Energy 146 (2018) 169e178

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Energy
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Economic and spatial planning for sustainable oil palm biomass

resources to mitigate transboundary haze issue
Sie Ting Tan a, Haslenda Hashim a, *, Ahmad H. Abdul Rashid b, Jeng Shiun Lim a,
Wai Shin Ho a, Abu Bakar Jaafar c
a
Process System Engineering Centre (PROSPECT), Faculty of Chemical and Energy Engineering, Research Institute for Sustainable Environment (RISE),
Universiti Teknologi Malaysia, Johor, Malaysia
b
Industrial Biotechnology Research Centre, SIRIM Berhad, Shah Alam, Malaysia
c
UTM Ocean Thermal Energy Centre, UTM Perdana School of Science, Technology, Innovation, and Policy, Kuala Lumpur, Malaysia

a r t i c l e i n f o a b s t r a c t

Article history: Transboundary haze has been a critical environmental concern in the region of Southeast Asia in the
Received 25 January 2017 recent decades. The smoke occurred by land clearing through burning activities for agricultural culti-
Received in revised form vation and urban development is a significant contributors to haze issue which has affected countries
23 June 2017
within the region and beyond. Instead of ‘slashing and burning’ the biomass residues, there is the
Accepted 5 July 2017
possibility of utilising the biomass residue produced either by land-clearing or on plantations to become
Available online 20 July 2017
higher value bio-products,with monetary returns to the plantations and farmers. Due to the diffuse
nature of biomass which leads to high transportation costs, effective spatial planning is required for cost-
Keywords:
Biomass
effectiveness and sustainable biomass supply. This study focuses on mitigation of transboundary haze by
Spatial planning moving away from the conventional activities of biomass ‘slash and burn’ through its conversion to
Optimisation energy. A spatial optimal biomass allocation networks has been developed to address the issue of
Economic analysis transportation distance of biomass to the centralised bioenergy facility by taking into account the
Cost of electricity geographical locations of the biomass, biomass availability, distances, and transportation cost. Five
optimal centralised biomass facilities were identified in Peninsular Malaysia. The results indicated that
the cost of electricity generated from oil palm trunk (OPT) and oil palm frond (OPF) was USD 0.13/kWh
which is comparable with current Feed-in-Tariff (FiT). The result suggests that the conversion of biomass
eto-energy could create economic benefits and ultimately reduce open burning practices, and prevent
the transboundary haze issue in Malaysia and other ASEAN countries.
© 2017 Elsevier Ltd. All rights reserved.

1. Introduction
Oil palm biomass from the oil palm plantations is the one of the
main contributors to forest burning, which leads to the trans-
boundary haze issue in South-east Asian countries. The majority of
forest burninge occurr in the Sumatra and Kalimantan territories of
Indonesia, and in some of the remote regions of Sabah and Sarawak
in Malaysia. Traditionally, these open burnings, encompassing
forest and biomass of palm oil estates, are conducted by small and
medium scale ventures and local farmers, to clear the space for
business development or agriculture. However, with the dry
climate resulting from the El Nino atmospheric phenomenon and
* Corresponding author.
E-mail address: haslenda@utm.my (H. Hashim).
the carbon rich peatlands, the unrestrained fires in the forest is
turning out to be a more severe threat. Amil et al. [1] investigated
the source apportionment of fine particulate matter (PM2.5) for
annual haze episodes in 2011 and 2012, and established that
biomass burning was the primary source of PM2.5, where the
annual contributions were about 11.72 ugm3 and 36.92 ugm3 dur-
ing this haze episode (Fig. 1). Monsoonal winds conveyed smoke
that was transmitted to Singapore, Malaysia, Thailand, and the
Philippines, causing severe air pollution in these countries. The
transboundary haze, which caused a severe economic downturn,
environmental damage, and human health risks, needed to be
resolved urgently [2]. In year 2002, most of the Southeast Asian
countries consented to an arrangement to combat this issue
through more prominent monitoring and encouragement of sus-
tainable development [3].
Transformation of the conventional farming activities of

http://dx.doi.org/10.1016/j.energy.2017.07.080
0360-5442/© 2017 Elsevier Ltd. All rights reserved.
170 S.T. Tan et al. / Energy 146 (2018) 169e178

100% facilities in Section 3.3. Based on the optimisation results obtained,

4.62
Source contribution of PM 2.5 (μg /m3 and % )

4.67 the feasibility of biomass to energy is analysed using the Net Pre-
90% 1.85
sent Value (NPV) method, which is explained in Section 3.4. Section
80% 2.93 3.5 presents a case study to demonstrate the application of the
methodology. The results and discussions from the optimisation
70%
model, and their contribution to economic assessment, are
60% explained in Section 4. The final conclusion and recommendations
36.92
50% 11.72 are summarized in Sections 5 and 6.

