested in investing, it was concluded that the only real option to finance the investment costs is if the municipality will be the main investor and apply for subsidies. Potential subsidies could be provided via the Operational Programme for Rural Development, Operational Programme for Competitiveness and Cohesion or EEA/Norwegian financial mechanism.

The district heating plant in Lekenik will be owned by the municipality and managed and operated by the municipal company (which will be fully owned by the municipality). The costs of heating will be kept low to make the connection to the DHS even more attractive for current and potential future customers.

The investment costs include heating grid investment (including earthworks), boilers investment, construction and development investment (boiler room, biomass storage…) and other initial investment (project planning, approval costs…).


15

The municipality will sign preliminary heat contracts with all customers for at least 10 years, who will pay monthly for the heat – based on a fixed price and per MWh of delivered heat. The heat contracts will be used as basis for the sale of heat to customers in Lekenik.

2.2.2 Perušić

The Municipality of Perušić will be the investor of the district heating network, while the domestic wood processing company Viševica Energo Ltd will be the investor of the CHP biomass plant. Viševica Energo Ltd is a private limited liability company dealing with wood processing that needs thermal energy for drying and steaming timber, drying of pellets and heating the rooms.

In summary, due to the still unclear situation with available subsidies and conditions neither the municipality nor the private investors can make a decision on the really investments.

An additional risk is the lack of knowledge and experience: the municipality has some experience in the construction business but has not experience in production or sale of biomass products. This is an additional reason for seeking to implement this project as a joint venture, where one of the partners should have such experience.

REGEA is constantly trying to find possibilities for a successful implementation of the project, including not only subsidies but also financing mechanisms and models like the biomass heat contracting model. The project implemented by the Pokupsko municipality in Croatia has been promoted in local but also national media (especially after winning the EUSEW 2016 award) and has gained considerable attention from a number of other similar Croatian municipalities, some of which have started preparations to implement similar projects.

The goal of the future biomass cogeneration plant with a district network is to supply private houses and public buildings with heat in the municipality of Perušić.

2.3 Economic project calculation

2.3.1 Lekenik

Currently the biggest barrier to the implementation of biomass district heating projects in Croatia is the low price of fossil fuels (natural gas and heating oil), which makes most of these projects economically challenging, at least without a substantial amount of financial subsidies.

The district heating plant in Lekenik will be owned by the municipality and managed and operated by communal company. The investment in the biomass district heating amounts to approx. 590,000 EUR, excl. VAT and without obtaining financial subsidies the municipality is not able to achieve this investment. A brief estimation of investment costs is given in Table 1.

Cost estimation Amount (EUR)

Architectural design 226,666.66

Mechanical design 324,534.00

Project documentation (5% of the total investment in equipment and works) 27,560.03

Supervising (2% of the total investment in equipment and works) 11,024.01

SUM (excl. VAT) 589,784.7

Table 6: Estimation of investment costs for biomass DH system in the municipality of Lekenik

The annual heat demand is 1,372 MWh and the total annual energy costs amount to 66,919.49 EUR without VAT. The amount is calculated on the basis of the prices of liquefied petroleum gas 0.61 EUR/kg without VAT and extra light oil 0.53 EUR/l without VAT.

Since the project is still in the preparation period, some indicators are estimated very roughly and therefore may not fully match the real situation.


16

In the proposed biomass district heating plant, two biomass boilers of total 0.6 MW capacity should be installed and one fossil fuel boiler could be used as a peak load and back-up boiler. Basic technical characteristics and related investments of biomass heating system and fossil fuel reference system are given in table below.

Table 7: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Lekenik

The total initial investment according to the B4B BioHeat Calculation Tool for the biomass DH system is 593,744 EUR excl. VAT. The investment costs include heating grid investment (including earthworks), boilers investment, construction and development investment (boiler room, biomass storage…) and other initial investment (project planning, approval costs…).

The profitability assessment is based on discounted cash-flow analysis (based on VDI Guideline 2067) with a calculated service life of 25 years. The main assumptions and results can be seen in the table below. The calculations take care of re-investment of plant components according their technical service life, the latter assumed in line with VDI Guideline 2067. In year 21 of operation (2039), re-investment of biomass boilers and related electric and hydraulic equipment is assumed to be 263,000 EUR. Theoretically the technical service life of the plant would be extended for another 20 years, because of the re-investment. However, the calculated service life is 25 years only. This period is sufficient to show, whether the project is able to finance re-investments by itself.


17

Table 8: Cash-flow analysis, Lekenik

2.3.2 Perušić

The planned DHS supplied by the biomass cogeneration plant in the municipality of Perušić is still in early planning phase. In addition, local stakeholders need advisory support for a successful establishment and operation. Economic project calculations are currently based on rough estimates in in the B4B BioHeat Calculation Tool. In the proposed biomass district heating plant, a high connection density and a high degree of capacity utilization (full load hours) is important to achieve a high efficiency of the system. The the biomass system is compared to a fuel oil-fired district heating plant (reference), with a total installed nominal heat capacity of 7 MW (2 times a 3.5 MW boiler). The second boiler acts for peak-load and as a back-up boiler. The economic calculation will be adapted in the next month step by step.


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Table 9: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Perušić

The total initial investment according to the B4B BioHeat Calculation Tool for the biomass DH system is up to 5.24 Mio. EURO excl. VAT. The eligible investment can be subsidized with 15% of the investments. It is assumed that the grant is received in the second year of operation which effects the financing of the project. The fossil fuel plant would need an investment of 4.43 Mio. EURO excl. VAT. No subsidy is considered for that plant. The investment costs include the heating grid investment (including earthworks), the boilers investment, the construction and development investments (boiler room, biomass storage…) and other initial investments (project planning, approval costs…).

The profitability assessment is based on discounted cash-flow analysis (based on VDI Guideline 2067) with a calculated service life of 25 years. The main assumptions and results can be seen below. The calculations take care of re-investments of plant components according to their technical service life and in line with VDI Guideline 2067. Basically these are a replacement of the boilers and the related electric and hydraulic installations. In year 21 of operation, re-investment is assumed to be 890,000 EUR for the biomass DH system and 400,000 EUR for the fossil fuel reference system. Theoretically, the technical service life of the plant would be extended for another 20 years because of the re-investment. However, the calculated service life is only calculated for 25 years. This period is sufficient to show whether the project is feasible or not.

The economic results (see the table below) show that the biomass DH system would have heat generation costs of 65.4 EUR/MWh heat sold in 2020, whereas the fossil DH system’s calculated heat generation cost would be 100.3 EUR/MWh, which makes the fossil DH system less attractive.

With an assumed DH price of 68.5 EUR/MWh, starting in 2020 (1st year of operation), increasing with 2% p.a. over the calculated service life of 25 years, the fossil fuel DH system does not pay off (amortize) at all. The new biomass DH system amortizes (dynamically) within 16.7 years. The internal rate of return of the biomass DH system reaches 6.4%; the net present value is 576,000 EUR. That means that the biomass plant is beneficial to the DH consumers, compared to a fossil fuel DH plant, if all DH consumers would accept a DH price of 68.5 €/MWh for 2020.

7004 Economic efficiency - results of the profitability calculation using the discounted cash-flow method

Biomass Heating System Fossil Fuelled Reference System

7006 Selected fuel type: Wood Chips & Fuel Oil Selected fuel type: Fuel Oil

7008 Technical Parameters

7009 5.027 MW 5.027 MW

7010 3.400 MW 7.000 MW

7011 1.750 MW

7012 9,084 m 9,084 m

7013 12,367.2 MWh/a 12,367.2 MWh/a

7015 Investment (excl. VAT)

7016 Total initial investment (year 0-3) 5,242,800 EUR Total initial investment (year 0-3) 4,431,900 EUR

7017 Surplus investment year 0-3 810,900 EUR 18.3 %

7018 Thereof investment subsidy (if any) 756,000 EUR

7019 93.2 %

7021 Figure(s): Shares of initial investment components

7031 Effect of the bioheat plant on annual fuel and total outgoing payments

7032 15.8 EUR/MWh Fuel price (NCV, year 1) 48.0 EUR/MWh

7033 534,215 EUR/a 58.6 %

7035 469,518 EUR/a 35.6 %

Heating Grid - Trass/trench length

Surplus investment cost covered by subsidy

Annually sold heat amount

Fuel price (NCV, year 1)

Saving of outgoing fuel payments (year 4)

Saving of total outgoing payments (year 4)

Saving compared to fossil fuelled Ref-System


Surplus inv. compared to fossil fuelled Ref-System

Max. peak load to be covered by the heat plant

Total nominal biomass boiler capacity

Fossil fuelled peak/back-up boiler capacity




Fossil fuelled boilers' total installed nominal heat

capacity

71%

14%

12%1%2% Heating grid investment (100% grid expansion)

Boiler investment, incl. furnace, fuel feeding, measuring and control technology as well as flue gas

cleaning equipment (the latter if required).

Boiler house, fuel storage and boiler related electric, hydraulic and steelwork installations

Other initial Investment84%

5%

9% 0%2%


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Table 10: Cash-flow analysis, Perušić

In the beforehand described scenario of the stand-alone biomass DH plant two biomass boilers, with 3.4 MWth and a 1.75 MWth fuel oil peak/back-up load boiler were foreseen to supply the required boiler fringe peak load of 5 MWth.

In the newly defined “biomass DH + biomass CHP” scenario the DH buildings (boiler house, fuel storage) disappear completely, as the whole heat demand of the DH grid (incl. peak load) is delivered by the new biomass CHP and the boilers already installed at the wood-based industry site. In the Table 11 the running costs of CHP are shown.

Table 11: Operation and maintenance costs in the first year

The investor estimates the investment to 12.5 Mio. EURO. The investment includes costs for housing of the CHP plant and the personnel, biomass and delivery storage and for in-house heat utilization facilities as well as the connection to the DH grid. While no investment subsidy is assumed, 30% of investment is covered by equity, 70% by a loan. The weighted average costs of capital were assumed to be 6.63%. The calculated service life is 15 years. The biomass fuel price for 2020 is assumed to be 15.75 EUR/MWh (without VAT), assumed to increase by

7038 Discounted Cash-flow analysis (based on VDI Guideline 2067) - Assumptions overview

7039 6.25 % 6.25 %

7040 3.00 % 3.00 %

7041 Tax rate 20.0 % Tax rate 20.0 %

7042 68.50 EUR/MWhsold 68.50 EUR/MWhsold

7043 Calculated service life (t) 25 a Calculated service life (t) 25 a

7045 Discounted Cash-flow analysis (based on VDI 2067) - Results

7046 Biomass Heating System Fossil Fuelled Reference System

7047 Discounted Payback Time 16.7 a Discounted Payback Time > 25,0 a

7048 576,387 EUR -5,844,339 EUR

7049 6.41 % #ZAHL! %

705065.37 EUR/MWhsold 100.27 EUR/MWhsold

7052 Energy and greenhouse gas related impacts of the bioheat plant Reduction compared to fossil fuelled Ref-System

7053 16,391.6 MWh/a 93.5 %

7054 4,937.8 t CO 2-eq/a 92.3 %

7055 -689.1 MWh/a -3.9 %

7057 Figure(s): Development of the NPV for a calculated service life of 25 years - visualization of the dynamic payback time.

Net Present Value (NPV, at service life/capital cost chosen)Net Present Value (NPV, at service life/capital cost chosen) (EUR)

Annual fossil fuels subsituted by bioheating system

Annual greenhouse gas savings (LCA, CO2-equivalent)

Annual energy savings (total fuel input, NCV)

Reduction compared to fossil fuelled Ref-System



Net Present Value (NPV, t=25 yrs.)

Internal Rate of Return (IRR, t=25 yrs.)

Calculatory Heat Generation Cost




Cost of Equity Capital (interest rate) - pre-tax

Long term Loan - effective interest rate (pre-tax)

Average heat sales price (excl. VAT), in year 1




-2,000,000

-1,500,000

-1,000,000

-500,000

-

500,000

1,000,000

20

19

20

21

20

23

20

25

20

27

20

29

20

31

20

33

20

35

20

37

20

39

20

41

20

43

Ne

t P

rese

nt

Va

lue

(N

PV

, a

t

serv

ice

lif

e/c

ap

ita

l co

st

ch

ose

n)

(EU

R)

-7,000,000

-6,000,000

-5,000,000

-4,000,000

-3,000,000

-2,000,000

-1,000,000

-

1,000,000

20

19

20

21

20

23

20

25

20

27

20

29

20

31

20

33

20

35

20

37

20

39

20

41

20

43

Ne

t P

rese

nt

Va

lue

(N

PV

, a

t

serv

ice

lif

e/c

ap

ita

l co

st

ch

ose

n)

(EU

R)

q

Costs Year 1 (EUR/a)I 12,500,000

Biomass fuel costs Cbiom 1,466,719

Ash disposal costs Cash 82,136

Electricity procurement costs Cel -

Other costs for operating material Cres 17,857

Grid access charges Cgrid -

Maintenance costs Cmaint 375,000

Labor costs Clabor 100,000

Insurance and administrative costs Ci&a 125,000

Other costs Cother -


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3% p.a. during service life. It was assumed that 15% of the electricity production of the CHP plant is consumed by the CHP plant itself (375 kWel).

The plant is anticipated for full-day autonomous work. Due to automation, up to four employees are planned to work in the day shift and two in the night shift (personnel costs of 100,000 EUR/y were assumed). All outgoing payments and the incoming revenues (DH sale revenues) were indexed over service life.

The calculated running costs include blue-collar labour costs (for wood-chip feed, operation and controlling of the plant etc.), maintenance and repair costs, spare parts and other related costs like administrative costs and insurance. Additionally, fuel costs, ash removal costs, amortization and capital costs are calculated. For the biomass CHP plant a high annual utilization of 7,450 full-load hours (2.5 MWh/h) of electricity production and thereof 5.680 full-load hours (7.5 MWh/h) of combined heat utilization with net heat revenues of 27.0 EUR/MWh were assumed.

Some indicators in the above mentioned tool are estimated very roughly, and therefore the current calculation may not fully match the real situation in Perušić. The estimated costs for technical equipment have to be verified by price request to the manufacturer. The municipality of Perušić has initiated the construction of a biomass district heating plant, for which the main project design (needed to obtain the building permit) is in the process of development. However, the realization of the biomass district heating depends on financial subsidies, which at the moment are not available. Within the BioVill project the technical economic concept as well as the financing options will be elaborated and assessed intensively.

Missing financial data, such as the determination of the exact share of equity (non-refundable and private financial resources) for this project can be carried out after the preparation of the project documentation for district heating network (which should specify the exact amount of the investment) and after the conditions for co-financing through future tenders are known.

2.4 Potential financing concept

2.4.1 Lekenik

According to the legal status of SOS Children’s Village Lekenik and the Lekenik municipality, it is decided that the municipality will set up a special communal company for managing the district heating system. The company will produce energy for heating and sell it to all users connected to the heating system. It is determined that the price for heating energy will be lower than the current heating price (taking into consideration the stabilization of the long-term profitability of the communal company).

The construction of the biomass district heating system in the municipality of Lekenik strongly depends on securing financial subsidies. Without these, it will be impossible to build it. For a Public Private Partnership (PPP) the investment is too small. In Croatia PPP investments must be higher than 15 million euros.

Currently no reliable information could be obtained regarding the potential dates of the calls for proposal for subsidies, thus it is not possible to provide a reliable estimation regarding the beginning of the construction of the biomass district heating system. Regarding the beginning of negotiations between Ministry of Regional Development and EU Funds of the Republic of Croatia and EEA and Norway Grants for the use of the Norwegian Financial Mechanisms, REGEA together with Sisak-Moslavina region already sent a letter of interest in March 2017 for asking about the financing of the district heating projects in Croatia.

