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Energy Policy 38 (2010) 392405

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

The use of conservation supply curves in energy policy and economic analysis: The case study of Thai cement industry
Ali Hasanbeigi a,, Christoph Menke a,b, Apichit Therdyothin c
a

The Joint Graduate School of Energy and Environment, King Mongkut s University of Technology Thonburi, 126 Pracha-uthit Rd. Bangmod, Tungkru, Bangkok 10140, Thailand Department of Building Engineering Services, Energy Technology Division, University of Applied Sciences Trier, Germany c The School of Energy, Environment, and Material, King Mongkut s University of Technology Thonburi, Thailand
b

a r t i c l e in f o
Article history: Received 5 July 2009 Accepted 22 September 2009 Available online 17 October 2009 Keywords: Energy-efciency policy Conservation supply curve Cement industry

a b s t r a c t
The cement industry is one of the largest energy-consuming industries in Thailand with high carbon dioxide (CO2) emissions. Using a bottom-up electricity Conservation Supply Curve (CSC) model, the cost effective and the total technical electricity-efciency potential for the Thai cement industry in 2008 is estimated to be about 265 and 1697 gigawatt-hours (GWh) which account for 8% and 51% of the total electricity used in the cement industry in 2005, respectively. The fuel CSC model shows the costeffective fuel-efciency potential to be 17,214 terajoules (TJ) and the total technical fuel-efciency potential equal to 21,202 TJ, accounting for 16% and 19% of the total fuel used in cement industry in 2005, respectively. The economic analysis in this paper shows how the information from the CSCs can be used to calculate the present value (PV) of net cost savings over a period of time taking into account the energy price escalation rate. The results from the policy scenario analysis show that the most effective and efcient policy scenario is the introduction of an energy-related CO2 tax for the cement industry under a voluntary agreement program. This scenario results in 16.9% primary energy-efciency improvement over a 5-year implementation period. & 2009 Elsevier Ltd. All rights reserved.

1. Introduction The industrial and transportation sectors are the largest energy-consuming sectors in Thailand, and accounted for 36.1% and 36.6% of total nal energy consumption in 2007, respectively (DEDE, 2008). There are many studies worldwide identifying a wide variety of sector-specic and cross-cutting energy-efciency improvement opportunities for the industrial sector, particularly for the cement industry. Worrell et al. (2000) at Lawrence Berkeley National Laboratory (LBNL) carried out a comprehensive study on energy efciency and carbon dioxide (CO2) emission reduction opportunities in the US cement industry. LBNL has also developed a guidebook that comprises long lists of energyefciency improvement technologies and measures which are commercially available for the cement industry (Worrell and Galitsky, 2004; Worrell et al., 2008). There are also many technology-specic studies such as Jankovic et al. (2004) in which they discussed the optimization of ball mill cement grinding circuits using certain type of crusher. Different analytical approaches have been used to study the energy efciency and greenhouse gas emission reduction in

Corresponding author. Tel.: + 66 8 5562 3894; fax: + 66 2 872 6736.

E-mail address: hasanbeigi@jgsee.kmutt.ac.th (A. Hasanbeigi). 0301-4215/$ - see front matter & 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2009.09.030

cement industry. Anand et al. (2006) used system dynamics model based on the dynamic interactions among a number of system components to estimate CO2 emissions from the cement industry in India based on which they developed different CO2 mitigation scenarios. The literatures mentioned above are just a few of many studies that have been conducted on energy efciency in the cement industry. However, there are not many sector-specic studies in Thailand for the energy intensive sectors, particularly for the cement industry. We used the concept of a Conservation Supply Curve to make a bottom-up model in order to capture the cost effective as well as the technical potential for energy efciency and CO2 emission reduction in the Thai cement sector. The Conservation Supply Curve is an analytical tool that captures both the engineering and the economic perspectives of energy conservation. It was rst introduced by Rosenfeld and his colleagues at Lawrence Berkeley National Laboratory (Meier, 1982). This study aims to give a comprehensive and easy to understand perspective to Thai cement producers as well as policy makers about the energy-efciency potential, its associated cost, and the effectiveness of some energy policies measures. This paper, rst, explains the steps of constructing the CSCs for the Thai cement industry. Then, the economic analysis presented in this paper which shall assist the cement producer to analyze the nancial benet of investing in the energy-efciency measures

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listed here. The policy analysis, however, shall assist the Thai policy makers in setting an appropriate cement sector-specic mix of policies to capture energy-efciency opportunities in Thailands cement industry.

The annualized capital cost can be calculated from Annualized capital cost Capital costd=1 1 dn 2

2. Overview of Thai cement industry The cement industry has 8 companies that are comprised of 14 plants and 31 kilns in 2006, yet a few kilns were decommissioned during 2007 and 2008. The clinker production capacity was 46.82 million tons in 2007, whereas the cement production capacity was 56.302 in the same year. In 2007, the actual cement production in Thailand was 29.98 million tons and the prediction for the actual cement production in 2008 is 29.61 million tons based on the forecast made by the Thai Cement Manufacturing Association (TCMA) in November 2008 (TCMA, 2008). In 2000, the cement industry consumed about 16% of the overall manufacturing energy consumption in Thailand (DEDE, 2002). The use of energy in the cement manufacturing process produces large amounts of CO2 and other local emissions. This increases even more when we add the emissions from the calcination process in cement production, which accounts for about half of the total CO2 emission from the cement industry (Hendriks et al.,2004). The calculated CO2 emission from Thai cement industry was about 20.6 million tons of CO2 in 2005 (WRI, 1998; TCMA, 2008; ENCON Lab, 2008).1 Therefore, there is a strong need for the assessment of different technologies and measures to improve energy efciency in and reduce GHG emissions from this sector.

3. Methodology 3.1. Construction of energy conservation supply curves Based on literature review for this study, we designed a comprehensive questionnaire. We obtained the requested data and technology-level information from main cement producers in Thailand which together accounted for about 83% of total cement production capacity in Thailand in 2008. For the other cement producers that did not respond to our questionnaire and did not want to participate in our study, we obtained some data about their production capacity and other general information from the Thai Cement Manufacturing Association (TCMA, 2008). For these companies, which accounted for about 27% of cement production capacity in Thailand in 2008, we assessed the potential application of each energy-efciency measure based on several factors such as: the age of plants, the discussion with other cement companies that participated in our study, and experts engineering judgment. Because of the space constraint, we refer the readers to Hasanbeigi and Menke (2008) for more details on the methodology for the construction of CSCs. The Conservation Supply Curve (CSC) used in this study shows the energy conservation potential as a function of the marginal cost of conserved energy (Meier, 1982). The CCE can be calculated from Cost of conserved energy annualized capital cost annual change in O&M costs annual energy savings