40%
30% 2. Potential for conversion of oil palm biomass to energy
3.95 resources
20%
11.28
10% Oil palm is recognized as one of the most rapidly expanding
4.94
4.24 tropical crops in the world [8]. Malaysia and Indonesia supply about
0%
85% of the world's crude palm oil [9]. Malaysia had about 5 M ha of
ANNUAL HAZE
palm oil plantations in 2011, covering 15% of the aggregate land
F5: Sea salt F4: Mixed traffic & industrial zone [10]. An oil palm tree has a 25 year economic life. At the time
F3: Mixed SIA & biomass burning F2: Mineral dust of reporting, it is estimated that 65% of Malaysia's total oil palm
F1: Combustion of engine oil trees ranges between 9 and 20 years, while another 26% are
approaching the end of yielding age [10], with total of 1.3 M ha. A
felled oil palm tree, consisting of a large amount of biomass,
Fig. 1. PM2.5 source contribution based on annual and Haze episode periods (Adopted
from [1]). including the trunk and frond, is regularly shredded and lay on the
surface of plantation soil as natural fertiliser. Some small and pri-
vate estate holders exercise open burning to clear the land, as it is
‘slashing and burning’ into value added conversion of biomasseto- the cheapest method for land clearance. Although there is some
energy is believed to be one of the promising strategies to over- utilisation of trunks and fronds as the source material for plywood
come the haze issue [4]. The oil palm industry in Malaysia is one of production, it is not economically favourable, due to uncertain
the major contributors of lignocellulosic biomass, with more than value of the raw material together with high logistic costs. A felled
90% of the total biomass derived from 5.4 M ha of oil palms [5]. oil palm tree comprises of 70% trunk, 20.5% frond, 6.53% leaflets,
Most of the oil palm biomass from the palm oil mills, including and 5.03% other parts (as shown in Table 1) [11]. Based on the
empty fruit bunches (EFB), monocarp fibre, and palm kernel shells statistical data from old oil palm plantation areas, it is estimated
are utilised as input fuels for industry process on a pilot or com- that 109 M t of biomass can be obtained from Malaysian old oil
mercial scale. However, the oil palm fronds, trunk, and stems are palm plantations, with a composition of 53.39 M t trunk, 20.80 M t
currently underutilised, and the presence of these oil palm wastes fronds, and other parts of the plant [11].
has created a major disposal problem which lead to open burning The oil palm trunks (OPT) and oil palm fronds (OPF) have the
[6]. Recent research has justified the view that such biomass has a potential to be converted into renewable energy, as their chemical
high potential for utilisation as a RE source as its characteristics are composition is similar to that of other sources of biomass, such as
similar to those of other marketable forms of biomass from palm oil empty fruit bunches (EFB). Table 2 presents a comparison of
mills [5]. Utilisation of oil palm plantation biomass as an energy chemical characteristics in terms of proximate analysis, ultimate
resource also provides a two-fold solution to the issue of abun- analysis, and lignocellulosic content. According to the proximate
dance and open burning for clearing biomass. Biomass utilisation analysis, OPF has the highest moisture content (75.6%), which is
will ultimately reduce the conventional practice of slashing and however just slightly higher than the EFB (67%). Although the high
burning which resulting haze issues and the value added from the moisture content will reduces the available energy from the
burnt biomass source can be transformed into a sustainable prac- biomass, it can be solved through pre-treatment process that helps
tice of economic harvesting. The logistics and transportation of the to increase the energy density of the biomass [11]. The relative
biomass residues to processing plant, present a major barrier, due proportions of lignocellulosic content is the key factors in deter-
to their being geographically dispersed [7]. mining the optimum energy conversion route for each type of
This study focuses on mitigation of transboundary haze by biomass. The OPF and OPT shared a similar content of lignocellu-
moving away the conventional activities of biomass ‘slashing and losic with EFB. Higher heating value (HHV) is the expression of the
burning’ to the conversion of energy, especially looking into the energy content, or heat value, released when a biomass is burnt in
issue of logistics and transportation of the biomass. A spatial air. The HHV of EFB was found to have the highest value with
optimisation model is developed to address the transportation of 18.88 MJ/kg, while both trunk and frond had a slightly lower HHV
biomass to the centralised bioenergy facility by taking into account
the geographical locations of the biomass, biomass availability,
Table 1
distances, and transportation costs. The paper first introduces the
Composition of an old oil palm tree [11].
sources of oil pam plantation biomass, its availability in Malaysia,
and the potential of biomass conversion to energy in Sections 2 and Biomass Average Weight Estimated dried Dried weight
composition weight (kg) percentage (%) weight (kg/tree) (t/ha)
2.1. A comprehensive review of the recent studies and research on
the transportation and allocation of biomass resources are pre- Trunk 1507.50 70.00 301.50 41.07
Leaflets 145.00 6.53 58.00 7.69
sented in Section 2.2. Section 3 explains the research framework
Frond 452.50 20.50 117.70 16.00
and methodology of the study. A superstructure is illustrated in Spears 42.75 1.92 9.40 1.28
Section 3.1 to set the boundary of the study, while the data is Cabbage 44.50 2.00 4.50 0.60
presented in Section 3.2. A spatial optimisation model is developed Inflorescence 134.50 1.11 6.30 17.56
to address the transportation of biomass to centralised bioenergy Total weight 2217.50 100.00 497.30 84.20
 S.T. Tan et al. / Energy 146 (2018) 169e178 171