2.4.2 Perušić

A financial analysis has determined that the project, due to an unfavourable ratio of the size of the investment and the financial savings is not profitable for the end investor if there is no higher amount of granted co-financing. This conclusion can be applied to all three variants of the construction of the regional district heating in municipality of Pokupsko. For using funds from Investment Funds of the EU, as a rule it is necessary to design the complete project documentation and obtain all necessary permits, which represents the first next step in the implementation of the project. In conclusion, it can be determined that the project needs a greater percentage of granted funds. From the social-economic as well as ecological point of view it would be desirable to start with the realization of the project. The following steps are planned:

The application to the tender for the purpose of achieving grants for the design of the project documentation (Municipality Perušić as the applicant);


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The design of the project documentation (currently in progress);

Obtaining the necessary permits (location permit, construction permit, parcelling the cadastre plots through which the heating pipeline is going through);

Application for the announced tender of EEA/Norwegian financial mechanism, available to public and private entities (is not defined when it will be published) with the purpose of achieving grants for the construction and engineering work and equipment.

Based on the experiences in the implementation of similar projects from other countries, it can be assumed that the project could be financed and implemented in real terms by securing a part of the grant and the remaining part by private entrepreneurs through heat contract model or public-private partnership model. The municipality should take part in the organization and preparation of the project whereas the state forest department should be responsible for wood residues in the forests. Some stakeholders suggested cooperatives of local people that could be a good form for the local community and participation. Bigger investments are difficult at the moment as the credit lines for biomass energy projects and government support schemes are suspended in Croatia. The investor might have the possibility in the future to obtain subsidies for this investment, based on preliminary information available regarding the Norwegian Financial Mechanism as well as the Integrated Territorial Investment mechanism. However, no details are available at the moment and calls for proposal from both mechanisms are not expected in 2017. In that regard the calculations of this project do not take into account any possible subsidies, in which case the results would be considerably better.

The risks are listed below, which could endanger the setting-up process of the cogeneration plant and its operation:

Unavailability of concrete active funding instruments (bank loans/credit lines with preferential interest

and grace periods or national and EU programmes/due to the lack in experience in the biomass

production sector, banks are reluctant to grant loans;

The most challenging facts stated by the stakeholders are the determination of the feasible business model, the coordination with local forest and wood production companies and the political support (local and national). All stakeholders agreed that the investments can be realized by a public-private partnership or by a private company completely. The investor should be responsible for obtaining the funding and should be supported through local and regional authorities.

2.5 Operation and maintenance concept

2.5.1 Lekenik

As already stated, the communal company fully owned by the municipality will be in charge of management and operation of the biomass district heating plant. The municipal company will procure biomass from private forest owners and wood based industries located in and around Lekenik municipality, thus local entrepreneurship will be promoted. The communal company will operate and maintain the plant. An additional risk is the lack of knowledge and experience, since the investor is highly experienced in the construction business but has not experience in production or sale of biomass products. This is an additional reason for seeking to implement the district heating system as a joint venture, where one of the partners should have such experience.

The communal company will be in charge for operating and maintaining the plant, as well as for fuel supply. Annual maintenance costs include annual service costs for boiler and fuel system, cleaning of the chimney, costs of electricity, costs for ash removal transport, wood chip transport and staff costs. Annual cost for operation and maintenance of the heating plant are estimated very roughly and amounts to 20,000 EUR excl. VAT. Estimation of maintenance costs is given in Table 12.

Maintenance and labour costs depend very much on how well a plant is designed to meet the heat demand and the quality of supplied wood fuels, for which a responsible supplier within the tender will be chosen.


22

Nr. Cost description Amount (EUR)

1. Annual biomass boiler service 1,000.00

2. Chimney cleaning 75.00

3. Power consumption 15,000.00

4. Staff costs (100 hours/month) 1,200.00

5. Wood chip transport 2,500.00

6. Ash removal 100.00

SUM (without VAT) 19,875.00

VAT (25%) 4,968.75

SUM (with VAT) 24,843.75

Table 12: Annual maintenance costs assessment; Lekenik

2.5.2 Perušić

The costs of the plant and maintenance include costs of the staff, cleaning the chimney, maintenance and service of the cogenerate plant, the costs of electric energy for supplying the auxiliary equipment of cogeneration and costs related to maintenance of district heating network. In accordance with the architectural design, the investor of standalone biomass boiler and biomass cogeneration plant will be a private company Viševica Energo ltd. which operates in the area of Perušić municipality and will be responsible for operation and maintenance of the plants. Employees from company are not anticipated to stay and work in the technological areas but in the administration area. The area in which the employees will stay and work is designed in accordance with the rules on occupational safety and technical norms for work and auxiliary areas.

Which spaces make up the cogeneration plant on biomass are given in the Table 13.

Number Areas Surface (m2)

1 Entrance 55,08

2 Boiler room 505,50

3 Turbine room 172,06

4 Storeroom 276,00

5 Devices 59,36

6 Substation 1 31,77

7 Substation 2 25,00

8 Administration room 39,15

9 Hallway 4,83

10 Wardrobe 6,88

11 Bathroom 1,48

12 Sanitary anteroom 2,96

13 Toilet 1,40

Total 1181,47

Table 13: Facilities in the cogeneration plant, Perušić (Source: Viševica Energo Ltd, according to the main design)

https://www.google.hr/search?q=maintenance&spell=1&sa=X&ved=0ahUKEwiXs8mOtI7XAhXOJVAKHcmjCkgQvwUIIigA


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The facility is envisaged as a one-floor industrial building made of prefabricated concrete elements, divided into four basic units:

1. Boiler room area;

2. Turbine area with administration and auxiliary spaces;

3. Area for electrical equipment;

4. Fuel tank area.

The final decision on the operator consortium at this point has still not been decided and will depend on the availability of financial grants for companies in public or private ownership, since without subsidies neither the municipality nor the private investors are able to invest in the establishment of a woody biomass cogeneration plant with a district heating network.

The plant’s areas are furnished and equipped for their function, in accordance with the regulations and investor’s wishes. Due to the automation, up to four employees are planned to work in the daily shift and two in the night shift. Work and auxiliary rooms with the necessary equipment will be ensured for the needs of employees. Table below includes an overview of technical characteristics and operational cost of the various works on the biomass cogeneration plant.

Technical characteristic

Gross building area 1.269,47 m2

Building volume 18.394,05 m3

Plant height 20,50 m

Lot surface area 10.137 m2

Lot coverage 12,52%

Approximate construction costs of the building

870,00 EUR/m2

Table 14: Overview of technical characteristics, Perušić (Source: Viševica Energo Ltd, according to the main design)

Company Viševica Energo is currently in the phase of obtaining a loan for the purpose of starting the construction of the cogeneration plant.

The largest supplier of forest biomass in the region is the state owned company – Croatian Forests. It is planned that the biomass will be supplied by the company Hrvatske šume d.o.o. (Croatian Forests Ltd.), i.e. the state owned company which manages 75% of the forests in Croatia. However, due to the policy of Hrvatske šume at this point it is not possible to have any written commitment regarding the biomass supply.

This risk can be overcome with continue negotiations in order to receive wood supply guarantee. Also the investor will investigate whether it is possible to obtain the biomass feedstock from private forest owners. The investor Viševica Energo Ltd from own wood production will manage and operate the whole cogeneration plant including its initial source – wood waste, if his waste will not be enough, he will cooperate with local private forest owners.

As a result, the coordination of design and installation will typically require numerous subcontractors and the coordination of these is a significant risk. This needs to be carefully managed, e.g. the selection of the contracting strategy and of the right contractor during the tender stage. The construction contractor may be capable of offering operation, maintenance, metering and billing services or these could be separately procured.

Public sector should establish useful framework conditions for the establishment of a biomass cogeneration plant, which will be realized through a public-private partnership or as a private investment undertaken by a private company or a cooperative. More cooperation between state forest managers and local administration is needed and also the wood processing industry is still not aware of the possibilities of biomass utilization. Moreover, this industry prefers to sell biomass than to use it.

The successful implementation of the district heating network depends on a common vision and enthusiasm and furthermore the professional support of experts. Based on that participation processes and several interviews and discussions with experts, the following recommendations for future steps can be summarized:


24

Multi-level cooperation of regional institutions is necessary to change the energy system – elevating

district heating on biomass to the level of state policy and promoting it through strategic goal-setting,

funding, technical assistance, and the coordination of partnerships;

Continuous communication and working group meetings with the key stakeholders;

Future promotion of proven and reliable technologies, which are an important success factor for

successful biomass heating installations should be developed in cooperation with local stakeholders;

Continue with creating the awareness among the citizens and involving them in the project activities;

Keep reminding national authorities to support biomass DH projects through effective policies and

financial support.

2.6 Summary

2.6.1 Lekenik

A district heating system that will be supplied from a biomass heating plant is the preferred option for the biomass project in Lekenik. The biomass heating plant will cover a peak load of 900 kW. In total 18 buildings will be connected to the grid with an annual heat demand of 1,088 MWh. Most of them are public buildings. It is planned that the municipality will be the investor. Thus the district heating plant in Lekenik will be owned by the municipality and managed and operated by the municipal company.

The economic calculation shows positive results for the bioenergy village approach in Lekenik. The net present value in a period of 25 years is about 39,000 Euro and the internal rate of return is 5.39 percent. The calculated heat generation costs are about 83 Euro per MWh (full cost calculation), that is a quite acceptable value. The calculation will be refined in the next months.

However, the realisation of the technical measures in Lekenik strongly depends on subsidies. Potential subsidy programmes are already identified. In March 2017, REGEA sent together with Sisak-Moslavina region a letter of interest for the Operational Programme for Rural Development, for the Operational Programme for Competitiveness and Cohesion and for the EEA/Norwegian financial mechanism.

2.6.2 Perušić

Also in Perušić a district heating network will be established in three phases. Different technical options have been considered for the heat generation system. The first option is the implementation of two wood-chip boilers with 2.4 MW and 1 MW in combination with a fuel oil fired boiler of 1.75 MW. The second option is a biomass CHP plant that will be set up by the company Viševica Energo Ltd. The ORC CHP plant is calculated with an electrical capacity of 2,500 kWel and a thermal capacity of 7,500 kWth. Additional heat will be used in the company itself. The biomass can be delivered by local forest owners and by sawmills. The planned DHS will connect 202 buildings with an annual heat demand of 12,367 MWh in total.

For the first option the Municipality of Perušić and for the second option the company Viševica Energo Ltd will be the investor. Viševica Energo Ltd is experienced in wood processing and needs thermal energy for drying and steaming timber, drying of pellets and heating the rooms. The bioenergy working group in Perušić currently follows both options and will make a decision in the next months.

The results of the economic calculation of the bioenergy village Perušić are quite positive, since the net present value is about 576,000 Euro and the internal rate of return is 6.41 percent in a period of 25 years. The calculated heat generation costs are about 65 Euro/MWh (full cost calculation), that can be considered as a very good result according to the existing framework conditions in Croatia (fuel prices, prices for technical equipment and staff costs for operation and maintenance). The partners in the target village supported by REGEA will refine the calculation in the next months.

Also in Perušić subsidies are necessary to make the project feasible. Thus, subsidy applications for using funds from Investment Funds of the EU will be prepared from the municipality. Next steps are agreed, thus the project documentation will be designed and necessary permits and subsidies of EEA/Norwegian financial mechanism will be applied.


25

3 Economic assessment of the bioenergy concept in the Macedonian target village


The selected zone for development of the bioenergy village in Kichevo is a central densely populated area called “Lozhionica” (“Heating Station” in English) which is a living area characterized by residential and public buildings. As a consequence, the settlement has a high heat demand. Against the background of mostly inefficient individual heating systems is the high interest in more effective heating systems, which was the main reason for selecting this area for development of a district heating network (BioVill, 2017a).

An overall objective is to develop a concept for a district heating system that can be divided in three phases:

Phase 1: Public buildings – kindergarten (“Olga Miceska”), elementary school (“Kuzman Josifovski Pitu”), high school (“Mirko Mileski”, “Drita”) and boarding school (“Mirko Mileski”, “Drita”);

Phase 2: Older residential buildings (with partly existent central heating piping system) - blocks of flats called “Lameli”;

Phase 3: Newer residential buildings.

Figure 1: Planned buildings for connection to district heating grid, Kichevo (Source: ArcGIS) Phase 1 (Red pins): 1 - Kindergarten “Olga Miceska”, 2 – Boarding School, 3 – Elementary school “Kuzman Josifovski Pitu”, 4 – High school “Mirko Mileski and Drita”; Phase 2 (Green pins): Lamela 1 to Lamela 7 Phase 3 (Blue pins): 1 – New building 1, 2 – New building 2;

Regarding biomass sources and technologies, preferred biomass sources are wood chips and preferred technologies are woodchip boilers and heating grids. A visualization of the prospective district heating grid is given in figure 1.

As result of a heat demand survey, the heat loads and the heat demands for each of the buildings have been defined. The expected connected heat load for Phase 1 is as follows: Kindergarten “Olga Miceska” – 185 kW, Boarding School “Mirko Mileski and Drita” – 144 kW, Elementary school “Kuzman Josifovski Pitu” – 210 kW, High school “Mirko Mileski and Drita” – 291 kW. The expected heat load for Phase 2 amounts to 740, 346, 740, 599, 545, 493, and 822 kW for Lamela 1-7, respectively. As to Phase 3, the expected connected heat load accounts for 204 and 117 kW for New Building 1 and New Building 2, respectively.


26

Figure 2: Possible trench for district heating grid, Kichevo (Source: ArcGIS) Red line – Phase 1 (public buildings); Green line – Phase 2 (older residential buildings); Blue line – Phase 3 (newer residential buildings.)

In addition, an annual space heat demand of 1088.3 MWh/y was calculated for Phase 1. After finalization of Phase 1, there are possibilities for extending the bioenergy concept with Phase 2 and Phase 3, thus including more heat consumers, in particular large residential buildings with annual space heat demand of 7,213 and 539.99 MWh/y for Phase 2 and Phase 3, respectively. The total assumed annual space heat demand of all three phases was calculated as 8,842 MWh/y.

Moreover, the prospective district heating plant reached a maximum peak heat load of 7.249 MW and has a total nominal biomass boiler capacity of 5 MW and total fossil fueled boiler capacity of 3 MW (the existing fossil fueled boilers in public buildings remain as backup and peak load boilers). The total length of the heating grid is 1,220 m.

Phase 1 (micro grid) stays currently the most viable solution for Kichevo and will solve the problem of the Municipality of Kichevo with the inefficient heating systems currently installed in the public buildings. This represents a social problem due to inadequate indoor conditions for normal operation of the buildings that resulted with closure of schools and protests of citizens in previous years.

The further development of the project will be primarily a key action of the main bioenergy working group initiated by the project and the Municipality of Kichevo. The future operator can offer the citizens (households in the residential buildings) sustainable long-term solutions within Phase 2 and Phase 3, and connect them to the system. Seen from the perspective of available biomass feedstock, the feasibility of the three-phase concept is secured. In addition, the concept encountered positive feedback from the working group members, who are inclined to actively engage in further development of the bioenergy village, and the idea was positively accepted by the citizens during a previous BioVill survey. According to the survey, 61% of respondents are willing to connect their houses to a district heating system, which demonstrates the citizens’ positive attitude towards centralized heating. Key factor for involvement of the citizens into Phase 2 and Phase 3 will be the dissemination, communication and popularization of the results achieved in Phase 1, through the BioVill project activities (e.g. the local information point, information days for citizens, etc.) and activities beyond the project.

Additionally, an assessment of available technologies was conducted by SDEWES-Skopje, bearing in mind the fact that the technologies needed for project implementation are not produced in Macedonia. Although, the market research showed that many companies can act as technology suppliers. According to the CeProSARD database,


27

there are 22 service companies in the biomass sector and 66 service companies in the energy efficiency sector at the moment in Macedonia2.


Based on the fact, that the project implementation of Phase 1 (public buildings) is the most viable option for development of the district heating system, there are two realistic possibilities for the operating concept. The first option is to establish a Public Enterprise (PE) by the Municipality of Kichevo, which will have a main role in distributing heat to the public buildings. As additional role, it will have to develop its own strategy in order to involve the residential buildings into the grid.