where d is the discount rate and n the lifetime of the energyefciency measure. In our study, we assumed the real discount rate equal to 30% to reect the barriers to energy-efciency investment in Thai cement industry such as: perceived risk, lack of information, management concerns about production and other issues, capital constraints, and preference for short payback periods and high internal rates of return (Bernstein et al., 2007; Worrell et al., 2000). Since we decided to plot CSCs for electricity and fuel separately, we calculated the cost of conserved electricity (CCE) and cost of conserved fuel (CCF) separately for respective technologies in order to draw CSCs. After calculating the CCE or CCF for all energyefciency measures, we ranked them in ascending order of CCE or CCF. In CSCs we determine an energy price line. All measures that fall below the energy price line are cost effective. On the curves, the width of each measure (plotted on the x-axis) represents the annual energy saved by that measure. The height (plotted on the y-axis) shows the measures cost of conserved energy. Finally, it should also be highlighted that the approach used in this study and the model developed is a good screening tool to present energy-efciency measures and capture the potentials for improvement. However, in reality, energy saving potential and cost of each energy-efciency measure and technology may vary and depend on various conditions such as raw material quality, country in which the plant is located, the technology provider, production capacity, size of the kiln, neness of the nal product and byproducts, etc. Moreover, it should be noted that some energy-efciency measures provide productivity and environmental benets in addition to energy savings, but it is difcult and sometimes impossible to quantify those benets. However, including quantied estimates of other benets could signicantly reduce the cost of conserved energy for the energy-efciency measures (Worrell et al., 2003). Furthermore, in the interpretation of the results and their level of accuracy, the uncertainty of some input data such as energy saving and cost of the energy-efciency measures should be taken into account. 3.1.1. Energy-efciency technologies and measures for cement industry Despite the extensive literature review in this study, information and data about the 47 energy-efciency technologies and measures applied to the Thai cement industry has mainly been obtained from the studies conducted at Lawrence Berkeley National Laboratory (LBNL) (Worrell et al., 2000, 2008) as well as Project Design Documents (PDDs) of CDM projects (UNFCCC, 2008ac; UNFCCC, 2007ae). Since there are only dry kilns in Thailand, all the energy-efciency measures are applicable for the dry kiln process. Table 1 presents the data related to production capacity in each step of cement production process in Thai cement industry. It also presents the energy savings, capital costs and CO2 emission reductions for each energy-efciency technology and measure applied to Thailands cement industry in 2008. In this paper, we prefer not to explain the details of each energyefciency measure, but rather prefer to present and discuss the results. However, the detailed description of each energyefciency measure listed can be found in Worrell et al. (2008), UNFCCC (2007ae), and UNFCCC (2008ac). 3.2. Economic analysis

Since reliable data for energy consumption by the type of fuels are not available, we calculated the CO2 emission in 2005 using the historical data and production growth rate.

The CSC presented in this paper gives us some very useful information. It presents the cost of conserved energy (CCE),

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Table 1 Energy savings, capital costs and co2 emission reductions for energy efciency technologies and measures applied to Thai cement industry. No. Technology/measure Production capacity (Mton/year) Fuel saving (GJ/ton cement) Electricity saving (kWh/ton cement) Primary energy saving (GJ/ton cement) Capital cost Change in annual O&M Cost (US$/ton) CO2 emission reduction (kgCO2/ton cement) Share of production capacity to which the measure is applied (%)

Fuel preparation 1 Installation of variable frequency drive & replacement of coal mill bag dust collectors fan 2 Replacement of separator in coal mill circuit with an efcient grit separator Raw materials preparation 3 Efcient transport system 4 Raw meal blending 5 Raw meal process control (vertical mill) 6 High efciency roller mill 7 High efciency classiers 8 Variable frequency drive in raw mill vent fan 9 Bucket elevator for raw meal transport from raw mill to homogenizing silos 10 Installation 3-fan system with a separate mill fan to take care of vertical roller mill operation 11 High efciency fan for raw mill vent fan with inverter Clinker making 12 Energy management and process control systems 13 Combustion system improvement 14 Kiln shell heat loss reduction 15 Optimize heat recovery/ upgrade clinker cooler 16 Convert to reciprocating grate cooler 17 Low temp. waste heat recovery power generation 18 High temperature heat recovery for power generation 19 Low pressure drop cyclones for suspension preheater

0.13

0.001

0.027($/ton clb)

0.0

0.07

47

0.21

0.002

0.011($/ton cl)

0.0

0.11

22

67.17 67.17 67.17 67.17 67.17 67.17 67.17

2.51 2.14 1.13 8.17 4.08 0.27 1.91

0.03 0.02 0.01 0.09 0.05 0.003 0.022

3.00 ($/ton raw) 3.70 ($/ton raw) 0.28 ($/ton raw) 5.50 ($/ton raw) 2.20 ($/ton raw) 0.025($/ton cl) 0.228 ($/ton cl)

0.0 0.0 0.0 0.0 0.0 0.0 0.0

1.30 1.11 0.59 4.24 2.12 0.139 0.988

2 47 36 10 2 28 2

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67.17

1.86

0.022

0.959 ($/ton cl)

0.0

0.967

67.17

0.29

0.003

0.033 ($/ton cl)

0.0

0.151

43.34 43.34 43.34 43.34 43.34 43.34 0.24 0.21 0.09 0.22 1.62 2.43
c

0.16 0.24 0.21 0.07 0.19 0.29

1.00 ($/ton cl) 1.00 ($/ton cl) 0.25 ($/ton cl) 0.20 ($/ton cl) 2.80 ($/ton cl) 1828 ($/kW)

0.0 0.0 0.0 0.0 0.11 0.007

16.05 24.13 20.91 8.01 20.46 12.83

26 0 49 8 0 49

24.73

43.34

17.84

0.21

3.3 ($/ton cl)

0.27

9.25

43.34

2.11

0.02

3.00 ($/ton cl)

0.0

1.09

20

21

22

23 24 25

26 27 28 29 30

31

32

33

34

Upgrading of a preheater kiln to a preheater/ precalciner Conversion of long dry kiln to preheater/ precalciner Older dry kiln upgrade to multi-stage preheater kiln Adjustable speed drive for kiln fan Upgrading the preheater from 5 stages to 6 stages Modifying clinker cooler (mechanical ow regulator) Efcient kiln drives VFD in cooler fan of grate cooler Modication of inlet duct of grate cooler fan Bucket elevators for kiln feed High efciency fan for primary air fan along with inverter for speed control of the fan Installation of vortex nder vanes on top stage cyclones for reduction in differential pressure Installation of SPRS (slip power recovery system) for precalciner s fan speed control Replacement of preheater fan with high efciency fan Optimization of the diameter of preheaters exit gas downcomer duct

43.34

0.35

0.35

18.00 ($/ton cl)

1.10

34.59

43.34

1.14

1.14

20.00 ($/ton cl)

0.0

112.61

43.34

0.73

0.73

35.00 ($/ton cl)

0.0

72.39

43.34 43.34 43.34 0.09 0.07

4.95 0.95c 0.00

0.06 0.079 0.069

0.23 ($/ton cl) 2.54 ($/ton cl) 0.489 ($/ton cl)

0.0 0.0 0.0

2.57 8.44 6.837

2 83 10

43.34 43.34 43.34 43.34 43.34

0.45 0.09 0.037 1.01 0.089

0.005 0.001 0.0004 0.012 0.001

0.190 ($/ton cl) 0.012 ($/ton cl) 0.0003 ($/ton cl) 0.352 ($/ton cl) 0.006 ($/ton cl)

0.0 0.0 0.0 0.0 0.0

0.23 0.046 0.019 0.521 0.046

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43.34

0.503

0.006

0.068($/ton cl)

0.0

0.261

66

43.34

0.503

0.006

0.07 ($/ton cl)

0.0

0.261

43.34

0.568

0.007

0.068 ($/ton cl)