Table 2 chemical conversion, converts the biomass through a biological

Properties of oil palm plantation biomass versus empty fruit bunch [Adopted from degradation process into bio-solid or biogas products. The products
5].
generated from biomass are categorised into low-value, medium-
Oil Palm Plantation Biomass Empty Fruit Bunch value, or high-value products, based on their economic value. Low-
Oil Palm Trunks Oil Palm Fronds value products (e.g. compost) requires low investment costs, with
simple conversion technologies; therefore, the product value is
Proximate analysis (wt% dry basis)
Moisture content 75.60 ± 6.16 70.60 ± 5.58 67.00 ± 1.41 relatively low. Medium-value products included heat and power
Volatile matter 86.70 ± 1.03 85.10 ± 1.23 87.04 ± 0.42 products from biomass. The high-value products (e.g. biofuel and
Fixed carbon 0.81 ± 0.34 0.62 ± 0.29 11.25 ± 2.43 biochemicals) are generated through advanced technology with
Ash 3.35 ± 0.37 3.37 ± 0.45 4.60 ± 0.50
high investment costs; hence the product value is higher compared
Ultimate analysis (wt% dry basis)
C 51.408 ± 5.37 48.431 ± 0.53 48.715 ± 5.08 to the others.
H 11.816 ± 0.32 10.476 ± 0.08 7.858 ± 3.09
O 51.16 ± 6.97 46.75 ± 0.50 48.179 ± 1.26 2.2. Literature review of transportation and allocation of biomass
N 0.169 ± 0.32 12.402 ± 0.34 0.249 ± 0.11
Lignocellulosic content (wt% dry basis)
Cellulose 45.90 50.33 57.80 Studies on biomass to energy production have found that the
Hemicellulose 25.30 23.18 21.20 logistic variables such as transportation, collection, and storage
Lignin 18.10 21.7 22.80 have substantial impact on its economic feasibility [12]. Deter-
HHV (MJ/kg) 17.47 ± 0.35 17.28 ± 0.26 18.88 ± 0.74 mining an appropriate location for a biomass facility is a multiple
criteria decision-making problem involving conflicting quantitative
and qualitative criteria [13]. Research on transportation and allo-
than the EFB, with 17.47 MJ/kg and 17.28 MJ/kg. These analyses cation of biomass often focus on the selection of optimal locations
suggested that the OPF and OPT can be used as a energy sources, for biomass plants. Geographic Information System (GIS) is an
which the chemical characteristics are compatible with the EFB. essential tool used to analyse spatial information of a trans-
portation network. For instance, an integrated method has been
2.1. Conversion pathway of biomass to products proposed by Cebi et al. [13], which includes fuzzy sets, an analytic
hierarchy process, an opinion aggregation method, and an infor-
The approaches for transforming biomass resources into prod- mation axiom method to evaluate the biomass facility locations.
ucts such as energy or biofuels involve thermo-chemical, bio- Kaundinya et al. [14] developed a GIS -based k-medoid data mining
chemical, and physical conversion processes, as illustrated in Fig. 2. algorithm for selection of optimal locations of biomass power
Thermo-chemical conversion includes incineration, pyrolysis, plants in rural areas in India, by minimising the total costs of
gasification, and torrefaction, which used high temperature and installation, transportation, transmission, and distribution. Zhang
pressure to convert biomass into energy commodities. Bio- et al. [15] used a two-stage methodology to identify the best

Fig. 2. Conversion pathway of biomass to resources.