Having in mind the limited borrowing capacity of the municipality, the second option is to establish a Public-Private Partnership (PPP) with a company that has the capacity to operate the system. A Green Paper on Public-Private Partnerships on Public Contracts and Public Procurement was promoted in 20043. The Green Paper can serve as a guideline for development of the individual business model in Kichevo’s project. The Paper clearly differentiates the meaning of PPPs in relation to public contracts as well as the meaning of PPP concepts and concessions versus public contracts. Public contracts in the sense of the public procurement rules and regulations are the contracts for the procurement of goods, services and works. When the public partner, in this case the Municipality of Kichevo, will be responsible authority within the meaning of the public procurement rules and regulations, it is obliged to monitor and apply an open call or direct bargaining procedures, with or without publication of a public call. Further, a new model of establishing a competitive dialogue can be applied: PPPs and concessions. Under a concession contract within the meaning of the public procurement rules and regulations, any contract of the same type as the contract for the procurement of public works shall be considered. This type of possible business model was presented to the local stakeholders during the BioVill training in Kichevo in June 2017.

Each partner in a PPP during the duration of the PPP will assume responsibility for risks in its sphere of influence, or responsibility will be shared with the aim of achieving optimal risk management for the duration of partnership. In case of PPP model the solution will be sought in the Public Procurement Law and PPP Law. In case of bankruptcy of the private partner, the Municipality will have to bear the responsibility. The technology will be to left to the Municipality, and in the next step a new private partner will be sought through tender procedure.

An involvement of the residential sector in the project is desirable; however, it will require obtaining of licences from the Energy Regulatory Commission of the Republic of Macedonia, and the process can be time-consuming. The possibility of disconnecting from the heating distribution grid in the residential and public sector, given by the Energy Regulatory Commission, can create a very weak flexibility in creation of the economic model. An increase of costs for distributed energy to the final consumers, influenced by the increased operational costs of the plant, can result with a decrease of the overall heat demand. Therefore, in the establishment of the bioenergy village, the residential sector will be the most sensitive, and a highest priority must be given to the creation of enabling environment for signing long-term contracts for distribution of heat (10 years or even longer), during the planning and implementation of the operation model. These contracts will be based on the contract price which will have to be competitive, especially if the private residents from Phase 2 and Phase 3 are taken into account, for which firewood and electricity prices are already attractive.

After the scheduled local elections on 15th October 2017, the working group for development of the individual business model for implementation of the biomass district heating system in Kichevo has met with the newly appointed local government and discussed the possible operating and financing concept.


A techno-economical assessment, as part of a pre-feasibility study within the BioVill project, based on the B4B BioHeat Profitability Assessment Tool developed by the Austrian Energy Agency for the H2020 project Bioenergy4Business (B4B), was conducted for all three phases of the planned district heating system. The tool compares the economic efficiency of a fossil fueled reference system (fuel oil fired DH plant) with a biomass DH system (woodchip fired DH plant). In this report, results of the assessment for both of the systems are presented, but the emphasis is put on the biomass DH system and its respective parameters.

2 http://www.ceprosard.org.mk/Baza/B_EN/Default.aspx (Last accessed: 9.10.2017) 3 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52004DC0327&from=SK (Last accessed: 9.10.2017)

http://www.ceprosard.org.mk/Baza/B_EN/Default.aspx

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52004DC0327&from=SK


28

The results indicate a total initial investment for the biomass DH system of about 687,528 EUR excl. VAT. Details are shown in table 15Fehler! Verweisquelle konnte nicht gefunden werden., where the highest share (40%) is allocated to the boiler investment.

Investment subsidies lowering the surplus upfront investment are omitted, because subsidies for heat-only plants cannot be found in Macedonia (only feed-in tariffs for power and CHP plants utilizing renewable energy sources).


Boiler investment 276,903

Heating grid investment 190,600

Construction (boiler house, fuel storage, electric, hydraulic installations) 120,000

Project documentation (3% of the total investment in equipment and works) 20,025

Other initial investment 80,000

SUM (excl. VAT) 687,528

Table 15: Estimated investment costs for biomass district heating system, Kichevo

For the first year of operation, which in this case is taken to be 2020, a corresponding woodchip price of 17.5 EUR/MWh is estimated. Since an official biomass market in Macedonia does not exist, the price of woodchip (beech and oak) was calculated by means of the B4B Wood Fuel Parameter Calculator, provided by the Austrian Energy Agency. Additionally, it was assumed that the fuel prices increase by 2.0% p.a. for a calculated service life of 25 years or until 2044. The outgoing fuel payments for the biomass DH system are calculated to be 391,595 EUR/y.

Table 16: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Kichevo

With regard to the project financing, an equity capital share of 30% was postulated. The equity capital share applies to the Net Present Value (NPV) of the full investment, as biomass boilers and grid extension are taken to





7009 7.249 MW 7.249 MW

7010 5.000 MW 10.000 MW

7011 3.000 MW

7012 1,220 m 1,220 m

7013 8,841.6 MWh/a 8,841.6 MWh/a


7016 Total initial investment (year 0-3) 687,528 EUR Total initial investment (year 0-3) 441,393 EUR

7017 Surplus investment year 0-3 246,135 EUR 55.8 %

7018 Thereof investment subsidy (if any) 0 EUR

7019 0.0 %



7032 17.5 EUR/MWh Fuel price (NCV, year 1) 50.8 EUR/MWh

7033 391,595 EUR/a 61.6 %

7035 288,801 EUR/a 40.2 %
















Fossil fuelled boilers' total installed nominal heat capacity

28%

40%

17%

12% 3% Heating grid investment (100% grid expansion)




Other initial Investment

43%

38%

16%0%3%


29

be invested from 2019 till 2022, further re-investments in biomass boilers and related electric and hydraulic installations are considered after 20 years of service live. Interest for equity is assumed to be 4% (after tax).

The equity capital is 577,450 EUR for the biomass DH system. The loan interest rate is 3% (effective rate, pre-tax) with a lent term of 15 years.

Moreover, the profitability assessment is based on a discounted cash-flow analysis (based on VDI Guideline 2067) with a calculated service life of 25 years. The main assumptions and results can be seen in table 17, including respective charts. The calculations take care of re-investment of plant components according to their technical service life. Basically, this is a replacement of the boilers and the related electric and hydraulic installations. In year 20 of operation, the re-investment is assumed to be 396,903 EUR for the biomass DH system. Theoretically, the technical service life of the plant will be extended for another 20 years because of the re-investment. However, the calculated service life is 25 years only. This period is sufficient to show, whether the project is able to finance re-investments by itself.

The average heat sales price is presumed to be 46.50 EUR/MWh (excl. VAT) in 2020 and is set to increase by 2% p.a.. Furthermore, the biomass DH system has calculated heat generation cost of 44.90 EUR/MWh. This corresponds to (dynamic) discounted payback times of 4.5 years. The NPV of the biomass DH system is 249,626 EUR and the Internal Rate of Return (IRR) is 7.1%. From the chart of NPV development for a calculated service life of 25 years, it is evident that relatively high costs of investment and debt capital conditions take the NPV in slightly negative values for the period of debt return. Therefore, even a small percentage of investment subsidies are able to significantly reduce the payback period. However, despite the nonexistence of subsidies, the total investment generates enough capital to enable re-investment in the biomass DH system after 20 years of operation.

Re-investment of plant components according to their technical service life is considered. The biomass DH system achieves its first positive NPV after 4.5 years of operation. When the re-investments occur, in 2039-2041, the plant has gained enough reserves to finance the re-investments by itself. In this case of equity share of 30% and an interest for equity of 4%, the cash flow calculation gives the results in Table 17, demonstrating the sensitivity of the equity capital parameter variations on the result.

Table 17: Cash-flow analysis, Kichevo


7039 4.44 % 4.44 %

7040 3.00 % 3.00 %

7041 Tax rate 10.0 % Tax rate 10.0 %

7042 46.50 EUR/MWhsold 46.50 EUR/MWhsold




7047 Discounted Payback Time 4.5 a Discounted Payback Time > 25,0 a

7048 249,626 EUR -4,464,878 EUR

7049 7.10 % #NUM! %



7053 11,066.5 MWh/a 95.8 %

7054 3,334.2 t CO 2-eq/a 94.6 %

7055 -296.3 MWh/a -2.6 %





















-100,000

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

Net

Pre

sen

t V

alu

e (

NP

V, at

serv

ice lif

e/c

ap

ital co

st

ch

ose

n)

(EU

R)

-5,000,000

-4,000,000

-3,000,000

-2,000,000

-1,000,000

-

1,000,000

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

Net

Pre

sen

t V

alu

e (

NP

V, at

serv

ice lif

e/c

ap

ital co

st

ch

ose

n)

(EU

R)

q


30


As mentioned in previous chapters, the working group that is responsible for the development of the individual business model for the implementation of the biomass district heating system in Kichevo, met with the newly appointed local government after the local elections and discussed the possible operating and financing concept. So far, there are several financial possibilities for definition of the financing concept, such as existing credit lines from international financing institutions offered directly or via local commercial banks. In that case, the credit borrower will depend on the organization of the PPP model. Concerning the public partner, i.e. the Municipality, there is a borrowing limit of 30% from the maximum annual budget for a local self-government (municipality). The share of the investment between the Municipality and the private company will be defined according to the Municipality’s possibility for borrowing. The higher the Municipality’s share of investment is, the bigger the Municipality’s part in the PPP model will be. Usually, the Ministry of Finance acts as a mediator in such projects, hereby providing technical expertise when publishing technical tenders and defining the local self-government’s (municipality’s) maximum possibilities.

Several financial possibilities for definition of the financing concept are currently available in the country.

Credit lines

There are several credit lines for implementation of EE and RES measures in the country directly supporting the implementation of bioenergy projects. The credit lines are implemented by the local commercial banks (Government of the Republic of Macedonia, 2016) and are offering:

Financing Investments from the Macedonian Bank for Development Promotion (MBDP funds)

Besides working of the Sustainable Energy Financing Facility (SEFF) within the European Bank for Reconstruction and Development (EBRD), the MBDP facilitates other funds and offers loans for financing investments and development of SMEs, including EE and RES measures. Potential loan beneficiaries shall be companies registered in the Republic of Macedonia whose capital is more than 51% privately owned and whose number of employees is up to 250.

Credit for investment in SMEs and other priority projects from the European Investment Bank (EIB) - the fourth stage

As of December 2015, ninth tranche of fourth EIB credit line in the amount of 17.8 million EUR is offered by the local commercial banks. These funds will support 100 new projects with an accounting value of 35 million EUR. 75% of this tranche were aimed in support of SMEs through investment loans with repayment period of 8 years, while the remaining is for support through loans for working capital with repayment period of 3 years. The realization of these 100 projects is expected to create 331 new jobs. The projects involve: ProCredit Bank AD Skopje, Ohridska Banka AD Skopje, Halk Bank AD Skopje, Komercijalna Banka AD Skopje, Sparkasse Bank AD Skopje, Stopanska Banka AD Bitola and UNI Banka AD Skopje.

Western Balkans Sustainable Energy Financing Facility (WeBSEFF) - Phase II and Phase III.

Second Phase of this credit line was approved by EBRD and started to function in December 2013. WeBSEFF II credit line in the Republic of Macedonia is being implemented through Ohridska Banka Societe Generale, in amount of 7.5 million EUR and NLB Banka in amount of 4.5 million EUR. The addendum in this phase is the availability of this credit line for the public institutions and enterprises. In Macedonia, a couple of EE and RES projects were financed and implemented through this credit line. WeBSEFF III is in the period of approval and establishment and it is expected to be fully functional at the end of 2017. This line4 provides a loan and also a grant incentive after the project is completed and verified which is 10-15% of the loan, thus the interest rate can be decreased to 3%.

The Green for Growth Fund (GGF), EKO+ Credit by HALKBANK AD Skopje

The GGF has been initiated in December 2009 by the EIB and KfW (The German Development Bank) with the financial support of the European Commission and EBRD. The credit line is intended for SMEs, business owners, and agricultural producers for investments in fixed assets that provide energy savings or CO2 emissions saving of minimum 15%. The total sum of the fund is 5 million EUR for loans up to a maximum of 500,000 EUR. The loans for EE investments in Macedonia are implemented through Halk bank AD Skopje, and the bank offers medium to long-term loans for EE projects.

ECO Loan by ProCredit Bank

4 http://www.webseff.com/index.php?option=com_content&view=article&id=32&Itemid=216&lang=en (Last accessed: 9.10.2017)

http://www.webseff.com/index.php?option=com_content&view=article&id=32&Itemid=216&lang=en


31

The credit lines are intended for private clients as well as for SMEs, business owners, and agricultural producers for investments in fixed assets that provide energy savings of 20%. The height of the loans is up to 750,000 EUR and the credit rate is 7% for period of up to 180 months.

Experiences connected with two crucial international financing institutions have been already transferred through project trainings, i.e. experiences from already realized RES and EE projects in Macedonia (co-)funded by the World Bank and its opportunities for future (co-)funding of projects as well as from credit lines such as WeBSEFF I, II and future phase III, by the EBRD.

All the aforementioned available sources for financing of the project in Kichevo, are going to be disseminated and brought to the local authorities, main bioenergy working group and prospective operational entity in Kichevo by SDEWES-Skopje, within planned project activities and events. Since most of the programs and credit lines are implemented through the local banks, they will be also invited to participate in the events and spread the financing opportunities by word of mouth and possibly include Kichevo in their promotional campaigns.

Fortunately, the BioVill project in Kichevo has been already communicated with representatives of the World Bank, who initially responded with positive signals and inclined to add the project (with a budget of 700,000 EUR) in their list of eventual projects to be co-financed in the near future.

Subsidies

The main subsidy possible for development of the BioVill project in Kichevo is the annual Programme for Financial Support of the Rural Development by the Government of the Republic of Macedonia (BioVill, 2016b). A total amount of 2,247,243,000 MKD (around 36.5 million EUR) is allocated for 2017, pursuant to the Budget of the Republic of Macedonia for 2017. Also, there is a Programme for financial support of the agriculture with a total budget of 6,117,857,000 MKD (around 99.4 million EUR) for 2017, pursuant to the Budget of the Republic of Macedonia for 2017. These programmes are implemented through the Agency for Financial Support of Agriculture and Rural Development of the Republic of Macedonia5.

Furthermore, Macedonia has access to the IPARD funds (BioVill, 2016b). The main responsible institution for these funds in the country is the Agency for Financial Support of Agriculture and Rural Development, as well as the National Extension Agency6 and the Ministry of Agriculture, Forestry and Water Economy that provide information and services to the interested farmers who can apply through public calls. The IPARD I Programme 2007-2013 has already finished. It has had maximum EU contribution of 85 million EUR. Unfortunately, only 15% of the funds have been utilized until end of July 2016. The results have detected the following problems among the farmers: lack of knowledge, unsolved land rights issues, difficulties in obtaining construction permits, etc. Because a capacity building is needed, the Ministry announced that will train a team of 80 experts in order to help the farmers in preparation of quality applications. The IPARD II Programme started in autumn 2016. The maximum EU contribution in the IPARD II Programme 2014-2020 for Macedonia is decreased to 60 million Euros (5, 5, 5, 6, 10, 14, 15 million Euros per year, respectively), though additional funds of 36 million Euros have been approved for structural investments in agriculture.78 The IPARD Programme itself includes financial support for production of renewable energy, especially from biomass and energy crops.

Preparation of a detailed documentation for application to these credit lines and subsidies will be required by the operating entity.


Within the techno-economical assessment, a profitability analysis of the biomass DH system has been conducted, and the costs for system operation and maintenance are given in table 18. The total amount of the operation and maintenance costs is 292,102 EUR. The reference values for the repair and maintenance costs are calculated according to VDI Guideline 2067. The biggest operational costs are related to the annual biomass fuel costs equalling to 198,848 EUR (appx. 71% of the overall costs). Therefore, it is of utmost importance for the future operator of the system to create a sustainable and cheap supply chain of the waste biomass from the local stakeholders. This will determine the final price of delivered energy to final consumers.