0.0

0.294

43.34

0.259

0.003

0.06 ($/ton cl)

0.0

0.135

Finish grinding 35 Energy management & process control in grinding 36 Improved grinding media for ball mills 37 Replacing a ball mill with vertical roller mill 38 High pressure roller press as pre-grinding to ball mill 39 High-efciency classiers (for nish grinding) 40 Replacement of cement mill vent fan General measures 41 Preventative maintenance 42 High efciency motors

53.45

3.24

0.04

0.50 ($/ton cement)

0.0

1.68

47

53.45 53.45 53.45

4.00 17.00 16.00

0.05 0.20 0.18

0.70 ($/ton cement) 5.00 ($/ton cement) 5.00 ($/ton cement)

0.0 0.0 0.0

2.07 8.82 8.30

0 47 26

53.45 53.45

4.00 0.11

0.05 0.001

2.00 ($/ton cement) 0.009 ($/ton cl)

0.0 0.0

2.07 0.05

0 2

53.45 53.45

0.04

2.43 3.00

0.07 0.03

0.01 ($/ton cement) 0.22 ($/ton cement)

0.0 0.0

5.28 1.56

10 27

395

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396 A. Hasanbeigi et al. / Energy Policy 38 (2010) 392405 Since we did not have the total amount of coal use in Thai cement industry, we have applied this measure based on the clinker production capacity of plants. cl: clinker. c The negative value for electricity saving indicates that although the application of this measures saves fuel, it will increase the electricity consumption. However, it should be noted that the total primary energy consumption of those measures is positive. d This CO2 emission reduction is just for reduced energy use and the CO2 emission reduction from reduced calcination is not presented here.

annualized cost of energy-efciency measures, annualized energy cost saving, annualized net cost saving, and annualized energy saving by each individual technology or a group of technologies. The calculation of CCE is already explained above. If dE is the energy saving by a technology, then the annualized cost of energyefciency measure, annualized energy cost saving, and the annualized net cost saving of that technology can be calculated from AC dECCE AECS dEP ANC AECS AC dEP CCE 3 4 5

Share of production capacity to which the measure is applied (%)

27

5 5

6 29.86d

CO2 emission reduction (kgCO2/ton cement)

212.54d 48.26

Change in annual O&M Cost (US$/ton)

15.28d

3.11

where AC is the annualized cost of energy-efciency measure (US$), AECS the annualized energy cost saving (US$), ANC the annualized net cost saving (US$), P the energy price, and dE the energy saving in CSC. For the cost-effective energy-efciency measures in the CSC, the annual net cost saving is positive, yet for the measures whose CCE or CCF is above the energy cost line, the annualized net cost saving is negative. However, we always talk about the Cost of energy-efciency improvement. The common use of the term Cost usually gives the impression that we have to spend money. However, in many cases, especially the case of cost-effective energy-efciency measures as we presented above, money is actually earned by saving the cost of energy. The amount of revenue obtained by an energy-efciency measure can be accurately presented if we calculate the life cycle cost (LCC) of the measure. By LCC, we mean that we take into account the cost and benets of an energyefciency measure over its lifetime. A CSC gives the annualized cost with a constant energy price in the base year, whereas in reality the energy price is usually changing from year to year. Thus, for policy analysis, when we calculate the LCC of energy-efciency measures, we should take into account the changes in energy price; otherwise we signicantly overestimate/underestimate the energy cost savings. We have used 2008 as the base year and conducted the economic analysis based on the constant 2008 dollar. Thus, the real discount rate is also used in our analysis, which excludes the ination rate. In order to have the economic analysis in line with the policy analysis, we have assumed a period of 15 years for the economic analysis, as it is the scenario period used in the policy analysis explained later in this paper. To calculate the present value (PV) of net cost saving over the scenario period, i.e. 15 years, taking into account the annual escalation rate for energy price we conducted the following procedure. First, we calculated the present value of energy cost saving over the scenario period with an annual escalation rate for energy price using Eq. (6) (Fuller and Petersen, 1996): "   # 1 e 1 e N 6 1 PVECS dEP d e 1d Where PVECS is the present value of energy cost saving over scenario period (US$), dE the energy saving, P the energy price, d the real discount rate, e the real energy price escalation rate, and N the scenario period. In this case, dEnP is the energy cost saving in the base year as presented in Eq. (4). The escalation rate can be positive or negative. It should be noted that this formula is for constant escalation rate, while in reality the energy price escalation changes from year to year. However, for simplicity, we assumed a constant escalation rate for fuel and electricity prices based on their historical trends. Since we conducted the economic analysis in constant 2008 dollar, we used the real discount rate. The real

0.06 0.0

0.0

0.72 ($/ton cement) 1.10 ($/ton cl)

0.18 ($/ton cement) 0.28 53.45 3.30 0.32

0.0

Primary energy saving (GJ/ton cement)

0.90 ($/ton cement)

Capital cost

2.09 0.49

Electricity saving (kWh/ton cement)

6.00

0.07

Fuel saving (GJ/ton cement)

2.19 0.49

8.9c

Production capacity (Mton/year)

53.45 53.45

Adjustable speed drives

53.45

Table 1 (continued )

Technology/measure

No.

43 Product Change 44 45

Blended cement Use of waste-derived fuels Portland limestone cement Use of steel slag in the kiln (CemStar)

53.45

0.15

0.15

0.40 ($/ton cement)

0.0

46

47

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Table 2 Nominal and real electricity and fuel price escalation rate for Thai cement industry. Electricity(%) Nominal energy price escalation rate (E) (average of annual growth rate of energy price for cement industry between 1990 and 2008) Real energy price escalation rate (e) 2.3 Fuel(%) 3.9

3.3. Policy analysis Using the results of energy CSCs developed for the Thai cement industry, we conducted a policy analysis by developing several energy policy scenarios. We assumed that the policies will be in effect by the end of 2010 and that until then there will not be a signicant structural change in the Thai cement industry. All the policy scenarios are in the framework of short-term voluntary agreements (VA). Voluntary agreements are essentially a contract between the government and industry, or negotiated targets with commitments and time schedules on the part of all participating parties (Price, 2005). The duration for the envisioned VA program is between 2011 and 2015. We, thus, assumed that the implementation of energy-efciency measures under various VA scenarios will happen during this 5-year period. We also assumed the constant cement production during 20112015. To calculate the LCC of energy-efciency measures implemented in VA programs, we set the scenario period equal to 15 years after 2015. Hence, we calculated the energy savings and LCCs from 2016 to 2030. For simplication, we assumed the end of the VA programs, i.e. year 2015 as the base year for calculation of the costs and savings of the programs. However, it should be noted that the lifetimes of some energy-efciency measures is more than 15 years; thus, more energy saving is achievable by those measures beyond the scenario period. Business-as-usual scenario and four other scenarios based on the four different portfolios of energy-efciency policies are developed. Each scenario is discussed in more detail below. The costs are in constant 2008 US dollars; thus, the real discount rate and the real annual escalation rates for electricity and fuel prices are used. Finally, we assumed that administrative costs of energy-efciency programs included in the voluntary agreements are negligible. 3.3.1. Business-as-usual scenario In the business-as-usual (BAU) scenario, we assumed that there will be no energy-efciency policy intervention during 20112015. The real discount rate of 30% is used in BAU scenario. Furthermore, we assumed that just 25% of energy-efciency measures with positive PV of net cost saving over scenario period (Section 3.2, Eq. (9)) will be implemented during 20112015. However, it should be noted that the PV mentioned in the policy analysis section is actually the value at the start of policy scenario period, i.e. start of 2016 and not the value in 2008. 3.3.2. Moderate VA program (completely voluntary) The Moderate VA program (MVA) consists of a portfolio of energy policies to support energy-efciency improvement in Thai cement industry. The portfolio comprises several non-monetary policies as well as scal incentives. The non-monetary policies are information dissemination on energy-efciency technologies for cement industry in different ways, e.g. technical newsletters, case studies reports, web-based information, etc. Furthermore, it includes benchmarking data and tools. This MVA program also creates an energy working group which is the network between Thai cement companies under TCMA for the exchange of experiences in energy-efciency improvement. The scal incentive in the MVA program is the 30% investment subsidy for the energy-efciency measures which have negative PV of net cost saving over scenario period (Section 3.2, Eq. (9)). The participation in the moderate VA program is completely voluntary. Furthermore, there are no consequences for not reaching the agreed target by participating companies. Since the participation in the program is completely voluntary and the supporting policies are relatively soft, some cement companies may not be interested in participating. Even if they do

