Finnfund

Thai mills that process cassava root are starting to use biogas recovered from their waste water as an energy source.

Thai Biogas Energy (TBEC) is the company responsible for the production of this form of energy that cuts costs and protects the environment. The majority shareholder, with some 70 percent of the stock of TBEC, is a Finnish equity fund that invests in energy sector projects. Finnfund in turn is one of the investors in the Private Energy Market Fund (PEMF).

Between 2005 and 2006 TBEC will build several biogas recovery plants in central Thailand. The combined output of plants generating energy for cassava starch mills will be 20-30 megawatts.

Investments of 20 million euros

Among the other shareholders in TBEC are Al Tayyar Energy Ltd of the United Arab Emirates and Clean Energy Development Company Thailand (CleanThai).

PEMF’s managing director Herkko Lehdonvirta estimates that total investments by TBEC will reach about 20 million euros. PEMF’s equity investment is 5 million euros of this. Investments include waste water basins, gas recovery systems and gas lines to the production plant. Burners at the plant will be modified to be able to use both biogas and oil.

TBEC will also invest in generators to produce electricity for use in the plant. Surplus electricity will be sold to the national power grid.

“The project to utilise biogas is environmentally friendly and also economically worthwhile for both partners,” Lehdonvirta says. “Previously the methane released from waste water escaped into the atmosphere. Now biogas will be collected and piped back for use by the host company.”

Several small power plants under construction

TBEC’s first 1.4-megawatt generating plant is due to be ready in September 2005.  Two more plants of 2.1 and 1.0 megawatts are under construction and will be completed in the beginning of 2006.  Building work on a fourth plant will start in autumn 2005, and construction work is due to begin on another 1-3 plant in the end of the year.

“These are relatively large unit sizes for biogas production,” Lehdonvirta points out.

The facilities are being built on the BOOT (build, own, operate and transfer) principle. TBEC finances and constructs the biogas plant on behalf of the host company and manages it for the next ten years, recovering its investment by charging for use. At the end of the contract period, the host company takes over ownership of the plant.

“The technical risks for a project like this are relatively small because, in place of one large unit, there are usually several small ones. The greatest economic risk is a stoppage in operations by the host company.  We’ve tried to minimize this risk by analyzing the financial position of the host company as carefully as possible,” Lehdonvirta emphasises.

Thai priority to replace oil imports

Substituting domestic energy sources for expensive oil is especially important for countries like Thailand dependent on fuel imports. Thailand still makes relatively little use of bio gas. Lehdonvirta believes that the example of TBEC will encourage others to explore the opportunities offered by this environmentally friendly form of energy.

The Thai government is supporting the exploitation of renewable energy sources and the improvement of wastewater treatment with an investment program that includes an eight-year tax break for the project and exemption from value-added tax on investment goods.

Lehdonvirta notes that biogas cannot be utilised effectively without the latest technology. The generating equipment for TBEC’s project is being supplied by a European company with strong references in the sector. About half of the gross investment is in local labour and supplies, including fairly extensive civil engineering work, concrete structures and buildings. Biogas is created by the anaerobic decay of organic matter when no oxygen is present.  In the final phase of the process methane is given off.

Few emissions from biogas

As a form of energy, biogas is very environmentally friendly. Its only combustion residues are carbon dioxide and water. Use of biogas to generate electricity does not increase the amount of carbon dioxide in the atmosphere because carbon dioxide is released anyway when wastewater sludge decays, whether or not its energy potential is tapped.

There are good prospects for biogas production in Thailand’s cassava industry. The country is the world’s largest supplier of cassava, processing about 20 million tonnes of the root each year. It has some 75 cassava processing plants making starch for use in foodstuffs, pharmaceuticals, packaging, etc.

Bioenergy attracts investment

TBEC is the second project of Finnfund and PEMF for promoting bioenergy in Thailand.

The Finns are also shareholders in the A.T. Biopower company which has a twenty megawatt power station in Pichiti, Central Thailand, that generates electricity from rice hulls.

“New investments in renewable Thai energy sources are definitely attractive, and those that have already been made create a good bridgehead for expansion,” Lehdonvirta says. “Exploiting bioenergy is sustainable development in terms of energy output, environmental protection and social effects. For the commercial investor this improves the risk/yield profile by reducing risk and the possible costs of environment taxes. We aim to make additional investments from the next fund, PEMF2 - Asia Sustainable Energy Fund, now under planning.”

PEMF’s managing director predicts that projects like TBEC will be made more attractive by the Cleaner Development Mechanism (CDM) created by the Kyoto Protocol. The mechanism means that certified investments in reducing greenhouse gas emissions by developing countries can in future be sold to industrial countries and investors.

“When trading in emission rights gets up to speed, it will bring new earnings potential to energy investments that are already profitable,” he believes.

For Finnfund renewable energy is a focal area where it expects to find exceptional projects both in their profitability and their development effects.

“With the help of the skilled team from the Private Energy Market Fund we can carry out more challenging projects than would otherwise be possible and also bring other investors into the loop,” says Finnfund’s managing director Jaakko Kangasniemi.

For more details please contact Finnfund/Helena Korhonen tel. +358 9 3484 3307, email firstname.lastname@finnfund.fi or PEMF/Herkko Lehdonvirta tel. +358 9 469 1205, email firstname.lastname@pemfund.com