172 S.T. Tan et al. / Energy 146 (2018) 169e178
location for biofuel production based on multiple attributes, where
a GIS approach is first applied to identify the feasible location of the
biofuel facility, then, the preferred location was selected using a
total transportation cost model. Vukasinovi c and Gordic [16]
applied a GIS-based heuristic to address the capacity of the facil-
ity location problem by distributing potential biomass among a
county's suitable land. The research team concluded that the in-
vestment cost was the major cost and had a great impact on the size
and location of the plant. Rentizelas et al. [17] applied a hybrid
optimisation technique to determine the location for a biomass-
based facility, and concluded that the hybrid optimisation
method was the most efficient method for cost reduction. Ong et al.
[18] used GRASS GIS as a tool to develop a transport cost model to
assess the feedstock availability and location for a biofuel refinery
in Malaysia. This research concluded that fo there was no cost-
efficient location to use a multi-biomass sourcing strategy in
Malaysia. The potential collection locations for corn stover in the
midwestern region of Malaysia was identified using the GIS
methodology [19]. In this research, site suitability analysis was
developed consisting of two models, which were agronomic pro-
ductivity potential and environmental costs. Apart from that, GIS
was also used together with Multi-Criteria Analysis (MCA) in
tackling the logistics of biomass-to-electricity in the area of Apulia,
Southern Italy [20]. In this research, the total transportation dis-
tance was minimized in order to find the optimal biomass plant
locations. The integration of GIS and MCA connected with logistics
cost model and GHG analysis proved to be very useful in identifying
optimal plant locations through logistic cost and GHG emissions
minimization. A study focusing on the case study of Iran proposes a
two-stage model to design and plan the microalgae-based biodiesel
supply chain with the macro-stage used GIS and Analytical Hier-
archy Process (AHP) to identify the suitable locations to establish
biodiesel production facilities [21]. This analysis identified suitable
locations of the facilities by quickly omitting the unsuitable parcels
Fig. 3. Research methodology.
of land.
However, GIS tool poses limitation in solving complex spatial
optimisation process which involved large amount of variables.
Therefore, some studies introduce mathematical model to solve the
issue of biomass transportation and allocation. For example, a
mathematical model for collection and transportation of biomass
from fields to the biomass based power plant was developed by
Singh et al. [22]. The model results showed a decrease in the unit
cost of transport with increase in distance. A field-to-refinery
model was developed for the purpose of identifying optimal har-
vest, storage, transportation, pretreatment and refining activities of
herbaceous crop residue-based ethanol production complex in the
northeastern region of North Dakota [23]. Sensitivity analysis in
this case study indicates that the profitability of the ethanol com-
plex was marginal under anticipated technologies and current
prices. An optimisation model for the supply chain design and fa-
cility expansion of cellulosic fuels production illustrated the pattern
of geographical expansion of facility construction [24]. Optimisa-
tion in this research considered the trade-off between biomass
availability and product distribution costs. It is also concluded that
the cost of the centralised biorefinery location highly influences the
location decisions. A cost optimisation model for corn silage harvest
logistics was developed to simulate the silage harvest system and
provide a decision support tool for technicians that manage this
process [25]. One specific objective of this research was to develop a
quantification resources allocations model for biomass supply and
transport operations. This model determines the suitable combi-
nation of resources according to the harvesting fields by perform-
ing strategic planning and daily decision making at the beginning of
the harvest season.
There were some studies focus on the economic analysis of
biomass transportation. Delivand et al. [26] discussed the logistic
cost analysis of rice straw for biomass power generation in
Thailand. An analysis of the logistics and economics for projected
power plant capacities of 2e35 MWe showed doubling the energy
capacity of the facility increases the specific costs of the logistics
operations only by only 4% in all region. A case study of logistics
cost analysis for rice straw pellets in Nanporo Town, Hokkaido,
Japan was carried out by considering all stages in the supply chain
[27]. In this research, the main factors affecting the selling price of
rice straw pellets, for example collection, transportation, storage,
pelletizing and delivery to users with mass boilers, were identified.
Sensitivity analysis performed in this case study showed an
economically feasible spatial scale, in this case the rice straw,
should be collected within a 20 km radius, and users should be
within a 38 km radius when the production capacity is 1500 t/y.
Igathinathane et al. [28] simulate the logistics of bale collection
after forming the subfield stacks. Evaluation of location effects of
bale stack and field outlet, number of stacks, transported bales/trip
and other field parameters on logistics distances were identified.
According to the results produced, the most efficient infield logis-
tics strategy was to locate the field outlet at or near the center of the
field, with an appropriate number of square subfields and increased
bales per trip.
Despite the previous work, none of the studies addresses the
issue of transportation and allocation for oil palm biomass from the
plantation to processing plant.
3. Research methodology
This study aims to determine the optimal biomass allocation
networks - taking into account the geographical locations of the
biomass, biomass availability, distances, and transportation cost.
The biomass resources which are the focus of the study are
primary residues from oil palm plantations, namely OPT and OPF.
 S.T. Tan et al. / Energy 146 (2018) 169e178 173