1.6

0.0

discount rate is also assumed to be 30%, same as its value in constructing CSC. Therefore, we had to use real energy price escalation rate as well. From the historical data for electricity and fuel prices in Thai cement industry (DEDE, 2008), we calculated the average annual growth rate of energy prices for the cement industry between 1990 and 2008. Since the prices of energy are given in current dollar in DEDE (2008), we assumed this average as the nominal energy price escalation. Then, we calculated the real price escalation from the following formula: e 1 E=1 I 1 7

where e is the real price escalation, E the nominal price escalation and I the ination rate (Fuller and Petersen, 1996). We calculated the average ination rate2 between 1990 and 2008 in Thailand to be about 4.0% (BOT, 2009), and we used that in Eq. (7). The results of our calculations for nominal and real energy price escalation are presented in Table 2. As can be seen from Table 2, since the nominal electricity price escalation rate is less than the ination rate, the real electricity price escalation rate is negative. However, since the nominal fuel price escalation is almost equal to the ination rate, the real fuel price escalation is zero. It should be noted that this analysis is specic just to Thai cement industry. The same analysis for other countries may result in positive real price escalation. Finally, we assumed that the real price escalation and ination rate in the future over the scenario period are equal to their value calculated based on the historical data in the way explained above. Then, we calculated the total industry-wide capital cost of each energy-efciency measure from TCC CCPrS 8

TCC is the total industry-wide capital cost of energy-efciency measure (US$), CC the capital cost (US$/ton product), Pr is the annual production capacity (ton), S is the share of production capacity to which the measure is applied (%) (sense not clear)Since the total capital cost is calculated in the year 2008, that could be used as the present value of total industry-wide investment required for each energy-efciency measure. Therefore, the PV of the net cost saving (US$) over the scenario period taking into account the energy price escalation can be calculated from PVN PVECS TCC 9

PVN is the PV of the net cost saving over scenario period (US$). All the above-mentioned calculations have been conducted separately for electricity-efciency measures and fuel-efciency measures related to the ECSC and FCSC. It should be noted that this study is for the whole Thai cement industry; thus, all the analyses are industry-wide. The analyses presented in this paper are just related to the current installations which are studied. The economic analysis presented in this section is used as the basis for cost calculations in all the policy scenarios discussed in Section 3.3.
2

This is the general ination rate given by the Bank of Thailand.

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participate, experiences in other countries show that the VA programs that are completely voluntary often do not meet their targets and even may not go beyond the business-as-usual scenario (Price, 2005; Chidiak, 2002). Hence, we assumed that just 30% of energy-efciency measures with positive PV of net cost saving over the scenario period with or without subsidy will be implemented in the MVA program during 20112015 (without subsidy for cost-effective measures and with subsidy for noncost-effective measures, which will have positive net cost saving after taking into account 30% investment subsidy). This is 5% more than the BAU scenario. However, in the MVA scenario, we also assumed that we can still get the participation of Thai cement producers, as there are four main cement producers which account for about 95% of cement production capacity in Thailand. Thus, we assumed government can get their participation, yet as mentioned above the companies may not act much beyond their BAU. The real discount rate is assumed to be 30% in MVA program. This shows that, in MVA scenario, companies still have some uncertainty and non-monetary obstacles and may not have enough motivation to act aggressively towards energy-efciency improvement.

3.3.3. Advanced VA program (without CO2 tax) The Advanced VA program without CO2 tax (AVAW/O) consists of a portfolio of energy policies, which is to some extent the same as the MVA program. However, there are some major differences. The most important difference is that AVAW/O is a virtually mandatory program. That is, although the program is called voluntary agreement, the Thai government would take some actions that make it inevitable for cement companies to participate. In other words, there will be some serious consequences for non-participants. Thus, companies prefer to join the program, and while beneting from the supportive policies, they commit to improve energy efciency to a certain extent as agreed upon between them and the government and take the actions dened in the agreement. There are several ways that government can actually force cement companies to participate in AVAW/O program such as: implying the threat of future tighter energy and environmental regulations, offering relief or exemption from additional regulation, or setting penalties for non-compliance with the regulation (Price, 2005). The scal incentive is also included in AVAW/O program and is same as the one offered in the MVA program. As a result of the virtual mandate for participation in the program and taking action towards energy-efciency improvement as well as supportive policies to remove barriers to energy efciency, we assumed a discount rate of 15% in AVAW/O program. The discount rate of 15% for economic analysis under this program can also be set by the government. Therefore, the CCE of measures with 15% discount rates will decrease to about half of those with 30% discount rates. In the advanced VA program, companies should take more aggressive actions toward energy efciency. Thus, we assumed that 50% of energy-efciency measures with positive PV of net cost saving over the scenario period (after taking into account the subsidy as explained above) will be implemented in AVAW/O programs during 20112015. The experiences of virtually mandatory VA programs in other countries also showed that companies take more serious action and larger steps toward energy efciency than that of in BAU or completely VA programs (Togeby et al., 1998; Price, 2005). In The Netherlands the Long-Term Agreements, which are an example of an AVAW/O program, participating companies achieved an energy-efciency improvement of 22.3% between 1989 and 2000, exceeding the 20% goal set for the program (Reitbergen et al., 2002; Price, 2005).