5 http://www.ipardpa.gov.mk/Root/default_eng.asp (Last accessed: 9.10.2017) 6 http://agencija.gov.mk/ (Last accessed: 9.10.2017) 7 http://www.sep.gov.mk/data/file/IPA-2014-2020/IPARD%20ProgrammeMK_13022015_final.pdf (Last accessed: 9.10.2017) 8 http://www.mia.mk/en/Inside/RenderSingleNews/289/133278213 (Last accessed: 9.10.2017)

http://www.ipardpa.gov.mk/Root/default_eng.asp

http://agencija.gov.mk/

http://www.sep.gov.mk/data/file/IPA-2014-2020/IPARD%20ProgrammeMK_13022015_final.pdf

http://www.mia.mk/en/Inside/RenderSingleNews/289/133278213


32

No. Cost description Amount (EUR)

1. Annual biomass fuel costs (100% expansion of grid) 198,848

2. Annual fossil fuel costs (Fossil fuelled stand-by boiler) 27,058

3. Annual electricity costs (100% expansion of grid) 15,178

4. Annual Staff costs (3 person/years) 36,000

6. Repair & Maintenance Costs 11,580

5. Annual other associated costs (Insurance, Ash Disposal, Wheel loader operation, etc.)

3,438


Table 18: Operation and maintenance costs of biomass district heating system, Kichevo

Further, the operator of the DH system can either come from the private partner possibly from “Grande Tini”, the biggest forest concessionaire entitled to harvest, store and transport firewood in Kichevo’s region and/or for the first phase, from the staff managing the existing boilers in the schools. In both cases, the operators need additional training for the new system. Grande Tini can also act as woodchip producer and as supplier of the system. Generally, prices of wood in Macedonia depend on the price list of the Public Enterprise “Macedonian Forests”, which is publicly available9. However, the quality, prices, and contracts will have to be defined in the PPP contract. Hence, they will likely depend on Grande Tini’s decisions. Above all, the prices will surely follow the market prices in Macedonia.

Another important stakeholder in this regard is the Regional Forest Service “Lopushnik”, which is the main public wood entity directly involved in the biomass fuel supply, currently leading the annual tender procedures for forest concessionaires entitled to harvest, store and transport firewood in Kichevo’s region. As part of the working group, it will give additional asset in overall determination of the financial turnover of the DH system.

Regarding the current situation and the available biomass sources, the annual realized harvest of wood is about 40,000 m3 (35,000 m3 for energetic use – firewood; 5,000 m3 for material use - industrial wood), while additional 5,000 m3 are residues. Overall, the firewood takes the largest portion of the annual harvest or around 90%, the industrial wood around 10%, and around 8-10% remains in the forest (BioVill, 2017d).

To conclude, Kichevo has significant possibilities for energy production from biomass, especially forest residues, but for successful operation of the biomass DH system, overcoming the social barriers like lack of knowledge, understanding of bioenergy concepts and change of behaviour is essential. Here, the activities within the project will have a crucial role. In order to increase the capacities of the operational entity, the working group, the SMEs, and the municipal authorities, and to define the individual business model (Task 5.5), thematic meetings and specialized trainings are planned to be organized by SDEWES-Skopje in the upcoming period.

3.6 Summary

Woodchip boilers that supply heat to the consumers through a DHS are planned in Kichevo’s settlement “Lozhionica”. The project will be implemented in three phases: In the first phase four public buildings will be connected to the DH network, which will be enlarged in the second phase by connecting 7 older residential buildings and in the third phase 2 newer residential buildings. The peak load was calculated with 8,000 KW, but it is intended to start with a smaller biomass boiler (1 MW) and supplement later with a 4 MW biomass boiler. The fossil fueled boiler capacity is 3 MW whereas the existing fossil fueled boilers in public buildings remain as backup and peak load boilers. The total assumed annual heat demand of all three phases was calculated as 8,842 MWh.

There are two options for the investments and ownership/operation models: The first option is to establish a public enterprise by the municipality of Kichevo and the second option is to establish a Public-Private Partnership (PPP) with a proficient company. In that case the company “Grande Tini”- the biggest forest concessionaire in Kichevo’s region- can take over the operation of the plants. The decision will made on basis of deeper information that will be gathered in the next months.

9 http://www.mkdsumi.com.mk/admin/documents/cenovnik__.pdf (Last accessed: 9.10.2017)

http://www.mkdsumi.com.mk/admin/documents/cenovnik__.pdf


33

The results of the economic calculation of the bioenergy village Kichevo are very good: The net present value is about 250,000 Euro and the internal rate of return is 7.1 percent in a calculation period of 25 years. The calculated heat generation costs are about 45 Euro/per MWh (full cost calculation), that can be assessed as a very good result and will be adapted by the partners according to the further development of the business model in Kichevo. Several financial possibilities exist, such as different credit lines from international financing institutions offered directly or via local commercial banks. But the working group has to be taken into account that the municipality has a borrowing limit of 30% from the maximum annual budget of the municipality. Furthermore, there are several credit lines for implementation of EE and RES measures in the country directly supporting the implementation of bioenergy projects. Also existing subsidy programmes can be used for funding of the BioVill project in Kichevo, such as the Programme for Financial Support of the Rural Development by the Government of the Republic of Macedonia and IPARD funds.


34

4 Economic assessment of the bioenergy concept in the Romanian target villages


4.1.1 Estelnic

Estelnic has some larger public buildings that are concentrated in the centre of Estelnic. These educational, cultural, medical and religious institutions near the centre of the village have been taken into consideration. The concentration of these potential energy consumers offer a big opportunity of implementing a district heating plant based on biomass and an efficient grid of relatively low losses. The district heating system will potentially include 10 bigger buildings with significant heat demand in the village centre, such as the Franciscan Monastery, – consisting of one big building with more than 1000 m2, the Local Elementary School, the Franciscan Church, four retail spaces on the ground floor of Apartment Blocks, the Local Council building, Culture Centrum, Angustia Leader Association Office, the Medical Center, and the “RHM Pants SRL” pants textile factory. The technical study includes private buildings up to ten possible households with 900 m2, the network will connect 8 public buildings, one flat blocks, the pants textile factory with a total area of 7,200 m2. The biomass heating plant will have a peak load capacity of 1,700 kWth (1,200 kW + 500kW boilers) and the total length of network will be 678 m. The most suitable technical solution to construct the biomass plant as nearest as possible to the biggest energy consumer, thus the location of the plant and deposit will be at the “RHM Pants SRL” pants textile factory (Figure 3.).

Figure 3: Location of the biomass / CHP plant and heat consumers in Estelnic

The heating network has been designed by optimizing the trench length and minimizing the thermal loses in order to increase the economic viability of the system. The designed DHS also include the possible heat consumers which could be connected in the near future (up to next 5 years) in the village centre. The implementation of the district heating system will provide many positive effects from several aspects, such as covering the heat demand at public buildings by latest technology solutions, creating a local bioenergy supply


35

chain and creating new local income for several citizens, environment benefits and increasing the competitiveness of forestry sector.

The selected objects, the location and the estimated heat demand are presented in the following table:

Type Object

Number

Object Name Expected Demand for

Heat and Hot Water

(MWh/y)

Very

suitable

(primarily

focus)

1

2

3

4

5

6

7

8

- Franciscan Monastery

- Local Elementary School

- Franciscan Church

- Retail buildings

- Local Council

- Culture Centrum

- Angustia Leader Association Office

- Medical Center

54

211

89

65

70

51

43

66

Somewhat

suitable

9

10

- Residential area in the village centre up to 10 households*

- RHM Pants SRL, textile factory

- Apartment Block

150 to 280

4392

303

Not very

suitable

- residential areas with low energy demand density

- individual buildings with low heat demand

Table 19: Suitability of building typologies for a biomass-fuelled heat supply system in Estelnic (adapted from Table 8-3, Source: Deimling 2000: 279) *These are potential buildings that could be connected.

The most suitable technical solutions for the Municipality of Estelnic to become a bioenergy village is to invest in the DH system, which is going to be based on woodchips out of local wood residues, landscape maintenance and energy willow plantation as primary energy source. This focus has been determined by the local bioenergy working group discussion with the expert from ERPEK Ltd. biomass boiler producer from Sfantu Gheorghe, RO. The availability of other biomass sources such as solid agricultural by-products and residues is very limited, thus it is not considered in the present calculations. Due to the high heat demand at local textile factory and several public buildings, the preferential bioenergy technology is a biomass based district heating system at the local textile factory in Estelnic. The calculations have shown that a biomass heating plant would be a perfectly suitable solution to Estelnic. The technical calculations have been carried out in Task 4.2 of the BioVill project (Table 20).

Table 20: Technical parameters of biomass based DHS in Estelnic

In this preliminary design activity the structure of the local micro grid for the studied buildings has been established.

Technical Parameters

Fuel type: Wood Chips

Max. peak load to be covered by the heat plant 2.83 MW

Total nominal biomass boiler capacity 1.7 MW

Fossil fuelled peak/back-up boiler capacity 2.3 MW

Heating Grid - Trass/trench length 678 m

Annually sold heat amount 5,210.3 MWh/a

Total initial investment (year 0-3) 971,538 EUR


36

During the bioenergy working group meetings the local authorities have shown their interest to invest in biomass based heating system in the near future and they are also engaged to access funds from national government and EU programs. The investment plan presents a priority for local authority, the local council also included in the municipal budget a certain percent for heating system modernization at local public buildings. In the local development strategy also appears the proposed modernization, namely the change of the actual low efficiency boilers/classical stoves with a new modern units at the public buildings.

In the proposed micro heat grid at least a pipe length of around 680 m is needed to connect all suitable buildings, identified in the previous table with numbers from 1 to 10. The buildings can be categorized in five different types: public buildings, religious buildings, service- and industrial buildings and private apartment blocks. In the future micro-grid zone there are up to ten additional small heat consumers, which are considered as “not very suitable” zone (e.g. single family houses or semi-detached houses) that could be attached; however, the owners are not yet interested to connect to the heating system, their heat load demand ranging from 7 up to 18 kW/ household capacity.

In the case of larger heat consumers, a more accurate and comprehensive data analysis has been conducted because of a higher financial risk. The biggest heat demand consumer, namely the local textile factory, is not yet interested in this kind of investment, because of some communication barriers. Since RHM Pants is a multinational company, the decision regarding to the heating and steam generation system does not belong to local representatives. The concept of biomass heating plant has been presented at the company, but the local management has no competence in the issue, they have strict producing-oriented activity and execution tasks. Thus, the communication between the local bottom up initiatives and the decision makers of the company is very difficult. Therefore the specific heat demand of the factory was estimated by statistical data, which is considered to be an indirect data collection. The biggest risk has been identified, if the RHM Pants SRL do not want to be partner in biomass plant and DHS implementation and do not want to be heat energy consumer from biomass plant, the biomass plant could not be profitable anymore. In order to develop a rational and well-founded collaboration between the local bioenergy Working Group and RHM Pants SRL more detailed energy demand analysis at the textile factory has to be done. The detailed energy demand estimation and economic analysis of the energy supply are considered as de-risking strategy. Furthermore the dissemination activity of the new bioenergy concept at the factory is also crucial for a sucessful local bioenergy development.

According to the heat demand survey, the total nominal capacity of the biomass boiler should be designed to 1,700 kW (1.7 MW), included the RHM Pants SRL energy demand. Thus, hoping that the local interest will be increasing for the district heating, the DHS can be developed, because the capacity would be able to supply additional heat demands. However, due to the lack of in-house heat energy distribution systems, the households are not ready to connect to the DHS in Estelnic. There is a 2.3 MW heating oil back up boiler designed to ensure the well function at the peak load. The oil back-up boiler will operate in case the larger biomass boiler has a failure and is out of operation on a cold winter day, it will also operate to deliver peak load for a few days per year only. The biomass fuel storage would be a storage room for app. 10 days of full load operation (10 h/day), it will be build right at the biomass plant.

4.1.2 Ghelinta

The local bioenergy working group agreed by participation of local stakeholders to focus on buildings of local institutions, like public buildings, church, guest houses, shops, etc. It is focused to replace the actual low efficiency heating systems against modern, high efficient, automatic controlled and powered with wood chips. In the prefeasibility study and preliminary analysis of the building stock and their heat and hot water demand has been assessed. Based on the technical study a preliminary design of the biomass plant has been done, the location for the storage facilities, biomass boiler house has been identified. Furthermore local stakeholders has been identifies the potential local bioenergy suppliers.

In Ghelința the main feedstock used for heat production is the sawdust, a wood waste coming from the primary processing of the sawn timber and firewood. One of the local public buildings, namely the schoolhouse, is heated with a biomass boiler that uses this type of feedstock. The feedstock is stored nearby in a former workshop building. On the one hand, the basic idea is to increase the actual heat production in order to provide heat to other public buildings but also to private households, on the other hand to expand the local heating grid to the suitable buildings, mentioned below. It has been foreseen to install a new biomass heating plant and to purchase a wood chipper that will be owned by the Mayoralty as well as to establish a local biomass storage center. In this location the project target is to create a legal and technological information data base with useful information about the benefits of the biomass usage in general, but also to the change the actual used heating


37

systems and the used feedstock with high efficiency automatically fed boilers. At the biomass storage centre could be deposited all kind of local or even regional woody residuals. The planned feedstocks are wood chips, resulted from different forest residues and from another industrial activity. The proposed technical solution is to build an optimal district heating system to provide the local municipal buildings with heat energy. The selected objects and location and the estimated heat demand is presented in the following table:

Type Object

Number

Object Name Expected Heat Demand

for Heat and Hot Water

(MWh/y)

Very

suitable

(primarily

focus)

1

2

3

4

5

6

7

8

9

10

11

12

- ”Jancsó Benedek” Primary School,

(already existing a decentralized heating system)

- Local Medical Center

- Saint Imre Catholic Church

- Catholic Parsonage

- Kindergarten

- Cultural Centre

- Local Council

- Mayoralty Office

- Local Police Station

- “Nagycsoport” Forest Owner Association

- “Koróbérc” Forest Owner Association

- Bowling Alley

649

73

227

92

127

205

43

77

51

28

25

130

Somewhat

suitable

13

14

15

16

17

- Guest House

- Block of Flat No. 1



- Retail Cooperative

- Residential area in the village centre up to 22 households

84

198

149

145

169

Not very

suitable

- residential areas with low energy demand density

- individual buildings with low heat demand

25-30

Table 21: Suitability of building typologies for a biomass-fuelled heat supply system in Ghelința (adapted from Table 8-3, source: Deimling 2000: 279)

In this preliminary design activity has been established the structure of the local micro grids structure for the buildings. The proposed micro grid needs a pipeline with a length of around 930 m to reach the local public institutions.

Furthermore, the Mayoralty Office is located a slight distance away from the village centre. To connect it to the micro grid an additional heat pipeline of 365 m is needed. The preliminary calculations show that for a single public institution the heating pipeline cost and the reconstruction of street would be more expensive than the installation of a decentralized heating system. For this building it is recommended to create one individual micro grid with the possibility to connect other consumers later. Therefore, the installation of a new biomass heating system at the Mayoralty Office will be realized in 2018.

At the village centre, the potential consumers are public institutions, buildings of different associations and private buildings identified in Table 1 with numbers from 1 to 17. According to the technical assessment, all the 17 identified objects connected to the grid have been listed separately during the calculations in the previous technical reports. There have been five different types of objects regarding the economic sector (public buildings, religious buildings, service buildings and private apartment blocks). In the future micro-grid zone, there are further small heat consumers up to 22 small heat consumers (e.g. single family houses or semi-


38

detached houses); however, the owners are not yet interested to connect to the heating system, and their heat demand is 8 up to 16 kW capacity per household, meaning 264 kW in total average.

At the larger heat energy consumers more accurate and comprehensive data analysis has been executed, in order to reduce the economic risks. At the biggest heat consumer, namely at the local schoolhouse a biomass boiler is operating since 2010 with a capacity of 400 kW. According to the bioenergy working group decision, several public institutions could be connected to this biomass plant, during enlarging the existing heating grid the biomass plant capacity could be also increased even up to 1 MW. The capacity of the biomass boilers will be 400 kWth + 2x 250 kWth. The 250 kWth boilers are useful to supply the heat during low heat demand periods.