Fig. 3 shows the research methodology of this study. First, a con-

ceptual superstructure was developed to illustrate the problem.
Then, information and data including biomass availability, potential
centralised bioenergy plant (CBP), and transportation network are
collected. GIS was used to analyse the land-use change of the case
study areas and selects the potential location for a CBP. A spatial
optimisation model was then developed through Generic Algebraic
Modelling System (GAMS) to address the transportation distance of
biomass to the centralised bioenergy facility. Net Present Value
(NPV) was then used to examinate the correlation between energy
production cost and the equity financing ratio of CBP.

3.1. Superstructure development

The problem described in this paper involves the determination

of an optimal bioenergy centralised facility with a minimum 800 t/
d biomass availability, considering transportation distance that
could minimise transportation cost. A conceptual superstructure is
shown in Fig. 4. The biomass resources, i, is harvested from the oil
palm plantation area, m, then continues on the distribution
network on a truck route in the same region and across regions, to
finally be delivered to a centralised processing hub, n.

3.2. Data collection

3.2.1. Biomass availability

Fig. 5 presents an overview of the oil palm plantation biomass in
Peninsular Malaysia. The availability is estimated through the
production of fresh fruit bunches by SIRIM [29]. There are total 244
plantation site in Penisular Malaysia with total annual biomass
production of 1.5 M t/y [29]. It can be seen that the majority of the Fig. 5. Oil palm biomass (Trunk and Frond) generation in Malaysia.

oil palm plantation biomass is allocated in the central and southern

regions of Peninsular Malaysia, due to the economic feature of the
conducted using GIS based on the following criteria [30]:
southern and central regions that lean more towards the agricul-
The centralised bioenergy plant should be located near the
tural sector. Detailed information regarding each plantation's
feedstock area to minimise the transportation cost.
location, with geographical coordinates and biomass generation, is
listed in Table 1A, Appendix A.

The CBP should be at least 500 m away from residential zones.

The CBP should be located in between 0 and 500 m above sea
3.2.2. Potential bioenergy plant level. Any increment in altitude of plant location (more than
For new locations of CBP, the potential site identification was

Fig. 4. Superstructure of the transportation network of biomass.

174 S.T. Tan et al. / Energy 146 (2018) 169e178

500 m) will contribute to the increment of transport cost or

fossil fuel consumption at high altitudes.

The CBP must have a minimum biomass capacity of 800 t/d.

The pre-selection was conducted to select potential location for

CBP in order to provide data for optimisation model to select the
best optimal location with minimum transportation cost. 15 po-
tential bioenergy plants were pre-selected using GIS, as listed in
Table 3 and illustrated in Fig. 6.

3.2.3. Transportation network

A CBP requires long-distance transportation of feedstock that
can drive the establishment of a clear procurement strategy. Truck
transportation is the most important method of biomass trans-
portation in Malaysia, but train transportation can be a cheaper
option where there is a longer transportation distance. The GIS-
based transport network for Peninsular Malaysia was developed
with a dataset obtained through the Malaysia Ministry of Works
[31], as shown in Fig. 7. In the network, the origin to destination
distance matrix was calculated, including the location parameters
for biomass supply and bioenergy production plants with both
roadways (truck alone) and a combination of roadways and rail-
ways (truck and train). The choice of feedstock transportation
method depended on the distance and infrastructure availability.
Table 4 presents the cost information for feedstock transportation
by truck and train. The fixed cost in transportation includes the cost
of insurance, license fee, and permit cost. This information was
used as the input data for the spatial optimisation model in this
study.
Fig. 6. Potential bioenergy facilities in Peninsular Malaysia.