3.3.4. Advanced VA program (with CO2 tax) The Advanced VA program with CO2 tax (AVAW) is slightly different from the AVAW/O program mentioned above. The difference is that we introduced an energy-related CO2 tax for Thai cement companies in the AVAW program. It was outside of the scope of this study to nd out the best value of the energyrelated CO2 tax to be applied to Thai cement industry. Thus, we used the experiences in other countries with some modication to apply to Thailand. Specically, we used the experience of implementing an energy-related CO2 tax applied to Danish Industry under a voluntary agreement program (Togeby et al., 1998; Price et al., 2005). In 1992, Denmark introduced a CO2 tax on both household and business energy consumption. They also introduced voluntary energy-efciency agreements for industry. The industrial companies that participated in the agreement would benet from substantial discount in their CO2 tax. The level of the CO2 tax in the Danish voluntary agreement was different depending on the size of the company and its CO2 emission. The 1999 Danish CO2 tax set for heavy process industry in which the cement industry is included is h 3.4 per ton of CO2 without agreement and h 0.4 per ton of CO2 with agreement (Price et al., 2005). However, since energy prices are different in Denmark compared to Thailand (OECD, 2007) and because the economic conditions of these two countries are different, we did not assume the exact same price for energy-related CO2 tax. The Danish government introduced the CO2 tax rst in 1992 with much lower price. Thus, any CO2 tax that is to be introduced for Thai cement industry should start with lower prices than the current price of CO2 for the Danish industry. We assumed that the energy-related CO2 tax for Thai cement industry will be half of the price in the 1999 Danish CO2 tax proposal. Therefore, the CO2 tax for the Thai cement industry under the AVAW program is THB 83.2 (h 1.73) per ton of CO2 without agreement and THB 9.8 (h 0.2) per ton of CO2 with agreement. Since all the Thai cement companies will join the AVAW program because of the benet from the CO2 tax cut, the THB 9.8 (h 0.2) per ton of CO2 is used as the price of CO2 tax for the calculation of revenue from CO2 taxation during the implementation period of VA, i.e. 20112015. Furthermore, we assumed that 50% of annual CO2 emission from the cement industry is energyrelated emission and the other 50% is from calcinations in the cement production process (Hendriks et al., 2004). It should be noted that the price of CO2 tax (even for Danish industry) is far below the price of Certied Emission Reductions (CERs) in the CDM projects. The price of CER used for the nancial calculations of recent CDM projects in Thai cement industry was THB 600 (UNFCCC, 2008a). The discount rate of 15% is used in the AVAW scenario. In addition in this case the investment subsidy is higher and is 50% which is paid from the revenue of energy-related CO2 tax that is introduced under the AVAW scenario for the energy-efciency measures with negative PV of net cost saving over the scenario period (20112015). Thus, one other difference between the Advanced VA program (without CO2 tax) and the Advanced VA program (with CO2 tax) is that in AVAW/O scenario, the 30% subsidy is provided from the government budget, whereas in the AVAW scenario the 50% investment subsidy is provided from the revenue from the energy-related CO2 tax. The rest of nonmonetary policies, i.e. information dissemination, benchmarking data, etc. in the AVAW are same as those in the AVAW/O scenario. Because of the same reason mentioned above for AVAW/O, we assumed that 50% of energy-efciency measures with positive PV of net cost saving over the scenario period with or without

The exchange rate for THB/Euro in 2008= 48.93 (BOT, 2008).

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Table 3 Assumptions for sector-specic energy policy scenarios to improve energy efciency in and reduce CO2 emissions from the Thai cement industry. Parameters BusinessAs-Usual (BAU) 30% Moderate VA program (MVA) 30% Advanced VA program (without CO2 tax) (AVAW/O) 15% Advanced VA program (with CO2 tax) (AVAW) Technology-oriented VA program (TVA)

Real discount rate

15%

Adoption rate of measures with positive PV of net cost saving

25%

30%

50%

50%

Investment subsidy for measures with negative PV of net cost saving CO2 tax

30%

30%

50%

15% (for WHR technology) 30% (for all other technologies) 75% (for WHR technology) 25% (for all other technologies)

Participation

Completely voluntary

Virtually mandatory

THB 83.2 per ton of CO2 (without agreement) THB 9.8 per ton of CO2 (with agreement) Virtually mandatory

Virtually mandatory

subsidy will 20112015.

be

implemented

in

AVAW

scenario

during

3.3.5. Technology-oriented VA program (TVA) The last policy scenario that we developed in this study is the Technology-oriented Voluntary Agreement program (TVA). This program is related to the implementation of low temperature waste heat recovery (WHR) for power generation technology using CDM program. We have chosen this technology for several reasons: (1) this technology is already commercialized and widely available from various companies in different countries with different specication and capital cost, (2) many cement companies around the world have used this technology and many of them, especially in China and India, have used CDM for the implementation of this technology, and (3) this technology results in signicant energy saving (about 25 kWh/ton cement). Even with the 30% discount rate, this measure is already cost effective if we take into account the revenue from selling the certied emission reductions (CERs) of the CDM project. Despite this, just three Thai cement plants have implemented this technology using CDM and some other are in the construction phase. We assumed that Thai government can establish the agreement with Thai cement producers to stimulate them to take aggressive action in implementation of low temperature waste heat recovery technology for power generation. Government can provide assistance to cement companies in the development of Project Design Document (PDD) of the CDM project. The government can also assist them in all other procedures of documentation, submission of PDD, communication, etc. In a more aggressive scenario, the Thai government can show the warning signs to the cement companies for the increased price of electricity if they do not participate in the program and take action. We assumed that all the Thai cement companies will participate in the TVA program, yet we exclude the cement plants which have already installed or are installing this technology from the potential application in our analysis. In this scenario, we use 15% discount rate, as the government intervention for the implementation of this technology will remove many nonmonetary barriers. For all other technologies we assumed a 30% discount rate in this policy scenario. There is no investment subsidy in the TVA program. We also assumed that 75% of the potential application of low temperature waste heat recovery (WHR) for power generation technology will be captured under TVA program. For the rest of technologies, since they do not benet from the TVA program, we assumed just 25% of energy-efciency measures with positive PV

of net cost saving over the scenario period will be implemented during 20112015 (same as BAU scenario). For the price of carbon credits, we used US$ 18.2 per ton of CO2 (THB 6004 per ton of CO2) (UNFCCC, 2008a). For the revenue from selling the carbon credits, we multiplied the CO2 savings per year by the unit price of carbon credit and divided by two. The reason that we divided it by two is that the lifetime of low temperature waste heat recovery technology is 20 years while the sale of carbon credits is just 10 years. Since the capital cost of the technology is annualized based on 20 years lifetime, we divided the revenue from selling the carbon credits by two so that it can be extended from 10 to 20 years. We can then subtract this annual revenue from annualized capital cost in the CCE calculation. Table 3 shows the assumptions for each energy policy scenario.

4. Results and discussions 4.1. Energy-efciency improvements opportunities in the Thai cement industry Based on the methodology explained and information in Table 1, we constructed an Electricity Conservation Supply Curve (ECSC) and a Fuel Conservation Supply Curve (FCSC) separately to capture the cost effective and total technical potential for electricity- and fuel-efciency improvement in Thai cement industry. Furthermore, we calculated the CO2 emission reduction potential from Thai cement industry. Out of 47 energy-efciency measures listed in Table 1, 38 measures were applicable to Thai cement plants, 28 of which are electricity saving measures that are included in ECSC and 10 of them are fuel saving measures that form the body of FCSC. 4.1.1. Electricity conservation supply curve (ECSC) Twenty-eight energy-efciency measures form the basis of the Electricity Conservation Supply Curve (ECSC). Table 4 shows the list of these 28 technologies. We can see from Fig. 1 and Table 4 that 17 energy-efciency measures fall under the electricity price line for cement industry in 2008 (US$ 69.7/MWh). Therefore, for these measures the CCE is less than the average electricity price. In other words, the cost of investing on these 17 energy-efciency measures to save 1 MWh of electricity is less than purchasing 1 MWh of electricity with the given price. This is the socalled cost effectiveness of an energy-efciency measure. The
4

The exchange rate for THB/US$ in 2008 =33.02 (BOT, 2008).