In the organised event, the local authorities have shown their interest to create this investment in the following period. There will be the possibility to access funds from national and international programs. In the regional and local developing plans the modernization of the actual low efficiency boilers to new modern units is proposed for this type of buildings is proposed. The biggest risk is that if the municipality cannot find a suitable subsidy program to cover or partly cover the investment costs of the biomass based DHS in Ghelinta, they will develop separately few smaller boiler stations at different institutions. Thus, there will be several boilers with micro heating systems. However according to the bioenergy working group decision a demonstration biomass boiler will be installed at the Mayoralty in 2018. Due to bureaucracy and legislation barriers there is very slow dynamic to authorize a new installation at the public buildings. In terms of the private households they use very cheap firewood and classical stoves, therefore they are not interested to connect to DHS yet.


4.2.1 Estelnic

To invest in biomass based DHS and provide heat energy service in rural area there is no interested private investor. Therefore the bioenergy working group decided that the implementation has to be realized by municipality. In this case, subsidies or grants are necessary. If there is a suitable subsidy program available, the economic risks could be reduced, while the optimization and the sustainability of the system has to be considered. The overall goal is a complete replacement of classical stoves and former heating facilities with a centralized biomass based heating system. The members of the local bioenergy working group pointed out that the municipality is suffering on limited financing options for the bioenergy project. Therefore, the future activities will especially focus on looking for possible financial subsidies for implementing the biomass plant and the DHS in Estelnic. Considering the limited financial resources of the municipality and the discussions with key stakeholders and private entrepreneurs located in the area who might be interested in investing, it was concluded that the only real option to achieve the investments is through the use of subsidies from national government/EU. The municipality will be the beneficiary of the investment project and the owner of the future biomass based DHS. Potential subsidies could be provided via the “Casa Verde” subsidy program for local public institutions form national government, Operational Programme for Rural Development and the Operational Programme for Competitiveness and Cohesion. According to the local budget, at least 90% of subsidy for the investments is necessary. However a high risk is the availability of suitable subsidy programs. According to the bioenergy working group the municipality do not going to get loan for this project, the most suitable solution is to install step by step smaller biomass boilers at the bigger heat consumers like schoolhouse, Franciscan Monastery, Catholic church, etc.

The district heating plant in Estelnic will be owned by the municipality and managed and operated by a communal company (which will be fully owned by the municipality). Because the local staff has no experience in bioenergy management a technical training and dissemination program are also needed. The estimated heating costs will be 53 EUR/MWhth and will be kept on this price in the first few years in order to make it attractive to local citizens. To keep the heat energy price at low level is crucial since the firewood from the local informal market or the firewood from private forests is still the cheapest solution to heat the private houses. There is no natural gas or coal available.

The planned total initial investment for the biomass district heating is 967,843 EUR excl. VAT. The investment costs include heating grid investment (including earthworks), boilers investment, construction and development investment (boiler house, biomass fuel storage, boiler related electric, hydraulic and steelwork installation, etc.) and other initial investment (project planning, approval costs).

The municipality will sign preliminary heat contracts with all owners of public buildings and other local institutions, companies in case who will pay monthly for the heat – based on a fixed base price and per MWh of


39

delivered heat. According to the subsidy parameters, if the investment costs could be decreased the heat price will be also changed. The heat contracts will be used as basis for the sale of heat energy to customers, thus the biomass plant operation can be ensured for the future years.

4.2.2 Ghelinta

The overall goal is a complete replacement of classical stoves and former heating equipment with in-house heating distribution system connected to a centralized biomass based heating system at the public buildings. The members of the local bioenergy working group pointed out that the municipality cannot afford the capital for such an investment at the moment. Therefore, the future activities will especially focus on possible financial subsidies for implementing a DHS in Ghelinta. In 2018 the Mayoralty building is going to be totally refurbished. Despite the limited financial resources of the municipality, but because of the importance of the bioenergy concept, this chance is used to equip the building with a biomass boiler in order to have a demonstration point in the village. The results of the working group meetings with key stakeholders and private entrepreneurs located in the area who might be interested in investing, was that the only real option to achieve the investments is through the use of subsidies from national government/EU with the municipality being the beneficiary of the investment project and the owner of the future biomass based DHS. Potential subsidies could be provided via the “Casa Verde” subsidy program for local public institutions form national government, Operational Programme for Rural Development, Operational Programme for Competitiveness and Cohesion. According to the Local Council Ghelinta Municipality wants to avoid to have loan based investment and prefer to find a suitable subsidy program up to 80% grant and 20% own contribution.

The district heating plant in Ghelinta will be owned by the Municipality of Ghelinta. A local public company (which will be fully owned by the municipality) will manage and operate the installations. According to the results of B4B BioHeat Profitabiltity Assessment Tool the costs of heating will be 65.5 EUR/MWhth and will be kept on this price for the first 5 years in order to make it more attractive to local citizens. However according to the local inhabitants who are living in blocks or flats the price is considered as too expensive. To keep the heat energy price at lower level is very crucial since the firewood from the local informal market or the firewood from private forests is still the cheapest solution to heat the private houses. While there are no natural gas pipelines or coal available only the companies or public institutions are interested to connect to the future biomass based DHS.

According to the results of B4B BioHeat Profitability Assessment Tool (work package 4), the total initial investment for the biomass district heating is around 705,070 EUR excl. VAT. The investment costs include heating grid investment (including earthworks), boilers investment, constructions (boiler house, biomass fuel storage, boiler related electric, hydraulic and steelwork installation, etc.) and other initial investments (project planning, approval costs).

Because the municipality is the owner of the public buildings which are going to be connected to DHS, the preliminary heat contracts are not necessary in these cases, while the Catholic Church, Forest Owner Associations Offices, etc. have to sign a preliminary heat contract. The municipality can also calculate for own administration with the heat expenses at all public buildings. However the municipality can make preliminary contracts with other heat consumers who will pay monthly for the heat – based on a fixed price and per MWh of delivered heat. The heat contracts will be used as basis for the sale of heat to all private or other customers in Ghelinta.


4.3.1 Estelnic

In order to be feasible the biomass based DHS in Estelnic the preliminary economic calculation has been done. Currently the biggest challenge to the implementation of biomass district heating projects in rural Romania is the lack of awareness about DHS, furthermore in villages the heating process still operates with classical stoves fired by firewood without any in-house heat distribution system. Thus the households and public institutions have to invest and to install heating system pipelines, radiators and heat distribution systems in the buildings in order to be able to connect to local DHS. Actually the dramatic price increasing of firewood could stimulate the public institutions and households to change their heating systems with more efficient solutions. However the project has to be subsidised by national government because the local public authorities have no available budget. In this case one of the biggest risks of the implementation that the households from the village are not ready to


40

connect to DHS from three different points of view: household technical reasons, lack of knowledge and trust. In order to have more detailed economic analysis more realistic head demand measuring is needed. Dissemination and promotion events have to be organized as much as possible. If there is no available subsidy program, the municipality could install a few biomass boilers at the schoolhouse, medical centre, Franciscan Monastery, etc. The small biomass boiler installation means several micro heating systems at the local institutions, these installations can be included in to other projects like during the refurbishment of the Franciscan Monastery or modernizing of the Local Medical Centre. The decentralized small micro heating systems can decrease the risk of the investment, while increase the maintenance costs and decrease the energy efficiency of the operation.

A local public company will manage and operate the installations. The investment in the biomass district heating system amounts to 967,843 EUR, excl. VAT and without obtaining financial subsidies the municipality is not able to achieve this investment. If we consider the above mentioned amount of money for investment, the municipality needs 880 000 EUR subsidy which is necessary to implementation of the biomass based DHS. Brief recapitulation of investment costs is given in Table 22.








Table 22: Estimation of investment costs for biomass DH system in the municipality of Estelnic, GEA

The annual heat demand is 5,210.3 MWh and the total annual biomass fuel costs is 104,133 EUR, fossil fuel costs 23,278 EUR, electricity costs 12,457 EUR, staff costs 6,890 EUR without VAT. The amount is calculated on the basis of the prices of 15 EUR/MWh woodchips, 50 EUR/MWh fossil fuel price, 90 EUR/MWh electricity price and the 1.3 total person year of staff is required. According to the B4B BioHeat Profitabiltiy Assessment the calculation of financing is based on 30% equity capital and 70% credit line, investment subsidies are not foreseen yet. In the same time a comparison of economic indicators between a new biomass DH system and actual heavy oil DH system are analysed and presented below. According to the Discounted Cash-flow analysis, the discounted payback period will be 12.1 years, Net Present Value (t=25 y) is 90,302 EUR, Internal Rate of Return is 8.43 %. Based on local economic and input material costs the heat generation cost will be 51.74 EUR/MWth, while the price for end-consumers will be 53 EUR/MWth.

The profitability analysis is crucial because of the high investment costs for a biomass district heating plant. A dynamic profitability analysis is recommended for a period of 20 years, while the calculated service time is 25 years. According to the results of B4B BioHeat Profitability Assessment Tool in year 21st has to be invested a new biomass boiler. The majority of the investment costs involve the biomass boiler and heating grid network and therefore a maximum annual efficiency of the boiler has to be assumed in order to guarantee an economic plant operation. An annual efficiency for the biomass boiler of 83% and heating grid losses of 15% are estimated, by ensuring ideal localization of the biomass plant next to the biggest future consumer.

Since the project is still in the pre-feasibility period, some indicators are estimated very roughly and therefore may not fully match the real situation. In order to decrease the risks real energy demand measuring at the RHM Pants SRL and public buildings is needed. Based on these data a precise heat demand estimation could be carried out divided even in hourly energy demand in the whole year.

In the proposed biomass district heating plant, two biomass boilers of total 1.7 MW capacity should be installed and one fossil fuel boiler could be used as a peak load and back-up boiler with 2.3 MW capacity. Basic technical characteristics, economic efficiency, discounted cash-flow analysis overview and further related investments of biomass heating system and fossil fuel reference system are given in Table 23.


41

Table 23: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Estelnic

The profitability assessment is based on discounted cash-flow analysis (based on VDI Guideline 2067) with a calculated service life of 25 years. The main assumptions and results can be seen in the table below. The calculations take care of re-investment of plant components according to their technical service life, the latter assumed in line with VDI Guideline 2067. In year 21 of operation (2039), re-investment costs of the biomass boilers and the related electric and hydraulic equipment is assumed to be 205,820 EUR. Theoretically, the technical service life of the plant would be extended for another 20 years, because of the re-investment. However, the calculated service life is 25 years only. This period is sufficient to show, whether the project is able to finance re-investments by itself.

Economic efficiency - results of the profitability calculation using the discounted cash-flow method


Selected fuel type: Wood Chips & Fuel Oil Selected fuel type: Fuel Oil

Technical Parameters

2.839 MW 2.839 MW

1.700 MW 3.200 MW

2.300 MW

678 m 678 m

5,210.3 MWh/a 5,210.3 MWh/a

Investment (excl. VAT)

Total initial investment (year 0-3) 971,538 EUR Total initial investment (year 0-3) 506,927 EUR

Surplus investment year 0-3 464,611 EUR 91.7 %

Thereof investment subsidy (if any) 0 EUR

0.0 %

Figure(s): Shares of initial investment components

Effect of the bioheat plant on annual fuel and total outgoing payments

15.0 EUR/MWh Fuel price (NCV, year 1) 45.0 EUR/MWh

213,356 EUR/a 60.7 %

132,945 EUR/a 31.0 %

















21%

41%

26%

8% 4% Heating grid investment (100% grid expansion)





41%

26%

30%

0%3%


42

Table 24: Cash-flow analysis, Estelnic

Some indicators in the above mentioned tool are estimated very roughly, and therefore may not fully match the real situation in Estelnic. This is according to the facts of some missing financial data, such as a determination of the exact ratio or share of own, non-refundable and private financial resources for this project can be carried out after the preparation of the project documentation for district heating network (which should specify the exact amount of the investment) and after the conditions for co-financing through future tenders are known.

4.3.2 Ghelinta

Currently the biggest challenge at the implementation of biomass district heating projects in Ghelinta is the lack of financial background and the innovative approach of biomass DHS in a rural area. Furthermore, in the public buildings and households the heating process is still operated with classical stoves without any in-house heating distribution systems. Thus, firstly the households and public institutions have to install heating system pipelines and radiators in order to be able to connect to local DHS. Actually the significant price increasing of firewood

Discounted Cash-flow analysis (based on VDI Guideline 2067) - Assumptions overview

7.41 % 7.41 %

4.00 % 4.00 %

Tax rate 19.0 % Tax rate 19.0 %


Calculated service life (t) 25 a Calculated service life (t) 25 a

Discounted Cash-flow analysis (based on VDI 2067) - Results


Discounted Payback Time 12.1 a Discounted Payback Time > 25,0 a

90,302 EUR -1,680,619 EUR

8.43 % #NUM! %


Energy and greenhouse gas related impacts of the bioheat plant Reduction compared to fossil fuelled Ref-System

6,746.0 MWh/a 93.5 %

2,032.4 t CO 2 -eq/a 92.4 %

-196.2 MWh/a -2.7 %

Figure(s): Development of the NPV for a calculated service life of 25 years - visualization of the dynamic payback time.


Figure(s): Development of outgoing payments (operating and capital expenditures) for a calculated service life of 25 years

Outgoing Payments Outgoing Payments (EUR)

Biomass Fuel Costs

Fossil Fuel Costs

Electricity Costs

Property Costs

Staff Costs (excl. R&M)

Repair- and Maintenance Costs (R&M) according to VDI Guideline 2067

Other annual costs

Capital expenditures (interest & redemption payments)



















0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

Ou

tgo

ing

Paym

en

ts (

EU

R)

Biomass Fuel Costs Fossil Fuel Costs

Electricity Costs Property Costs

Staff Costs (excl. R&M) Repair- and Maintenance Costs (R&M) according to VDI Guideline 2067

Other annual costs Capital expenditures (interest & redemption payments)

0

100,000

200,000

300,000

400,000

500,000

600,000

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

Ou

tgo

ing

Paym

en

ts (

EU

R)

-150,000

-100,000

-50,000

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042se

rvic

e li

fe/c

ap

ital co

st

cho

sen

) (E

UR

)

-1,800,000

-1,600,000

-1,400,000

-1,200,000

-1,000,000

-800,000

-600,000

-400,000

-200,000

-

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

Net

Pre

sen

t V

alu

e (

NP

V, a

t

serv

ice li

fe/c

ap

ital co

st

cho

sen

) (E

UR

)

q


43

stimulate the public institutions and households to change their heating systems with more efficient biomass based solutions. Hovewer the project has to be subsidised by national government like it was mentioned in case of Estelnic.

The district heating plant in Ghelinta will be owned by the municipality and managed and operated by local public company. The investment costs in the biomass district heating amounts to approx. 705,071 EUR, excl. VAT. Without any financial subsidies the municipality is not able to achieve this investment. The calculation of financing is based on 30% equity capital and 70% credit line, investment subsidies are not foreseen yet. In the same time a comparison of economic indicators between a new biomass DH system and actual heavy oil DH system are analysed and presented below. According to the Discounted Cash-flow analysis, the discounted payback period will be 12.4 years, Net Present Value (t=25 y) is 235,335 EUR, Internal Rate of Return is 9.29%. Based on local economic and input material costs the heat generation cost will be 58.83 EUR/MWth, while the price for end-consumers will be 65.50 EUR/MWth.








Table 25: Estimation of investment costs for biomass DHS in the municipality of Ghelinta

The annual thermal energy delivered/sold to end consumers is 5,210.3 MWh, while the total heat produced by plant (injected into the heat grid) is 6129.8 MWh, and the total annual biomass fuel costs is 45,992 EUR, fossil fuel costs 8,895 EUR, electricity costs 5,273 EUR, staff costs 3,180 EUR without VAT. The amount is calculated on the basis of the prices of 15 EUR/MWh woodchips, 50 EUR/MWh fossil fuel price, 90 EUR/MWh electricity price and the 0.6 total person year of staff is required.