3.3. Optimisation model

the oil palm plantation, Ch and transportation cost, Ct represents
The optimisation model for the biomass to energy strategy
the biomass transportation from plantation to the centralised fa-
consists of an objective function and several constraints. The
cility by road or train network. The harvesting cost, Ch ; is denoted in
objective function of the biomass transportation model is to
Equation (2), represented by labour cost, Cl multiplied by the total
minimise the total cost of transportation of feedstock, which is
amount of biomass collected from m area, qm . The transportation
shipped from the plantation site to the CBP. Multiplication of
cost, Ct involves the unit cost of transportation of biomass from area
transportation cost maps with the residue production density map
m to the centralised facility, n, CTimn which is expressed in Equation
for OPF and OPT will produce the biomass transport cost (BTC)
(3)
maps.
X
The total biomass transportation cost from feedstock supply to Ch ¼ Cl x qm (2)
the CBP is given in Equation (1); m

Total transportation cost; CT ¼ Ch þ Ct (1) X

Cl ¼ CTmn x qmn (3)
mn
where CT is the total cost of transporting biomass to the CBP, which
involves the cost of harvesting and collection of the biomass from The total transportation cost can be minimized subject to a
number of constraints, including the biomass supply, trans-
portation distance and fuel costs. The model will select the optimal
Table 3
location, based on the less costly pathways, from one set of feed-
Potential bioenergy facilities.
stock supply points to a specific CBP, over the period chosen (in this
Potential area Region Latitude Longitude study, the period is 1 year). The output resulted from the model
1 Pasir Gudang Southern 1.469 103.908 consists of the location and characteristics of a set of plants,
2 Kulai Southern 1.675 103.573 amounts of biomass used, biomass flows and the costs of
3 Kota Tinggi Southern 1.764 103.895 transportation.
4 Muar Southern 2.082 102.544
5 Jasin Southern 2.244 102.481
6 Senawang Central 2.681 101.991
7 Banting Central 2.785 101.509 3.4. Net present value (NPV)
8 Nilai Central 2.828 101.831
9 Termeloh Center-East 3.452 102.511
Once the optimal allocation of CBP is obtained, the results are
10 Bentong Center-East 3.648 101.977
11 Teluk Intah Northern 3.970 100.999 used to analyse the economic feasibility of biomass conversion to
12 Sungai Petani Northern 5.641 100.533 energy. Assessment of the economic viability of biomass conversion
13 Kuala Kangsar Northern 4.905 100.907 to energy was carried out by a NPV analysis. NPV is a standard
14 Kemaman East 4.377 103.349 methodology for the financial appraisal of projects, which is used
15 Chukai East 4.005 103.289
commonly for techno-economic assessment. NPV measures the
 S.T. Tan et al. / Energy 146 (2018) 169e178
Fig. 7. Transportation network in Peninsular Malaysia [33].
Table 4
Transportation cost and information for trucks and trains in Malaysia.
Truck
Fixed cost (USD/t) 72.8
Fuel cost (USD/L) 0.50
initial capital investment of the bioenergy plant and all subsequent
cash flows arising from feedstock transportation costs and sales of
generated energy as an equivalent amount at time zero. This
approach is particularly applicable to the cash flows of a single
project or several competing alternatives that vary over time. It is
calculated by discounting the cash flows in the net cash flow table
with the discount rate and by making the sum over the project
period. The higher the NPV of accumulated benefits, the stronger
the financial feasibility.
The NPV of cash flow at time t is given by Equation (4):
X
n
At
NPV ¼
t
t¼0 ð1 þ dÞ
where At is the project's cash flow by revenues minus costs at time t
while time t is taking values from year 0 to year n. d is an interest
rate that is used to calculate the present value of future cash flows,
commonly named as the discount rate. When the calculated NPV is
at positive value, the investment results in a rate of return is greater
175
than the minimum rate of d, and is recognized as a profitable in-
vestment. A negative value of NPV indicates it is a non-profitable
investment that will not provide a return at the minimum rate d.
3.5. Case study: economic potential of biomass to energy
Conversion of oil palm biomass from the plantations, into value-
added products can potentially reduce the haze conditions caused
by slashing and burning practices [4]. Among the value-added
product from oil palm biomass, bioenergy (in term of heat and
power), offers high economic returns. Malaysia started biomass-to-
power generation in 2003, when a 7.5 MW integrated biomass co-
generation plant was commissioned in Lahad Datu, Sabah, by Felda
Global Ventures Holdings Bhd. (FGV). EFB is used as the feedstock
and the generated heat and power are utilised for the plant oper-
ation. The project was the first Clean Development Mechanism
(CDM) project in Malaysia. With an investment cost of RM 38 M, the
biomass power plant successfully reduced CO2 emission by
approximately 377,902 t by 2012 [32].
In Malaysia, EFB is the most utilised biomass for power gener-
ation, due to its high HHV content and abundancy. Utilisation of
OPT and OPF for power generation is still at the infant stage in
Malaysia. Their potential as biomass for power generation has been
demonstrated (as their comparative chemical properties indicate in