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Table 4 Electricity efciency measures which are ranked by their cost of conserved electricity (CCE) and their annual net cost saving and PV of net cost saving over the period of 15 years No. Efciency Measure Electricity saving (GWh/yr) CO2 emission reduction (kton CO2/yr) 29.0 0.0 3.0 1.3 0.1 Cost of Conserved Electricity (US$/ MWh- saved) 1.3 2.0 11.5 12.9 16.7 Annual net cost saving (with PV of the net cost saving over constant 2008 electricity 15 years with electricity price price) (1000 US$) escalation (1000 US$) 913 6 341 142 6 2795 18 1032 430 17

1 2 3 4 5

6 7 8 9 10 11 12

13 14 15 16 17 18 19 20 21 22 23 24

Preventative maintenance 13.3 Modication of inlet duct of grate cooler 0.1 fan Adjustable speed drive for kiln fan 5.9 Replacement of separator in coal mill 2.5 circuit with an efcient grit separator High efciency fan for Primary Air fan 0.1 along with inverter for speed control of the fan Replacement of cement mill vent fan 0.1 High efciency motors 43.1 Variable frequency drive (VFD) in raw 4.0 mill vent fan High efciency fan for Raw Mill vent fan 0.3 with inverter Bucket elevator for raw meal transport 2.3 from raw mill to homogenizing silos Replacement of preheater fan with a 0.7 high efciency fan Installation of vortex nder vanes on top 17.8 stage cyclones for reduction in differential pressure Variable Frequency drives (VFD) in 3.1 cooler fan of grate cooler Adjustable speed drives 86.1 Energy management & process control 81.5 in nish grinding Installation of VFD & replacement of 3.3 coal mill Bag Dust Collectors fan Optimization of the diameter of 0.6 preheater s exit gas downcomer duct Low temperature waste heat recovery 646.0 for power generation Bucket elevators for kiln feed 1.2 Replacing a ball mill with vertical roller 427.2 mill for nish grinding High pressure roller press as pre224.7 grinding to ball mill for nish grinding Raw meal process control (Vertical mill) 22.0 Efcient kiln drives 2.4 Installation 3-fan system with a 2.2 separate mill fan to take care of vertical roller mill operation High-efciency classiers (for raw mill) 4.8 High efciency roller mill 44.8 Efcient transport system 3.0 Raw meal blending 53.7

0.1 22.4 2.1 0.2 1.2 0.3 9.3

21.2 22.4 23.2 28.0 29.7 29.7 33.6

6 2035 187 14 90 27 644

18 6048 555 42 264 78 1854

1.6 44.7 42.3 1.7 0.3 335.1 0.6 221.6 116.5 11.4 1.3 1.1

33.7 45.9 47.2 51.6 57.4 71.8a 86.9 88.7 94.2 95.2 105.7 127.6

110 2046 1832 59 8 1375 21 8137 5525 562 8 128

317 5479 4845 146 16 15,764 84 34,390 22,218 ,144 322 450

25 26 27 28

2.5 23.2 1.5 27.8

207.1 258.9 459.0 666.0

666 8479 1161 32,014

2245 28,341 3836 105,381

a In calculation of CCE for the low temperature waste heat recovery system for power generation, the monetary value of CERs from a CDM project is not taken into account. If the value of CERs is taken into account, the CCE will be 67.1 US$/MWh-saved with the discount rate of 30%.

cost-effective electricity-efciency improvement potential for Thai cement industry in 2008 is equal to 265 GWh per year. This is about 8% of the cement industrys total electricity use in 2005. The total technical electricity saving potential is 1697 GWh per year, which is about 51% of the cement industrys total electricity consumption in 2005 (Table 5). Measure number 18, low temperature waste heat recovery for power generation, has the highest electricity saving potential and is very close to being cost effective. It should be noted that this measure is implemented through CDM project in many plants, which provides extra revenue from the implementation by selling the CERs. In Section 3.3.5 of this paper we explained the methodology of including the revenue from carbon credits into the calculation of CCE of low temperature waste heat recovery for power generation technology. Following that methodology, the CCE is equal to 67.1 US$/MWh saved with the discount rate of 30%

if we take into account the revenue from carbon credits obtained via CDM project. This CCE is lower than the 2008 electricity price (69.7 US$/MWh), thus making this technology cost effective. Table 5 summarizes the results for electricity savings and carbon dioxide emission reductions associated with the savings. The reason for the small contribution of electricity savings to reduction of total CO2 emission from the Thai cement industry is that the electricity consumption is not the major source of CO2 emission in cement plants. The major sources of CO2 emission are fuel consumption as well as calcination in the clinker making process.

4.1.2. Fuel conservation supply curve (ECSC) Ten energy-efciency measures construct the Fuel Conservation Supply Curve (FCSC). Fig. 2 shows that 9 energy-efciency

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700 650 600 550 500 450 400 350 300 250 200 150 100 50 0

28 Technical electricity saving potential: 1,697 GWh 27

Cost of Conserved Electricity (US$/MWh-saved)

Cost effective electricity saving potential: 265 GWh 15 16-17 18 19 20 21

26 25 22-24 Electricity price line for cement industry in 2008 (US$ 69.7/ MWh)

6-13 14 1-5

300

600

900

1,200

1,500

1,800

Energy saving potential (GWh)

Fig. 1. Electricity conservation supply curve (ECSC) for Thai cement industry.

Table 5 Cost effective and technical potential for electricity saving and CO2 emission reduction in Thai cement industry for the base year 2008. Electricity saving potential (GWh/yr) Cost effective Base year: 2008 Share from total cement industry in 2005a(%)
a

Carbon dioxide emission reduction (ktCO2/yr) Cost effective 159 0.8 Technical 902 4.4

Technical 1697 51

265 8

Since the data for energy use in Thai cement industry in 2005 is more reliable than other recent years, we have chosen this year for the comparison.

10 Cost of Conserved Fuel (US$/GJ-saved)

Technical fuel saving

9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 Weighted average fuel price for cement industry in 2008 (US$ 4.2/ GJ) Cost effective fuel saving potential: 17,214 TJ 8

potential: 21,202 TJ 10

0 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 Fuel saving potential (TJ)
Fig. 2. Fuel conservation supply curve (FCSC) for Thai cement industry.

measures fall under the weighted average fuel price line for cement industry in 2008 (US$ 4.2/GJ). Therefore, for these measures the CCF is less than the weighted average fuel price. Table 6 shows the list of all fuel saving measures ranked by their CCF. The cost-effective fuel-efciency improvement potential for the Thai cement industry in 2008 is equal to 17,214 TJ per year which represents about 16% of the cement industrys total fuel use in 2005, whereas the total technical fuel saving potential is 21,202 TJ per year , about 19% of the cement industrys total fuel consumption in 2005 (Table 7). It should be noted that the energy saving of the product change measures (i.e. measures 1, 3, 5, and 7 in Table 6), highly depends on the plant specic situation and the efciency of current facilities. There are also preconditions for increasing the share of other types of cement in the production

portfolio of the cement companies such as: supportive policy from government, the required regulations and standards, and the market and public acceptance.