The profitability analysis is fundamental in terms of the high investment costs for a biomass district heating plant. A dynamic profitability analysis is recommended for a period of 20 years, while the calculated service time is 25 years. The majority of the investment costs involve three different hardware investments, namely the biomass boilers, the construction of biomass house and fuel storage and heating grid network. Therefore a maximum annual efficiency of the boiler and heating grid has to be assumed in order to guarantee economic plant operation. An annual efficiency for the biomass boiler of 83% and heating grid losses will be 16%, by ensuring ideal localization of the biomass plant next to the biggest heat consumer, namely the local school.

Since the project is in the pre-feasibility period, some indicators are estimated very roughly and therefore may not fully match the real situation. In order to decrease the risks real energy demand measuring at the RHM Pants SRL and public buildings is needed. Based on these data the precise heat demand estimation could be realised divided even in hourly energy demand in the whole year.

In the proposed biomass district heating plant, two biomass boilers of total 0.9 MW capacity should be installed and one fossil fuel boiler could be used as a peak load and back-up boiler with 1 MW capacity. Basic technical characteristics, economic efficiency, discounted cash-flow analysis overview and further related investments of biomass heating system and fossil fuel reference system are given in table Table 26.


44

Table 26: Technical characteristics and related investments of the biomass heating system and the fossil fuel reference system, Ghelinta

The total initial investment according to the B4B BioHeat Calculation Tool for the biomass DH system is 705,071 EUR excl. VAT. The investment costs include heating grid investment (including earthworks), boilers investment, construction and development investments (boiler room, biomass storage) and other initial investments (project planning, approval costs).

The profitability assessment is based on discounted cash-flow analysis (based on VDI Guideline 2067) with a calculated service life of 25 years. The main assumptions and results can be seen in the table below. The calculations take care of re-investment of plant components according their technical service life, the latter assumed in line with VDI Guideline 2067. In year 21 of operation (2039), re-investment of biomass boilers and related electric and hydraulic equipment is assumed to be 246,363 EUR. Theoretically the technical service life of the plant would be extended for another 20 years, because of the re-investment. However, the calculated service life is 25 years only. This period is sufficient to show, whether the project is able to finance re-investments by itself.


45

Table 27: Cash-flow analysis, Ghelinta


4.4.1 Estelnic

According to bioenergy working group and the Mayor of Estelnic municipality, it is decided that the municipality will set up a special public company for managing the district heating system. The company will produce energy for heating and sell it to all users connected to the heating system. As already stated, the municipality could sign preliminary heat contracts with all customers for at least 5 years and the costs of heating will kept low to make it even more attractive to current and potential future customers. After this period the heat price has to be reconsidered according to actual economic framework.

The construction of the biomass district heating system in the municipality of Estelnic strongly depends on securing financial subsidies. Without these it will be impossible to execute the investment. Since at this point we are waiting for reliable information regarding the potential dates of the calls for the proposal for “Casa Verde” program launched by MINISTRY OF ENVIRONMENT, WATERS AND FOREST for public institutions. This subsidy program started last year with the aim to provide financial support to the installation of heating systems using renewable energy, including the replacement or completion of classical heating systems, beneficiaries of administrative-territorial units and public institutions. However, the date of new starting of this subsidy program is unknown, thus it is not possible to provide a reliable estimation regarding the beginning of the construction of the biomass district heating system. According to the latest update of POIM (Operational Program for Big Infrastructures) national and EU co-financed program will be available from 2018. The specific objective defined in work package 6.1. “Increase in energy production from less exploited renewable resources (biomass, biogas, geothermal), production sector”, could be very suitable for the BioVill target villages. The programme is going to be launched in the beginning of 2018.

Discounted Cash-flow analysis (based on VDI Guideline 2067) - Assumptions overview

6.17 % 6.17 %

4.00 % 4.00 %

Tax rate 19.0 % Tax rate 19.0 %


Calculated service life (t) 25 a Calculated service life (t) 25 a

Discounted Cash-flow analysis (based on VDI 2067) - Results


Discounted Payback Time 12.4 a Discounted Payback Time > 25,0 a

235,335 EUR -528,576 EUR

9.29 % #NUM! %


Energy and greenhouse gas related impacts of the bioheat plant Reduction compared to fossil fuelled Ref-System

2,979.5 MWh/a 93.5 %

897.7 t CO 2 -eq/a 92.4 %

-86.7 MWh/a -2.7 %

Figure(s): Development of the NPV for a calculated service life of 25 years - visualization of the dynamic payback time.




















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4.4.2 Ghelinta

According to the results of B4B BioHeat Profitability Assessment the project, due to an unattractive payback period and the ratio of the size of the investment and the financial saving the private investors are not interested in this business. Thus the municipality is the only possible investor if 80% of granted co-financing is available. But for using funds from national government or from the EU, it is necessary to be ready the feasibility study of the project and to have obtained all necessary permits. According to the local bioenergy working group a local experimental phase has to be perceded the construction of the biomass district heating system in the municipality of Ghelinta. During 2018 the building of local Mayoralty is going to be modernized and enlarged. This chance is used to equip it with a biomass boiler and a new heating system. This investment will be financed by municipality, thus the budget for the investments was already planned in the beginning of 2016. In the future, the municipality is going to submit the project documentation for biomass district heating plan based on own experience. The municipality is waiting for the new calls for proposal for “Casa Verde” (Green Home) Program launched by the MINISTRY OF ENVIRONMENT, WATERS AND FOREST especially for public institutions. This subsidy program started last year with the aim to provide financial support to the installation of heating systems using renewable energy, including the replacement or completion of classical heating systems, beneficiaries of administrative-territorial units and public institutions. However, the date new of the starting of this subsidy program is unknown, thus it is not possible to provide a reliable estimation regarding the beginning of the construction of the biomass district heating system.


4.5.1 Estelnic

As already stated, the local public company will be fully owned by the municipality and it will be in charge of management and operation of the biomass district heating plant. Because the local staff has no experience about bioenergy management a technical training and dissemination program are also needed. The local public company will procure biomass from local Forest Owners Association, private forest owners, energy willow plantation, mountain pasture cleaning activity and sawmills located in and around Estelnic municipality, thus promoting local entrepreneurship.

The public company will be in charge for operation and maintenance of the plants, as well as for fuel supply. Annual maintenance costs include annual service costs for boiler and fuel system, cleaning of the chimney, costs of electricity, costs for ash removal transport, wood chip production, depositing and transport and staff costs. Annual cost for operation and maintenance of the heating plant are estimated very roughly and amounts to 20,000 EUR excl. VAT. Estimation of maintenance costs is given in the Table 28.

Cost description Amount (EUR)

Annual biomass fuel costs 104,133

Chimney cleaning 100

Power consumption 12,457

Repair costs 17,353

Staff costs (1.6 personal) 6,890

Wood chip transport 1,000

Ash removal 100

SUM (without VAT) 142,033

VAT (19%) 26,986.27


Table 28: Annual maintenance costs assessment, Estelnic


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The heating system will be designed to operate as water heating system in 90°/70°C temperature regime. Maintenance and labour costs depend very much on how well a plant is designed to meet the heat demand and the quality of supplied wood fuels.

4.5.2 Ghelinta

In Ghelinta already appeared an interest to establish a local public company in order to manage the water and waste water management and maintenance, thus the same local public company could be in charge of management and operation of the biomass district heating plant as well. The local public company will procure biomass from local Forest Owners Associations, public area cleaning, private forest owners, mountain pasture cleaning activity and sawmills located in Ghelinta municipality, thus promoting local biomass uptake and local entrepreneurship.

The public company will be in charge for running and maintenance of the plant, as well as for fuel supply. Annual maintenance costs include annual service costs for boiler and fuel system, cleaning of the chimney, costs of electricity, costs for ash removal transport, wood chip production, depositing and transport and staff costs. Annual cost for operation and maintenance of the heating plant are estimated very roughly and amounts to 20,000 EUR excl. VAT. Estimation of maintenance costs is given in the Table 29.

Cost description Amount (EUR)

Annual biomass fuel costs 45,992

Annual fossil fuel costs 8,895

Chimney cleaning 100

Power consumption 5,273

Repair costs 11,046

Staff costs (1.6 personal) 3,180

Wood chip transport 1,000

Ash removal 100

SUM (without VAT) 75,586

VAT (19%) 14,361.34


Table 29: Annual fuel and maintenance costs assessment of DHS, Ghelinta

The heating system will be designed to operate as water heating system in 90°/70°C temperature regime. Maintenance and labour costs depend very much on how well a plant is designed to meet the heat demand and the quality of supplied wood fuels.

4.6 Summary

4.6.1 Estelnic

The district heating system in Estelnic will include ten bigger buildings in the village centre, thereof eight public buildings, one block of flats and a textile factory (RHM Pants). The biomass heating plant will have a peak load capacity of 1,700 kWth (two boilers with 1,200 kW & 500 kW) combined with a 2.3 MW heating oil boiler. Because of the lack of in-house heat distribution systems, the private building owners are not willing to connect to the DHS in Estelnic. Since the textile factory is the biggest energy consumer, the biomass plant will be implemented near to the factory. So far, the textile factory did not yet decide whether to connect to the grid or not.

The biomass boiler will use woodchips out of local wood residues, landscape maintenance and energy willow plantation.

The economic calculation shows positive results. The calculated net present value is about 90,000 Euro and the internal rate of return is 8.43 percent in a period of 25 years. The calculated heat generation costs are about


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52 Euro per MWh (full cost calculation). The economic calculation will be refined in the next month according to deeper knowledge about the investment, operation and fuel costs for the project. It is assumed, that the heat price will further decrease (e.g. through lower investment costs) and thus, the profitability of the project might even improve.

The bioenergy working group of the village decided that the DHS and the heating plants have to be realized and owned by the municipality and operated by a municipal company. In this case, subsidies or grants are necessary, because the municipality is suffering from limited financing resources for the bioenergy project. Therefore, the next steps will especially focus on looking for possible subsidies for implementing the biomass heating plant and the DHS in Estelnic. Potential subsidy programmes provided by the national government are the “Casa Verde” programme for local public institutions, the Operational Programme for Rural Development and the Operational Programme for Competitiveness and Cohesion. According to the local budget, at least 90% of subsidy for the investments is necessary. According to the latest update of POIM (Operational Program for Big Infrastructures) national and EU co-financed program will be available in 2018.

4.5.2 Ghelinta

The municipality of Ghelinta focuses on replacing the existing low efficiency heating systems against modern, high efficient, automatic controlled wood chip boilers. The school is currently heated with biomass, the plant operates since 2010. It is foreseen to install a new biomass heating plant in the school and to connect 17 buildings to the grid. Thus, the biomass plant capacity should be increased from the existing 400 kW up to 1 MW. Furthermore, the Mayoralty Office is located 365 m from the city center and therefore cannot be connected to the DH network. Thus, a decentral biomass heating plant will be realized here in 2018.

Possible feedstock that can be used for heat production is sawdust, which comes from the primary processing of the timber and firewood. The municipality plans to purchase a wood chipper and to establish a local biomass storage center.

The cash flow analysis for the bioenergy project in Ghelinta shows, that the economic key performance indicators are very good. The calculated net present value is about 235,000 Euro, the internal rate of return is 9.29 percent and the calculated heat generation costs are about 59 Euro per MWh (full cost calculation) in a period of 25 years. As mentioned above (chapter 4.3.1.), the approaches for the calculation will be adapted according to the decisions that will be made for the business model in Ghelinta.

In addition to the investments for the DHS and the new boilers, the installation of in-house heat distribution systems in the public buildings is necessary. The members of the local bioenergy working group pointed out that the municipality cannot afford the capital for all the investment at the moment. Therefore, the future activities will especially focus on possible subsidies for implementing a DHS in Ghelinta. Potential subsidy programmes provided by the national government are the “Casa Verde” programme for local public institutions, the Operational Programme for Rural Development and the Operational Programme for Competitiveness and Cohesion.

The district heating plant in Ghelinta will be owned by the Municipality of Ghelinta. A municipal company (which will be fully owned by the municipality) will manage and operate the installations.


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5 Economic assessment of the bioenergy concept in the Serbian target village


The accepted technical concept for the district heating system basically focusses on a fuel shift in the existing district heating system, from heavy fuel oil to wooden biomass. Existing facilities would partly remain in operation (a 750 kW heavy fuel boiler and a 100 t fuel tank) for covering peaks in heat consumption and in the case of failure of the biogas boiler. New biomass boiler station (500 + 200 kW wood-chip boilers) and 5-days biomass storage will be built in close proximity to existing facilities (land is available and belongs to municipality) and will be connected to the existing 2.9 km long district heating network. The existing district heating network was built in 2005 by using pre-isolated pipes. There is no measured data about energy loses in the DH network. The current DH system operator (BB Term) estimates the grid related heat loses on 25%.

The necessary biomass resources for the operation of the proposed installation are available. The calculation was made with an assumption that the biomass would be provided by Public Company National Park Tara (hereafter NP Tara) and such solution is quite convenient. However, the inhabitants of Kostojevići own approximately 725 ha of total forest area of 733.95 ha that is located within the village’s borders. Also, the significant amount of residues after agriculture production could also be transformed into wood chips. Therefore, it can be concluded that the significant amounts of biomass resource could be provided from local forests and local agriculture production.

A necessary key condition for a sustainable operation of district heating system in Kostojevići is the connection of new consumers to the existing district heating network. A conducted survey as well as meetings with residents have indicated previous consumers of the district heating system that have cancelled the heat delivery contract in former time, as well as new households and consumers in commercial and service sectors situated close to the existing district-heating network. For all of them it is important that the price for the heat of the district heating system is equal or even lower than the heating costs by a decentralized heating system. The calculation showed that such price of delivered heat could be obtained by increasing the heat demand by factor three. This means the reconnection of 13 households that were previously disconnected from the district heating network, the connection of new 38 households close to district-heating network as well as 11 consumers from commercial and service sectors (restaurants, bakery, shops, warehouses, offices, etc.). Compared to the existing system that uses heavy fuel oil, the proposed system lowers the costs of the heat generation by 27.5%. In addition that new system provides a benefit for the environment.

A risk assessment has been discussed at the meetings in Kostojevići and in Bajina Bašta. A big problem are the high investment costs and the operational costs in the actual case in that only a small number of users is connected on the district heating that implicates a low heat demand. The motivation of citizens to use district heating is low, because presently, they use biomass from their own forests in their local heating systems. It is a big challenge to convince all proposed consumers to get connected to the renewed district heating system. This must be further promoted as the key element of future sustainability of the whole project. A solution could be to involve the heat consumers in the process of biomass supply, in the way that the biomass from their own forests will be used in the district heating system. That enables them to make some profit and could be an additional motivation factor for using the DHS.

The installation of a CHP plant was considered as a possible way to upgrade the district heating system in the future. For such a system, it is necessary to provide heat continuously to the consumers during the whole year. Such consumers in Kostojevići exist, but the analysis of their position and technical characteristics has shown that they are not suitable for CHP installation and connection to a centralized district heating system. However, the village Kostojevići is positioned as a well-known fruit production region with the possibilities for development of the food industry. This fact has been used for consideration of investment in a CHP for adequately situated in a new industrial facility (e.g. processing line that could be used for jam or marmalade production, installation for fruit or vegetable drying, wood processing plant, etc.). Such process line and CHP could work together for 6.000 h/y to 8.000 h/y at nominal working regime. The proposed CHP plant would use a wood chip boiler with steam turbine and ORC module. Considered electric power was 130 kWel, with heat capacity of 630 kWth.


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Citizens, entrepreneurs, local authorities, NP TARA as the owner of biomass, private forest-owners are interested in implementing the project of using biomass in the district heating system in Kostojevići. Of course, each interest group has its own interests and motives. For example, many citizens of Kostojevići are at the same time the users of the district heating system and also the owners of biomass or they are just one of these two. The municipality has a threefold role: owner of public buildings connected to the DHS, owner of PUC BB TERM and also a regulator of district heating market.