Table 2) to EF B in terms of HHV (20 MJ/kg compared to 17 MJ/kg)
[33].
The economic potential of biomass-to-energy is explored in this
section. A NPV analysis and equity and debt corporate financing
method were applied in the case studies to analyse the economic
profitability levels of biomass-to-resources.
4. Results and analysis
4.1. Optimal centralised biomass facilities
Data were inputted into the biomass transportation optimisa-
tion model with the CPLEX solver from GAMS software. Peninsular
Malaysia has a total oil palm biomass (OPF and OPT) of 150,000 t/y.
5 centralised biomass facilities were identified in Peninsular
Malaysia, with a capacity of 800 t/d of biomass, or equivalent to an
annual production of electricity of 113,880,000 kW h/y. The pro-
Train
posed technology consists of five power plant with 13 MW capacity
27.3 with 76% efficiency, comprising a pre-treatment drying system,
0.77
fluidised bed boilers for conversion of biomass to heat and steam,
and generation of electricity through an extraction-condensing
turbine. The distance maps multiplied by the transport cost equa-
tion provide the transport cost map for each truck size and district.
Multiplication of transport cost maps with the OPF and OPT density
map will render the biomass transport cost (BTC) map, which
represents the cost of transporting the particular biomass residues
to the centralised biomass facility. The five centralised biomass
facilities with the lowest cost for transporting the biomass residues
are: Pasir Gudang (Southern), Jasin (Southern), Banting (Central),
Teluk Intan (Northern), and Kemaman (Eastern). The minimum cost
of transportation is about USD 5,8240/day. Fig. 8 illustrates the
transportation movement of biomass from sources to plant.
(4) 4.2. Economic analysis of biomass to energy
The optimisation result reported in Section 4.1 indicated that
800 t/d of biomass (OPF and OPT) can potentially produce
113,880,000 kW h/y of power. The biomass feedstock used is
assumed to have a calorific value of 15.82 MJ/kg and 16% moisture
content at dry basis [34]. The direct combustion power plant is
assumed to have a 30 year plant life with investment costs of USD
176 S.T. Tan et al. / Energy 146 (2018) 169e178
900/kW and USD 1050/kW for the boiler and turbine. Details of the
process and the related economic information are provided in
Table 5. The costing information was obtained through personal
interview with a local stakeholder of the biomass-to-power in-
dustry while the economic information was adopted from the NREL
report [35].
The correlation between the power production cost and equity
financing obtained using NPV economic analysis is presented in
Fig. 9. The minimum CAPEX is USD 39 M for a power production
plant with 800 t/d of capacity. Meanwhile, the minimum electricity
production cost range from USD 0.14/kWh to USD 0.13/kWh, with
an equity financing share of 30%e70%. The minimum production
cost is comparable to the current incentive proved by government
through feed-it-tariff (FiT) of USD 0.10/kWh, with adoption of the
same equity financing. The variation of electricity production cost
with different plant capacities (feedstock of 800 t/d, 1,000 t/d, and
2,000 t/d) is also analysed in Fig. 9. It can be seen that there is only a
marginal reduction in the minimum electricity cost (ranging from
USD 0.15/kWh to USD 0.13/kWh) from the economic scale of ca-
pacity increment. This is due to the high fixed investment cost of
approximately USD 3,000/kW, the FiT scheme enhances the
biomass-to-power competitiveness in the current power industry
market. Table 6 presents the potential reduction of electricity cost
through the debt: equity (D:E) ratio or interest rate improvement.
The results shown that the electricity production costs could be
reduced significantly with a low interest rate (3%), and hence, the
biomass-to-energy conversion could be more competitive with
current market value.
Fig. 8. Optimal transportation of biomass to centralised bioenergy facilities.
5. Policy suggestion
In order to further boost the potential of biomass utilisation, the
current policies have to be improved and enhanced. The policies
should be developed for i) securing biomass resources, ii) platform
for biomass product marketing, and iii) supporting technology
development.
i) Securing biomass resources
Through the years, the government of Malaysia has formulated
policies and programmes to ensure the long-term reliability and
security of energy supply for sustainable socio-economic devel-
opment of the country, with varying degrees of success. The use of
biomass as a fuel in direct combustion is now in the commercial
domain, but mainly focuses on the use of EFB. Application of OPF
and OPT as energy fuel are still in the pilot scale. The problem is
further compounded when the investments are undertaken
through the acquisition of bank loans that increased the opera-
tional cost through interest payments. It is proposed that there
should be a significant funding involvement from the government
converted to equity to minimise the interest charges from massive
loans. From a financial evaluation, the equity-loan ratio needs to be
optimized to maximise margins on sale of biomass energy. The
economic case for biopower is not helped by the imperfect devel-
opment of the local biomass market into a fully fledged commodity
market.
ii) Platform for biomass product marketing
 S.T. Tan et al. / Energy 146 (2018) 169e178 177