4.2. Economic analysis of energy-efciency improvement potentials Based of the methodology explained in Section 3.2 of this paper, we calculated the annual net cost saving with a constant 2008 energy price for each energy-efciency measure that is applicable to Thai cement industry and already plotted in CSCs in this paper. Furthermore, we have computed the present value (PV) of net cost saving over the period of 15 years taking into account the energy price escalation rate. The results are presented in Tables 4 and 6 for electricity-efciency and fuel-efciency

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Table 6 Fuel efciency measures which are ranked by their cost of conserved fuel (CCF) and their annual net cost saving and PV of net cost saving over the period of 15 years. No. Efciency Measure Fuel saving (TJ/yr) 5850 222 933 5494 1300 383 412 2241 CO2 emission reduction (kton CO2/yr) 909a 29 168a 545 129 34 155a 222 Cost of Conserved Fuel (US$/GJ saved) 0.08b 0.08 0.17b 0.29 0.55 0.69b 0.78 1.53 Annual net cost saving (with constant 2008 electricity price) (1000 US$) 24,046 914 3747 21,403 4723 1339 1401 5945 PV of the net cost saving over 15 years with fuel price escalation (1000 US$) 78,767 2992 12,189 69,998 15,430 4556 4572 19,478

1 2 3 4 5 6 7 8

9 10

Blended cement Preventative maintenance Portland limestone cement Kiln shell heat loss reduction Use of waste-derived fuels Optimize heat recovery/upgrade clinker cooler Use of steel slag in kiln (CemStar) Energy management and process control systems in clinker making process Modication of clinker cooler (use of mechanical ow regulator) Upgrading the preheater from 5 stages to 6 stages

378 3988

37 374

1.76 7.83b

917 14,518

3005 36,611

CO2 emission reduction from reduced energy use as well as reduced calcination in clinker making process. For this measure, since we have both electricity and fuel savings, we used the primary energy saving to calculate CCF. However, since the share of fuel saving is more than that of electricity saving, we have put this measure between fuel saving measures. Just for preventative maintenance we present it separately in ECSC and FCSC, as both the electricity and fuel saving of this measure were in the same range.
b

Table 7 Cost effective and technical potential for fuel saving and CO2 emission reduction in Thai cement industry for the base year 2008. Fuel saving potential (TJ/yr) Cost effective Base year: 2008 Share from total cement industry in 2005 (%)a
a

Carbon dioxide emission reduction (ktCO2/yr) Cost effective 2229 11 Technical 2603 13

Technical 21,202 19

17,214 16

Since the data for energy use in Thai cement industry in 2005 is more reliable than other recent years, we have chosen this year for the comparison.

measures, separately. Negative net cost saving occurs for noncost-effective measures. That is, the cost of the measure surpasses the energy cost saving. However, for some non-cost-effective measures, especially the ones which are closer to the energy price line in the CSC, although their annual net cost saving always will be negative, their PV of net cost saving over the scenario period could be positive if the energy price escalation is positive and its value is large enough. As can be seen from Table 4, for measures number 117, the PV of net cost saving over 15 years is positive. This is a signicant amount of money which can be considered as revenue from investing in each specic energy-efciency measure if all the costeffective potential is captured. However, in reality because of the existence of various barriers, it is not possible to capture all the cost-effective potential. This is further discussed in the policy analysis section of this paper. From an economics point of view, when the PV of a cash-ow in costbenet analysis is positive, the investment adds value to the company. If it is negative, the investment subtracts value from the company. If the PV is zero, the investment neither adds nor subtracts value from the company. In a very simplied analysis, we can assume that the energy-efciency measures with positive PV of net cost saving over the period of 15 years could eventually be implemented by cement plants and do not need scal incentive from government, as they already add value to the companies over the scenario period. However, the energy-efciency measures with negative PV of net cost saving over the period of 15 years (non-cost-effective measures) need the scal incentive to be realized. For the case of fuel-efciency measures, all the technologies except technology number 10, upgrading the preheater from 5 stages to 6 stages, will result to positive PV of net cost saving over 15 years (Table 6).

4.3. Policy implications for energy-efciency improvements in Thai cement industry The results for different policy scenarios are presented in Tables 8 and 9. Table 8 shows the total energy saving and CO2 emission reduction as well as the total PV of net cost saving over the scenario period (20162030) obtained from the implementation of energy-efciency measures in different scenarios during the implementation period of policy scenarios, i.e. 20112015. Table 9 shows the annual energy savings and CO2 emission reductions resulted for 2008 CSC and the ones obtained at the end of implementation period (20112015) in various scenarios. The comparison with the values in 2010 is also presented. This is to show the magnitude of the energyefciency improvement and CO2 emission reduction resulting from the implementations in different policy scenarios. The comparison with 2010 as the base year (the year before the start of the implementation period) can also be used to assess the effectiveness of different scenarios. To forecast the primary energy use in 2010, we assumed a 5% reduction in primary energy intensity of Thai cement industry in 2010 compared to 2005. Moreover, because of the current economic slowdown, it is less likely that cement production will increase in the next few years5; thus, the cement production in 2010 assumed to be 29 million tons. 4.3.1. Results of business-as-usual scenario Table 8 shows that 993 GWh and 64,553 TJ will be saved during 20162030 as the result of implementing electricity and
5

TCMA, January 2009, personal communication.

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Table 8 Energy saving, CO2 emission reduction and the PV of net cost saving over scenario period (20162030) obtained from the implementation of energy efciency measures during 20112015 in various scenarios. Total scal incentive paid (MUS$) BAU scenario Electricity efciency measures Fuel efciency measures Cumulative energy saving over scenario period Cumulative CO2 emission reduction over scenario period (kton CO2) Efciency of the scal incentive paid (US$/MWh saved) Total PV of net cost saving captured over scenario period (Million US$)

0.00

993GWh

598

5.99

0.00

64,553TJ

8360

52.65

MVA scenario Electricity 25.18 efciency measures Fuel efciency 0.00 measures AVAW/O scenario Electricity 0.14 efciency measures Fuel efciency 0.00 measures AVAW scenario Electricity 1.05 efciency measures Fuel efciency 0.00 measures TVA scenario Electricity efciency measures Fuel efciency measures 0.00

6026 (GWh)

3225

5.21

17.29

77,463 (TJ)

10,032

63.18

11,929 (GWh)

6353

8.34

101.3

159,012 (TJ)

19,523

201.6

11,965 (GWh)

6372

19.85

101.5

159,012 (TJ)

19,523

201.6

10,683 (GWh)

5624

99.37

0.00

64,553 (TJ)

8360

52.65

Table 9 The annual energy savings and CO2 emission reductions resulted for 2008 CSC and the ones obtained at the end of implementation period (20112015 ) in various scenarios. Energy savings 2008 CSC results Cost-effective electricity saving potential Cost-effective fuel savings potential Cost-effective primary energy savings potential BAU scenario Annual electricity savings Annual fuel savings Annual primary energy savings MVA scenario Annual electricity savings Annual fuel savings Annual primary energy savings AVAW/O scenario Annual electricity savings Annual fuel savings Annual primary energy savings AVAW scenario Annual electricity savings Annual fuel savings Annual primary energy savings TVA scenario Annual electricity savings Annual fuel savings Annual primary energy savings Share from energy use in Thai cement industry in 2010 (%) CO2 emission Reduction Share from total CO2 emission of Thai cement (kton CO2) industry in 2010 (%)