The choice of the financial model according to which the project will be realized, depends on the mutual relations and the strength of the motives of the stakeholders. According to the laws of the Republic of Serbia, district heating is a communal activity and local governments are obliged to organize communal activities and have a regulatory role in determining the price of heat and defining the rules of operation of the district heating system. Traditionally, all district heating systems in the Republic of Serbia are owned by local governments (public property). The same case exists in the Kostojevići. New legal solutions allow that both entrepreneurs and private companies can be the owners of district heating and distribute and supply heat with the prior acquisition of a license issued by the municipality.

Besides municipality i.e. the PUC BB TERM that was established by municipality to develop, manage and operate of the DHS, investors can be also private partners according to law changes, for example: energy cooperatives, entrepreneurs and companies. According to the PPP model, a municipality with a private partner can establish a new legal entity that will only produce heat or contract other activities such as distribution and heat supply to the end users.

Different options for investment in a biomass based district heating system in Kostojevići have been considered. Generally, the basic conclusion was that the inexistence of state subsidies for investments in a biomass project for heat production is a significant barrier for this type of project.

The first considered option was the establishment of an energy cooperative of district heating customers in Kostojevići. The energy cooperative would include district-heating customers from the households sector, as they are in the same time the owners of the forests – the biomass resources. During the meetings with potential members for the energy cooperative this solution wasn’t recognized as achievable. Reasons are different, from lack of experience in biomass business, inexistence of mechanization for providing adequate quantity biomass, bad forestry roads, etc. A general, unfavorable economic situation and low and insecure households’ incomes additionally lower the motivation of some people for personal involvement in such kind of joint venture.

Presently, the Public Utility Company BB Term (founded by municipality of Bajina Bašta) is the owner and operator of the district heating system in Kostojevići. The investment in the biomass boilers and the necessary equipment amounts about 280.000 Euro. Considering the limited financial resources of BB Term and municipality of Bajina Bašta as well as their priorities regarding the reconstruction of district heating in the city of Bajina Bašta, it was concluded that the only real option for the investment is through the use of subsidies or especially favorable grants, with the BB Term (or municipality of Bajina Bašta) as the main investor. Private companies are located in Kostojevići, they showed interest to be connected to the district heating network, but did not show any interest to invest in new facilities.

The last considered option is including a private partner or partners in the investment process and establishing a public private partnership. In this option, the municipality of Bajina Bašta and the private partner would establish a partnership for producing heat by using biomass. This contracting model includes different activities such as distribution and heat supply to the end users. From the private investor would be expected to invest in new facilities, while the municipality would contribute the existing DH network and other facilities. The significant increase in the number of consumers would enable relatively low costs of heating due to reduction of the fixed operating costs (including costs of investment). That will make the district heating more attractive than any kind of decentral heating. The preliminary heat contracts would be signed with all customers for at least 15 years and these contracts would be used as basis for the sale of heat to customers in Kostojevići. Customers would pay monthly for the heat – based on a fixed price and per kWh of delivered heat.

Although the last option looks like the most realistic, the final decision on the investment and operator at this point has still not been decided. The municipality of Bajina Bašta will undertake activities in promotion of this project to ESCO companies in Serbia and the region. Also, the municipality of Bajina Bašta will consider feasible opportunities to make PPP with some of local entrepreneurs with the experience in energy services business (HVAC installation).


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The pre-feasibility study analyzed the economic efficiency of district heating plant with wood-chips as a main fuel that should replace the existing heavy fuel oil fired heating plant. A key assumption for the calculation was the significant increase in the number of consumers and heat consumption. The existing system supplies 25 households, a local school and an ambulance. To optimize the system the new, biomass fired district heating system should supply 93 heat consumers. The existing grid is used without further construction. This grid has a trench length of 2.9 km.

The total investment costs for the biomass district heating system is 280 thousand EUR excl. VAT. Brief recapitulation of investment costs is given in Table 30.



Heating grid investment -





Table 30: Estimation of investment costs for biomass DH system in the village of Kostojevići

Higher up-front investment and re-investment of bio-heat systems (compared to existing fossil fueled system) are offset by lower outgoing fuel or lower outgoing total payments. Investment subsidies are not taken into consideration since such mechanism in Serbia regularly does not exist. Equity capital share is estimated to 30%, that is 128,000 € for biomass DH system. The long-term loan interest rate is 2.5% with a lent term of 10 years. Long-term debt capital is 298,933 € for biomass DH system (Table 31).

Table 31: Structure of the investment in DH system, Kostojevići

A regular biomass market in Serbia does not exist, thus for the calculation a wood-chip price was used from literature10. This is a very important fact, since before a company will make an investment decision, the biomass supply chain must be clearly defined and the wood-chip price must be exactly determined. Biomass can be supplied from the NP Tara, from local forests owner or from both. The prices depend on the supplier and can be

10 ĐAKOVIĆ D., GVOZDENAC UROŠEVIĆ B., UROŠEVIĆ D. (2015): Design of logistic concepts for wood biomass supply chains for district

heating plants in municipalities of Priboj, Novi Pazar, Bajina Bašta and Nova Varoš. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, DKTI- Development of a Sustainable Bioenergy Market in Serbia, Accessed June 21, 2017, from http://www.bioenergy-serbia.rs/images/documents/studies/BSCstudy_final.pdf

http://www.bioenergy-serbia.rs/images/documents/studies/BSCstudy_final.pdf


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very different. The biomass price should be defined in a long-term supply contract between DH owner and NP Tara or the local forest owners. The contracts have to be tailored to the requirements of the different suppliers. For the acceptance of whole bioenergy project it would be useful to oblige the DH system operator to purchase some part of biomass from local forest owners or at least of the DH consumers.

The equity capital share applies to the NPV of the full investment, as no subsidy is granted. Interest for equity is assumed to be 5% (after tax). The equity capital amounts 128 thousand EUR. It was assumed that the loan interest rate is 2.13% (effective rate, after taxes) with a lent term of 10 years, so the debt capital is 299 thousand EUR for the biomass heating system. These conditions can be considered as regularly available at Serbian market. Also, the heat sales price is assumed based to real conditions in Bajina Bašta11 (50.3 EUR/MWh, excl. VAT).

The profitability assessment was based on a discounted cash-flow analysis12 (based on VDI Guideline 2067) with a calculated service life of 25 years (Table 32). Based on stated assumptions, the biomass district heating system had calculating heat generation cost of 48.46 EUR/MWh. This corresponds to (dynamic) discounted payback times of 10.5 years. The net present value was 55.9 thousand EUR and internal rate of return was 8.66%. From the graph of development of the net present value for a calculated service life of 25 years, it is evident that relatively high costs of investment and debt capital conditions take NPV in slightly negative values for the period of debt return. Therefore, even a small percentage of investment subsidies should significantly reduce the payback period.

Table 32: Cash-flow analysis, Kostojevići


The choice of investor essentially determines the way of financing. The priority activity is the agreement of the stakeholders on the choice of the investor.

The limitation of the municipality and the PUC BB TERM that now manage and operate the DHS is the lack of creditworthiness. The municipality or PUC BB TERM could be the investor only in the case of obtaining a grant in the amount of the total investment from the Republic of Serbia Energy Efficiency Fund. Up to now, this Fund announced two public calls (in 2014 and 2016) for financing the projects of energy efficiency improvement and RES utilization. Total budget of 2016 call was approximately 1.3 million Euro (from the budget of the Republic of

11 This price is defined as average between price for households and price for commercial consumers (http://www.bbterm.rs/akta/) 12 Austrian Energy Agency (2017): B4B Bioheat Profitability Assessment Tool, H2020 Bioenergy4Business project, Accessed August 24, 2017,

from http://www.bioenergy4business.eu/bioheat-profitability-assessment-tool/

http://www.bbterm.rs/akta/

http://www.bioenergy4business.eu/bioheat-profitability-assessment-tool/


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Serbia) and 500 thousand USD (from donation). Maximal approved fund per single project was app. 125 thousand Euro. The term of announcing the next call is not known yet. Therefore, it is hardly to count on the Republic of Serbia Energy Efficiency Fund as the reliable and complete source for project financing.

The establishment of an energy cooperative to which the citizens of Kostovici and local entrepreneurs would join is a good option because as previously mentioned citizens of Kostojevici are simultaneously the beneficiaries of the DHS but also the owners of biomass. Citizens would provide more efficient DHS with the realization of this project, take an active part in the fight against climate change and at the same time provide additional revenues from the sale of biomass. Given the fact that they cannot count on incentives either by the Republic of Serbia or by local governments, the only possible way of financing would be credit indebtedness. The problem is the lack of confidence of financial institutions in the stable functioning of energy cooperatives and potential risks related to repayment of loans. The probably stated high risk by commercial banks would affect the cost of capital being too high and lead to unattractive loan conditions. The assumption is that the participation of entrepreneurs in the energy cooperative will improve the credit rating, but probably insufficient to really get the loan.

The problem that is evident and adds to the above mentioned facts is that local entrepreneurs have not shown interest in autonomously or jointly financing the construction of a biomass plant. A very important motive for understanding the lack of interest is the fact that their basic jobs are completely different from the energy activity and that a market for energy services does not exist in Serbia. Moreover, experiences related to the participation of entrepreneurs and private companies at the energy business are not collected up to now.

The real assumption is that local decision-makers could solve the problem of credit indebtedness of the municipality by motivating and supporting the entrepreneurs and private companies that are dealing with HVAC installation work to be the investors. These companies are possessing specific knowledge and experience and they are able to build a biomass heating plant with the support of commercial banks. In this case, the project would be implemented according to the ESCO - ESC (energy supply contracting) model. The investor would provide own capital, usually up to the amount of 30% of the value of the investment, and the remaining investment would be obtained by credit indebtedness under the conditions and interest rates appropriate for financing energy efficiency on projects in Serbia. The interest rate is assessed at 4.50% and is higher than the interest rates applied for such projects in other EU countries.

The ESCO could be found among the entrepreneurs in the municipality of Bajina Bašta, but it needs proficient training by an external expert. The other option is that the municipality has to issue a public call for ESCOs to realize a ESC project. This approach leads to a one-stop-shop-model with an experienced private partner. These different solutions will be discussed with stakeholders in Kostojevići on meetings scheduled for the next months.

The main risks that are expected are the insufficient interest of users to connect to the existing DH network, undeveloped biomass supply chains and the lack of interest of commercial banks to finance this project.

The smallest risk is the lack of interest of users to connect their households on DH network. The heat obtained from biomass is competitive with fossil fuels, and the proposed model for the binding of heat billing with the supply of biomass will be especially attractive for the citizens. This is a convenience that applies primarily to citizens and entrepreneurs who are both DHS users and biomass owners. The mentioned model implies the calculation of the supplied heat at the end of the regulatory period and the possibility of heat payment by biomass deliveries.

A biomass market has not yet been established, which means that there is a risk for price stability. Extreme weather conditions can cause significant disparity on the supply and demand side. The underdeveloped market can’t respond adequately. This problem can be solved by long-term contracting NP Tara and private forest owners with the biomass supply. Also, the decision to keep at least one boiler in which the oil fuel is burned as a peak boiler will ensure that the impact of disturbance on the biomass market is amortized.

The most serious risk is the lack of interest of commercial banks to finance this project. The reason should be sought in insufficient number of examples of good practice in Serbia and an insufficient technical capacity of commercial banks to assess the project. The solutions are long-term contracts for the delivery of biomass and long-term heat supply agreements with DHS users based to reliable cash flow calculation.


Estimated operation and maintenance costs are given in Table 33. Costs were estimated using “B4B BioHeat Profitability Calculator” tool, provided by AEA.


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Description Amount (€)

Annual Biomass Fuel Costs 42,645

Annual Fossil Fuel Costs 11,362

Annual Electricity Costs 3,347

Annual Staff Costs 1,250

Repair and Maintenance Costs 5,970

Annual Other Costs 2,101

Total Costs (without VAT) 66,675

Table 33: Estimation of annual operation and maintenance costs, Kostojevići

For the reasons above mentioned, PPP is expected to be established, whereby PUC BB TERM will remain the owner of the existing DHS and continue heat billing to end users and the private partner will take over the obligation to build a biomass heating plant. Also, the private partner will be in charge of heat production and distribution. The obligation of the private partner will be to connect new users, obtain supply biomass logistics and, of course, manage and operate of the DHS. The private partner calculates the heat price, but the municipality retains the regulatory role.

A private partner is interested in building an efficient plant, as this ensures the smallest fuel consumption. Within the biomass supply chain, the partner will also be in charge for mechanical conversion of wood biomass into wood chips in the dimensions corresponding to the biomass boiler. This reduces biomass losses during storage and ensures lower fuel costs.

Good maintenance is very important because it also affects the efficiency of the boiler, the technical availability of DHS and stable heat supply. Within the internal procedure the private partner will prescribe the scope of activities and deadlines for properly maintenance of equipment and systems.

A private partner will provide qualified staff who will manage and operate of the heat plant. At the territory of the Municipality of Bajina Bašta, where the village Kostojevići is situated, entrepreneurs are engaged in the production of wood pellets, in designing and constructing of HVAC systems. This means that private partners could provide experienced staff who will be able to operate and maintain the DHS with the support of the equipment manufacturers. Also, the assistance of the PUC BB TERM is expected.

The sustainability of the project will guarantee long-term contracting of heat supply with end-users. In addition to the attractive price of heat, long-term contracting is also required as a guarantee to commercial banks that the loan will be pay off.

Risks over the life of the DHS are improper handling and damage to vital equipment, which endangers the operational availability of heat plant, but also increases maintenance costs. By engaging trained and qualified staff, this risk is minimized.

It is necessary to constantly monitor the quality of the delivered biomass, since the fuel consumption and the costs of heat production depend on the quality of biomass. Specificity is also the purchase of biomass from a larger number of suppliers. This means that it is necessary to establish a transparent way of determining the amount of biomass and the calorific value in the procurement. The procedure for receiving biomass includes determining the origin and type of wood, measuring the mass and measuring the water content, or determining the moisture content of the raw biomass. For each delivery, the calorific value and the delivered amount of biomass will be determined and calculated the amount of primary energy contained in the delivered biomass. The amount of energy will be the basis for the payment of the delivered biomass.

For the purpose of energy balancing of the biomass boiler, a heat meter will be installed to measure the heat delivered to the distribution network. All DHS users (heat buyers) have built-in own heat meters at the entrance of the buildings. This will enable the payment of heat on the basis to the measured consumption.

The private partner will provide user education in relation to energy efficiency measures and encourage users to optimize energy consumption. This will ensure that optimized capacity of the DH network could be used to connect new users without additional investment.


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5.6 Summary

A 2.9 km long DHS already exists in Kostojevići since 2005. The DHS is owned and operated by the municipal company PUC BB TERM. The technical concept focusses on a fuel shift from heavy fuel oil to wood chips. Existing facilities would partly remain in operation, in particular the 750 kW heavy fuel boiler for the peaks in heat consumption. The new biomass boilers are planned with 500 and 200 kW. Up to now, 13 households have cancelled the heat delivery and should be convinced to reconnect on the grid. Moreover new 38 households and 11 consumers in commercial and service sectors that are situated close to the existing district-heating network are addressed as potential consumers of district heat. For all of them the price for the heat is the most relevant decision criteria.

The installation of a CHP plant was considered as a possibility to upgrade the DHS in the future. Potential users of a CHP in Kostojevići exist (e.g. food industry), but they are currently not suitable for a CHP installation and connection to the DHS.

The economic calculation shows good results. Thus, the project can be considered as feasible. The main risk for the project feasibility is currently the low number of connected heat consumers from private households and commercial sector. This increases the impact of the investment costs on the heat price, which makes the system unfavorable for the consumers, compared to the existing heating system. To avoid this risk, the contracts with existing and new consumers should be signed in advance, and all consumers should be connected simultaneously with the beginning of operation of the new facility.