Table 5 Table 6
Parameters for a case study of an 800 t/d biomass-to-power plant. Electricity production cost (USD/kWh) for various debt: equity ratios or interest
rates.
Parameters Unit Value Total Value
Debt:Equity ratio Interest Rate
Process Information
Plant life 30 y 8% 5% 3%
Efficiency 76%
70:30 0.24 0.14 0.10
Feedstock 800 t/d 292,000 t/y
60:40 0.22 0.14 0.11
Electricity Production 113,888,000 kwh/y
50:50 0.21 0.14 0.11
Heat production 441,867 t/y
40:60 0.19 0.13 0.11
Costing Information
30:70 0.18 0.13 0.12
Feedstock cost
Transportation costs 10 USD/t USD 7,300,000
Harvesting and collection cost 10 USD/t USD 7,300,000
Pre-processing cost 5 USD/t USD 3650000 iii) Supporting technology development
Investment cost turbine 1050 USD/kW USD 13,650,000
Fixed capital 2500 USD/kW USD 32,500,000.00
Variable cost e USD 535,236.00 Conversion technologies of biomass to resources are often
Operational cost 150 USD/kW USD 1,625,000.00 expensive with high maintenance cost and a long investment rate
Electricity price 0.10 USD/kWh USD 11,388,000.00 of return. High yielding conversion technologies need to be
Heat price (by-product) 12.65 USD/t USD 21,693,354
developed to improve returns and encourage investment.
Financing information
Discount rate 4.1% Furthermore the technologies need to be developed locally with
Plant depreciation DB 150% local IP ownership to minimise the technology acquisition costs.
Plant recovery period 20 y This requires an increase in research funding in biomass technol-
Corporate tax rate 25% ogy. Other moves from the government to provide more fiscal in-
Loan - term loan APR 5.0%
Loan period 10 y
centives for biomass based research and development activities
Construction period 3y would also be welcomed.
First 12-month expenditure 8%
Next 12-month expenditure 60% 6. Conclusions
Last 12-month expenditure 32%
Working capital (% of fixed 5%
capital investment) The study has presented an optimal transportation solution for
Start-up time 3 month conversion of biomass to energy through a spatial optimisation
Revenues during start-up 50% model, and then analysed the economic potential of this solution
Variable costs incurred 75%
through a NPV analysis. The results showed that a minimum
during start-up
Fixed costs incurred during 100% feedstock of 800 t/d biomass could be achieved with minimum
start-up transportation costs through selection of 5 CBPs. Investigation of
BNM Government 4.0% the economic potential of localised biomass-to-energy conversion
Securities Yield has demonstrated that the minimum production cost ranged from
USD 0.15/kWh to USD 0.13/kWh, comparable to a FiT of USD 0.13/
kWh. This is a favourable scenario to investors, as with a financial
The biomass market in Malaysia is quite fragmented and unor- interest rate of 3%, electricity production would be economically
ganized. In order to ensure proper management and trading of competitive in the current market. The current interest rate stands
biomass, a center for sustainable mobilisation of biomass resources at 5%e8% and with the high capital cost in Malaysia, there is a need
is proposed to be established which would include biomass logistic for policy intervention to enable a sustainable bio-energy industry.
and trade centres. These would be regional centres with optimized
logistics and trading organization, where different biomass fuels Acknowledgments
such as firewood, chips, pellets and energy crops would be mar-
keted at guaranteed quality and prices. Besides, the government The authors gratefully acknowledge the research grant and
can establish a platform where these bio-products can be marketed financial support provided by the Ministry of Higher Education
much like the EU-Malaysia Biomass Sustainable Production Initia- (MOHE) and University Teknologi Malaysia (UTM) (Vot no:
tive (Biomass-SP) which was developed in Malaysia to undertake Q.J.13000.2546.14H46), and the Academy of Science Malaysia
more intensive promotion on biomass. (ASM) under the study of “Transboundary Haze Study: Help Action
toward Zero Emissions”.

0.16 Appendix A. Supplementary data

0.15
Minimum electricity product cost

0.14 Supplementary data related to this article can be found at http://

dx.doi.org/10.1016/j.energy.2017.07.080.
0.13
2,000 t/d
(USD/kWh)

0.12
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