265GWh 17,214TJ 20,270TJ

8 16 14

159 2229 2389

0.8 11 12

66GWh 4304TJ 5067TJ 402GWh 5164TJ 9800TJ 795GWh 10,601TJ 19,777TJ 798GWh 10,601TJ 19,805TJ 712GWh 4304TJ 12,521TJ

2.5 4.9 4.3 15.2 5.9 8.3 30 12.2 16.8 30.1 12.2 16.9 26.9 4.9 10.7

40 557 597 215 669 884 424 1302 1725 425 1302 1726 375 557 932

0.2 3.1 3.3 1.2 3.7 4.9 2.3 7.2 9.6 2.4 7.2 9.6 2.1 3.1 5.2

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fuel-efciency measures in the period 20112015 in BAU scenario. If we assume the same cement production level at the start and end of implementation period, Table 9 shows the energyefciency improvement equal to 4.3% as the result of measures implemented in BAU scenario during 20112015. This is roughly 0.9% per year efciency improvement during the 5-year implementation period. It should be noted that at the end of implementation period, 2015, we get 4.3% annual primary energy saving compared to 2010. This has happened during 5 years period. Thus we divide 4.3% by 5 and we get 0.9% energy saving per year during policy implementation period. However, when we are in 2015 we have accumulated energy-efciency improvement equal to 4.3% annually compared to 2010. The same analysis is applicable for the results of other policy scenarios presented below. 4.3.2. Results of moderate VA scenario Around US$25.18 million is paid as the 30% investment subsidy in the MVA scenario. The scal incentive paid for the fuelefciency measures is equal to zero. The reason is that even a 30% investment subsidy cannot make the PV of net cost saving over the scenario period of any non-cost-effective fuel saving positive. Thus, the subsidy is not applicable to this situation. The efciency of funds used for the 30% investment subsidy for electricity saving measures is equal to 5.21 US$/MWh saved. This is far below the unit price of electricity for Thai cement industry in 2008 (69.7 US$/MWh). About 8.3% energy-efciency improvements as the result of implementation of the short-term MVA program is obtained compared to 2010. 4.3.3. Results of advanced VA (without CO2 tax) scenario As can be seen from Table 8, both electricity and fuel saving achieved in the AVAW/O scenario are signicantly higher than the MVA scenario. This is mostly because of the lower discount rate we used in this scenario (15%) and the higher adoption rate for energy-efciency measures. A small amount of fund (US$ 0.14 million) is used in the 30% investment subsidy program in the AVAW/O scenario for electricity saving measures. The reason is that all the other non-cost-effective measures under this scenario will have negative PV of net cost saving over the scenario period even after taking into account the 30% subsidy; thus, they are not qualied to use the subsidy. All the fuel-efciency measures will be cost effective in AVAW/O scenario because of using 15% discount rate. Therefore, the investment subsidy is not applicable to fuel-efciency measure in this scenario. Because of the more aggressive actions taken in the AVAW/O scenario, the energy-efciency improvement of this portfolio of policies is higher than that of the BAU and MVA scenarios. The annual primary energy saving at the end of the implementation period is 16.8%. The annual CO2 emission reduction is 9.6% at the end of 2015 compared to 2010 (Table 9). 4.3.4. Results of advanced VA (with CO2 tax) scenario The total amount of revenue from energy-related CO2 tax collected in the 5-year period (2011-2015) in this policy scenario is about US$13.84 million. However, as can be seen in Table 8, just US$ 1.05 million is used to pay the 50% investment subsidy for electricity-efciency measures. The reason is that for the rest of the non-cost-effective electricity measures, even after a 50% investment subsidy, their PV of net cost saving over the scenario period (20162030) will still be negative. Therefore, they are not qualied to use the subsidy. Nonetheless, since government will have more than US$12 million left after giving the US$1.05 subsidy, they may want to increase the percentage of subsidy, so that some other energy-efciency measures might become

qualied to use the higher subsidy. All of the fuel-efciency measures are already cost effective with the 15% discount rate used; thus, 50% subsidy is not applicable to them. One of the main advantages of AVAW compared to AVAW/O scenario is that in the AVAW scenario the Thai government is using the revenue of CO2 tax in paying even a higher rate investment subsidy without using its own nancial resources, whereas in AVAW/O scenario, Thai government should pay 30% subsidy from its own budget. The energy-efciency improvement and CO2 emission reduction obtained by the AVAW is almost same as the ones obtained by AVAW/O scenario (Table 9).

4.3.5. Results of technology-oriented VA scenario As shown in Table 8, the electricity saving over the scenario period is 10,683 GWh, which is about 10 times higher than that of the BAU scenario. This is just the result of aggressive action toward implementation of low temperature waste heat recovery power generation technology. As we explained in the methodology section, for the rest of the technologies we had the same assumptions as we had for BAU scenario. The data for fuelefciency measures are same as the ones in the BAU scenario, as there is no change in the discount rate and the adoption rate for these technologies. The annual primary energy saving achieved at the end of the implementation period is 10.7%, which is slightly higher than 2% improvement per year during the implementation period (Table 9).

5. Conclusion We conducted an economic and policy analysis based on the use of bottom-up Energy Conservation Supply Curves constructed in this study for the Thai cement industry. Using the bottom-up electricity conservation supply curve model, the cost-effective electricity-efciency potential for Thai cement industry in 2008 is estimated to be about 265 GWh, accounting for 8% of the total electricity use in the cement industry in 2005. The total technical electricity saving potential is 1697 GWh accounting for 51% of total electricity use in the cement industry in 2005. The fuel conservation supply curve model shows the cost-effective fuelefciency potential of 17,214 TJ and total technical fuel-efciency potential equal to 21,202 TJ accounting for 16% and 19% of total fuel used in the cement industry in 2005, respectively. In the economic analysis, we showed how CSCs can be used to calculate the annual net cost saving with the constant 2008 energy price for each energy-efciency measure and the present value (PV) of net cost saving over a period of time taking into account the energy price escalation rate. The later is especially useful for policy scenario analysis which is also presented in this paper. Four cement sector-specic energy policy scenarios with the framework of voluntary agreements were developed in order to assess the relative effectiveness of the policy portfolios in improving energy efciency in the Thai cement industry. The results from policy analysis show that the most effective and efcient policy scenario is the introduction of an energyrelated CO2 tax for the cement industry under a voluntary agreement program. This results in signicant energy saving, while the scal incentive paid can be compensated by the revenue from the CO2 tax. The TVA scenario also shows that technologyoriented VA programs for some important technologies can result in signicant energy saving. To maximize the savings in AVAW program, Thai government can allocate a special subsidy for the low temperature waste heat recovery for power generation technology by the revenue earned from energy-related CO2 tax.

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Acknowledgment Authors are grateful to management and engineers in the cement companies that participated in this study and provided us the required information and data. We also would like to thank Ms. Somthida Piyapana, the director of Thai Cement Manufacturing Association for her kind assistance. We are grateful to Prof. Dr. Surapong Chirarattananon and Dr. Peter du Pont for their comments on this study. Finally, we would like to thank Ms. Lynn Price from Lawrence Berkeley National Laboratory for her valuable comments and input on this study. References
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