The local working group identified three potential investors and operating models. Besides the municipal company PUC BB TERM, an energy cooperative or a private company (PPP-model) could be the potential investors. The municipality has no sufficient resources to finance the plant now. The advantage of an energy cooperative would be, that it would include private households as producers and consumers (prosumers), as they are also owners of the forest biomass to be used in the heating plant. Local entrepreneurs so far have not shown a high interest to act as an investor and to finance the biomass plant, since they do not have experience in the energy sector and also lack financial resources. Relevant grant programmes were not identified yet. If the municipality or PUC BB TERM would be the investor, a grant in the amount of the total investment from the Republic of Serbia Energy Efficiency Fund would be a possibility. But up to now it is not clear whether or when a third call of the respective national support programme will be published. Currently a PPP is the most realistic option, whereby PUC BB TERM will remain the owner of the existing DHS and continue heat billing to end users and the private partner will take over the obligation to build the new biomass heating plant.


56

6 Economic assessment of the bioenergy concept in the Slovenian target village


Forests cover about 60 % (3,300 ha) in the local community, ensuring a sufficient amount of local renewable source of energy – woody biomass. Forests are owned by private forest owners. Forest owners are fairly well equipped with forest machinery like adapted forest tractors, as well as with tractors with semi-trailers for transport of round wood and chips. The development towards self-sufficient village bioenergy village Dole pri Litiji is based on establishment of wood chips based district heating system. Next steps will focus towards self-sufficiency in electricity supply by setting up a windmill or a small biogas cogeneration plant, however these options are feasible in long term.

The prefeasibility study done in the frame of the BioVill project gives an estimation of investment in biomass district heating system, considering 18 interested potential consumers with annual heat demand of 493 MWh. The heating system will be composed of 3 major pipe lines, all with the same starting point at the boiler room, which is planned in the new firefighter station. First pipe line towards primary school will be 190 meters long (56 kW). The second pipe line towards the east will be of length 300 meters and supplying heat to industrial objects (200 kW). The last, third pipe line will provide heat for space heating of public buildings, agricultural co-operative and individual households (237 kW). Overall length of all planed pipelines is estimated to 890 m. Construction of district heating pipeline system will be conducted during the infrastructure reconstruction (sewage, electricity, waterworks, optic internet) of the village.

Boiler room’s dimensions are estimated to 22 m of length, 6 m of width and 5 m of height. A storage room with dimension of 120 m3 and with hydraulic floor for transportation of wood chips is planned. The split chip shaft is planned at an elevation of 0, at the height of the road. The hot water boiler storage is estimated to 5000 L, for the needs of covering the heating spikes and for reducing the mass flows to the boiler.

Currently, the working group is discussing about the situation regarding the land to build the firefighter house in which the boiler of district heating system will be installed. The owner is keen on the project, however, handing over of the property still needs to be discussed in the detail. The concept of new firefighter house, which is the main driving force of the development in Dole, is being developed in cooperation with the Faculty of Architecture. Plans for the boiler room were made by local energy agency LEAD.

Quality boilers and related heating equipment are affordable in Slovenia. However, there is a lack of domestic technical equipment for the use of wood biomass and therefore most of the equipment is imported. That may not be an issue as warranty for the whole system is available by the rule. There is a lack of experts with knowledge and experiences about district heating systems using renewable energy sources. Knowledge transfer from BPE villages and cooperation with experts would help to overcome this issue.


In the initial phase of the project, the wish of the local community was that the whole project would be carried out without an external investor. However, during the presentation of different concepts and financing possibilities, the mindset has changed and working group made a decision to invite an investor in the project. A potential investor could be company Petrol d.d., which has many references in building both, biomass and fossil fuelled district heating systems in Slovenia. But still local forest owners and other interested inhabitants are planning to establish local cooperative which will be responsible for production and supply of wood biomass and other local products to the local market. They are planning to supply wood biomass to district heating system. The investor would invest into the boiler house and would be responsible for managing the system and selling the heat to local users. The planed cooperative would take care for wood chips supply for the district heating system. At the moment it is foreseen that the investment into DH pipeline will be made by local community as part of renovation of whole village infrastructure (water, electricity, internet, ….). The fee for using the pipelines or financial contribution in investment into DH pipelines will be discussed and agreed between local community and investor before implementation phase. This will be also part of concession contract between local community and heat seller.

The municipality of Litija is aware of the implementation of the BioVill project in Dole pri Litiji and supports its development. Their involvement is crucial in terms of planning the investment in infrastructure reconstruction, including DH pipelines, in their financial plan for the next year. The representative of municipality is a member of


57

working group and he is present at all working group meetings. The mayor of the municipality was also present at info days and at the training organised in Dole pri Litiji in May.

Often there is a mistrust of local community towards companies or individuals, who would like to make a change in their village. Such doubts can be solved by visiting similar villages, where a potential investor had already implemented a district heating system. Discussion with consumers, operators and local authorities regarding the security of heating, prices, legal formulation, etc., can clarify many questions, raise the support and ease the way of project implementation in the target village. Regarding the deadlines of call for subsidies for the investment in biomass DH system, short timeframe of project implementation may cause potential problems. Open discussion within the working group will have to end up with final decisions and their implementation.

The final number of clients who opt for a connection to the district heating is still uncertain. The investor will have to sign preliminary heat contracts with all customers for at least 12 years. They will monthly get a receipt for the heat, composed of fixed price and per MWh of consumed heat.


Total investment in biomass DH system (including construction of pipeline and boiler room, boilers, all related installations, energy transfer stations, planning and approval costs) is estimated to 417,373 €, details are given in Table 34.


Pipe and Earthwork 153,420

Energy Transfer Station Investment 57,900

Biomass Boiler 70,000

Peak Load Boiler 10,000

Boiler House 45,000

Boiler Related Installations 35,000

Fuel Storage 30,000

Planning and Approval 16,053

Other unforeseen costs 10.000


Table 34: Estimation of investment costs for biomass DH system, Dole pri Litiji

55% of the investments into RES based district heating system could be covered by the investment grant. Compared to the fossil fuel reference system, total investment costs in the biomass DH system would be 35 % lower. Equity capital share is estimated to 17.7 %, that is 85,500 € for biomass DH system. The long-term loan interest rate is 1.37 % with a lent term of 15 years. Long term debt capital is 190,226 € for biomass DH system (Table 31).


58

Table 35: Technical characteristics and related investments of the biomass heating system, Dole pri Litiji

The profitability assessment is based on a discounted cash-flow analysis (based on VDI Guideline 2067) with a calculated service life of 25 years. The calculations also consider the replacement of the boilers and the related electric and hydraulic installations in 20 years, the latter are assumed in line with VDI Guideline 2067.

6005 Biomass Heating System

Parameter Unit Input Value Reference Value

6007 Investment Capital Structure

6008 Total initial investment (year 0-3) EUR 417.373

6009 Total investment eligible for subsidy EUR 391.320 93,8%

6010

Investment subsidy share (of eligible investment) - if any

subsidies are provided%

55,00% 30,0%

6011 Investment Subsidy (nominal) EUR 215.226

6012 Investment subsidy payment year year 2 < 6

6014

Equity Capital Share (equity capital related to calculatory

total investment minus subsidy)%

30,00% 30,0%

6016 Total calculatory investment (present value) EUR 483.613

6017 Investment Subsidy (present value) EUR 207.886

6018 Equity Capital EUR 85.500 82.718

6019

Debt Capital (long-term) --> Pls. press the button to re-

calculate EUR 190.226

6021 Debt Captial Conditions

6022 Long term Loan - effective interest rate (after tax) % p.a. 1,37%

6023 Long term Loan - lent term a 15 15

6024 Long term Loan - effective interest rate (pre-tax) % p.a. 1,75% 3,00%

6025 Long term Loan - annuity (interest + redemption) EUR/a 14.529

6030 Equity Capital Conditions

6031 Cost of equity Capital (interest rate) - after tax % p.a. 7,00% 5-8%

6032 Tax rate % p.a. 22,00% 25,00%

6033 Cost of Equity Capital (interest rate) - pre-tax % p.a. 8,97%

6035 WACC pre-tax % p.a. 3,99%

Total calculatory investment (present value)

43,0%

17,7%

39,3%

Investment Subsidy(present value)

Equity CapitalqDebt Captial


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Table 36: Cash-flow analysis, Dole pri Litiji

The economic calculation of using wood biomass highly depends on fossil fuel prices. The exploitation and use of wood biomass doesn`t provide high earnings. However, using biomass allows the promotion of regional development and creates new jobs. Biomass is also a local and long-term affordable stable source of heating. Connecting more distant single houses to the district heating system would lead to ineffective and economically unjustified investment. The better solution for the interested owners of remote buildings is to introduce and support them in individual solutions to become a part of bioenergy concept of the village, such as replacement of obsolete boilers, installation of solar panels etc. Residents and stakeholders are not well informed on possibilities of subventions, loans, as well as advantages of efficient heating. The solution is to present them the options of co-financing of district heating using renewable energy sources for the period 2016 – 2020, provided by Ministry for Infrastructure, and grants to municipalities for investments in buildings, where public education takes place.


The financing concept in Dole pri Litiji was only briefly discussed within the working group and will be discussed also during next meetings when the model of investment will be decided. The current agreement means that an investor in the district heating system is needed. Heat supply from the district heating system is an optional local public service. The municipality grants this type of public service through a public tender to the legal entity. This must meet a number of complex requirements, the law and the tender of certain conditions and, in addition, must submit the most favourable bid on the public tender. A potential investor in Dole pri Litiji is company Petrol d.d.

Slovenian Ministry for Infrastructure has an open call for subsidies application. The subject of co-financing is financial incentives intended for investments in new district heating systems to renewable sources (RES) and micro-systems of RES., the construction of DH RES systems with boiler capacity of up to 10 MW or the construction of micro systems of RES systems with a boiler capacity of up to 1 MW. A district heating system in Dole pri Litiji is eligible for investment subsidy up to 55 % of total investment. To apply for the subsidy, the next





7009 0,441 MW 0,441 MW

7010 0,300 MW 0,600 MW

7011 0,450 MW

7012 890 m 890 m

7013 493,0 MWh/a 493,0 MWh/a


7016 Total initial investment (year 0-3) 417.373 EUR Total initial investment (year 0-3) 326.278 EUR

7017 Surplus investment year 0-3 91.095 EUR 27,9 %

7018 Thereof investment subsidy (if any) 215.226 EUR

7019 236,3 %



7032 17,9 EUR/MWh Fuel price (NCV, year 1) 62,2 EUR/MWh

7033 31.684 EUR/a 66,2 %

7035 32.283 EUR/a 43,9 %


7039 8,97 % 8,97 %

7040 1,75 % 1,75 %

7041 Tax rate 22,0 % Tax rate 22,0 %

7042 85,00 EUR/MWhsold 85,00 EUR/MWhsold




7047 Discounted Payback Time > 25,0 a Discounted Payback Time > 25,0 a

7048 -19.752 EUR -366.792 EUR

7049 4,84 % #NUM! %

705093,24 EUR/MWhsold 178,39 EUR/MWhsold


7053 680,5 MWh/a 93,9 %

7054 205,0 t CO 2-eq/a 92,7 %

7055 -17,5 MWh/a -2,4 %





































51%

19%

26%

0%4% Heating grid investment (100% grid expansion)





65%11%

22%

0%2%

-250.000

-200.000

-150.000

-100.000

-50.000

-

50.000

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

Net

Pre

sen

t V

alu

e (

NP

V, a

t

serv

ice li

fe/c

ap

ital co

st

cho

sen

) (E

UR

)

-400.000

-350.000

-300.000

-250.000

-200.000

-150.000

-100.000

-50.000

-

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

Net

Pre

sen

t V

alu

e (

NP

V, at

serv

ice li

fe/c

ap

ital co

st

cho

sen

) (E

UR

)

q


60

step In Dole pri Litiji is to start preparing required documentation. The call is open until June 2018. The risk of obtaining no subsidy is estimated to be very low.


A new cooperative will be established in Dole pri Litiji. The cooperative will be in charge to lead the project in terms of project development. It is an important project for the village, since its realisation is strongly linked to reconstruction of all infrastructure in the village and with building a new multifunctional building (including boiler house, firefighter house, local museum and touristic info point). The idea is that interested local forest owners and other responsible actors establish a cooperative that will take over the production and selling of wood chips. It is foreseen that the investor / owner of the heating system would have a long-term contract with the established cooperative for wood chips supply. The investment into the boiler house (equipment), management of DH system and selling heat to customers will be done by the investor (investor was not selected jet). This is the optimal way to secure the quality of investment. The selected investor will ensure a trained expert, responsible to ensure a efficient operation of the system. This expert will be employed part time. The estimated operation and maintenance costs are given in Table 37. Costs were estimated using “B4B BioHeat Profitability Calculator” tool, provided by AEA.


Annual Biomass Fuel Costs 12,493

Annual Electricity Costs 1,531

Annual Staff Costs 2,160

Repair and Maintenance Costs 4,174

Annual Other Costs 2,087


VAT (22%) 4,938

Total Costs (with VAT) 27,382

Table 37: Estimation of annual operation and maintenance costs, Dole pri Litiji

The back-up boiler in the school will be connected to the system to help to overcome the potential breakdown of the main boiler. The boiler is already in operation and has a person responsible for operation and maintenance. The conditions of cooperation will be regulated in the contract with the investor.

The cooperative will be in charge for biomass (wood chips) supply. Biomass will be provided by local forest owners and local wood-based industry (sawmills in the area).

An individual or a group of responsible persons will have to be designated to take care of the administration work and to be actively engaged in a systematic coordination of all activities within the cooperation. The detailed organisation and coordination of activities will be set up by the bioenergy working group as soon as an investor has been selected and a local cooperative is established.

At the moment the critical risks are:

1. Establishing a cooperative that will support local community in development of project (plan) and prepare the needed documentation needs a dedicated person who leads the process, is motivated and willing to spend his time and energy for common goals. Searching for this person was already a topic of local working group meeting and will be discussed also on other meetings.

2. Planning the reconstruction of all infrastructure in the village: At the moment the local community is still preparing the plan of activities for the year 2018. A dedicated meeting to discuss this topic was organised in November with local decision makers to assure that reconstruction of infrastructure in Dole pri Litiji will be included in local plans for next years.

3. The investor is not known jet: A final decision about investment in the DHS will be taken at one of next meetings of the local working group. Meetings with potential investors will be carried out and a final decision regarding the suitable investment model will be made in 2017.


61

6.6 Summary

Eighteen potential consumers in Dole with an annual heat demand of 493 MWh shall be supplied by the new system with district heat. The heating system will integrate three major pipe lines, all with the same starting point at the boiler room in the new firefighter station. The investment into DHS will be covered by the municipality in combination with other infrastructure measures (water, electricity, internet). A fee for using the grid or a financial contribution to the investment in the DHS will be discussed and agreed between the local community and the investor before the implementation phase.

Local forest owners and other interested inhabitants plan to establish a local cooperative, which would be responsible for the biomass supply for the system. Further biomass will be provided by the local wood-based industry, in particular sawmills in the area.

Although the net present value of the economic calculation is negative (about minus 20,000 Euro) in a time frame of 25 years and the discounted payback time is more than 25 years, the project can be considered as feasible. Taking into account a standard service life of 20 years for the boiler and the installation without re-investment, the payback time of the investment in the DH system would be 11.6 years, the net present value 46,892 Euro and the internal rate of return 6.7 percent. Therefore, the project will be further developed and relevant parameters adapted in the future economic calculation.

Currently there are two options for the investment, firstly through the local cooperative and secondly involving a private partner. However, the cooperative is currently not willing to take over the risks of funding the project. Thus, the working group invited an investor to the project. A potential investor could be the company Petrol d.d., which has many references in biomass and fossil fuel supplied district heating systems in Slovenia. The selected investor will also ensure a trained expert, responsible to ensure an efficient operation of the system.

The Slovenian Ministry for Infrastructure currently has launched a call for subsidies, which really suits to the project concept and is open until June 2018. Thus, the next step in Dole pri Litiji is to start the preparation of the required documentation in order to apply for the subsidies.


62

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