Feasibility of the heat recovery system is researched by calculating the energy content available for transferring from the ship to shore in the turnaround time in a port for a ferry ship operating between Finland and Estonia or Finland and Sweden. It is assumed that the district heating system is capable of delivering and receiving 1000m3 of technical circulating water in the turnaround time. The investment amount for a system allowing the recovery, storage and discharging the heat is estimated with rough unverified budget prices for such systems. From this data investment calculations are conducted and the yearly deductibles derived.
Pricing the district heating has been studied and energy companies consulted in way of gaining understanding for the potential price for selling out the recovered energy for the energy companies. Energy companies are openly interested in reducing CO2 emissions in their district heating production. There are strategical plans for replacing current production with waste heat and other production methods that will reduce the CO2
emissions. There is also a visible trend in moving towards reduced CO2 emissions production in district heating production. This is clearly shown in the Energiateollisuus ry 20. January 2020 presentation Energiavuosi 2019 Kaukolämpö (Energiateollisuus Ry, 2020), where it is stated that the portion of climate neutral energy sources (renewable + waste heat) grew from 46 percentage to 53 percentage.
Further the operational requirements have been estimated with operative shipping experts for gaining the restrictions and recourse needs such a system would require from the ship and the port facility.
The systems feasibility in producing adequate amount of heat energy, i.e. 61,68 MWh of heat in way of 1000m3 of water at 98°C temperature in ten hours sea voyage, has been proven in earlier chapters. Also the mass of water is technically possible to be pumped between the ship and shore in the harbor turnaround time. Both of these are achieved by using well established technologies. This indicates that the system is technically feasible. Next the financial feasibility has to be assessed. The feasibility is based on the financial calculations for the system investment cost and the potential to reduce the CO2 emissions.
5.1 Variables with effect to the feasibility of the system
There are a number of variables that have effect on the feasibility of the system described in this thesis. These may be divided in three categories:
1. those concerning the market for the waste heat produced onboard and that shall be utilized onshore for district heating purposes
2. those concerning the financial aspect of the installation i.e. the investment of the system.
3. those concerning the technical and operational feasibility of the system 1. those having effect on the technical cost of the ships systems
2. those having effect on the system when the ship is in the port discharging the heat added district heating water and loading cool return water from the same system
3. those having effect on the system in the onshore installation
5.2 Market for district heating energy in Helsinki and Turku
5.2.1 District heating utilization and the energy potential of ship borne waste heat
Market analysis is based on the studies made to the port operational databases to identify the ships operating from the Helsinki port (Port of Helsinki, 2020) and Turku port (Port of Turku, 2020) and studying the district heating production data available.
The data available for the year 2018 indicates that the total district heating production in Helsinki was 7196,5 GWh and in Turku 2165,8 GWh (Energiateollisuus Ry, 2019). Out of Helsinki’s production 6583,2 GWh were produced by burning fuel of some sort. The same wasn’t available for Turku’s production. The system described in this thesis is aimed to replace some of the energy produced by burning fuel with the waste heat from the ship(s).
Laiva Main
Silja Serenade - Silja Symphony Daily 32580 Tallink Silja Oy
222070 61 22 0,34 %
Finnmaid - Finnstar - Finnlady Daily 41580 Finnlines Oyj
Helen District Heating Production 2018
Total production 7196,5 GWh
Produced by burning fuel 6583,2 GWh
Turku District Heating Production 2018
Total 2165,8 GWh
Table 8 Potential ships for DH energy production and the percentage they could produce of the total district heating production of Helsinki and Turku (Energiateollisuus Ry, 2019), (Port of Helsinki, 2020), (Port of Turku, 2020)
The summary table 8 above indicates that there should be potential for waste heat production in the ferry shipping in Helsinki and in Turku. It is also noted that the district heating energy demand, as indicated by the production in 2018, is large and would absorb this waste heat potential with ease.
5.2.2 Carbon neutral future and CO2 reduction effect on the district heating production
Carbon neutrality has recently been stated as strategy goal for major cities in Finland.
Both Helsinki and Turku are stating their goals in their webpages. Helsinki has published strategy aiming for carbon neutrality on their webpages stating that “The goal of Helsinki City Strategy 2017–2021 is to create a carbon-neutral Helsinki by 2035.” Turku has stated that the plan is that: “Turku aims to be carbon neutral by 2029 and climate positive from then onwards”. Both cities have identified the district heating as significant source of CO2 emissions and are considering it to be important to change the production methods and trading methods towards carbon neutral production of district heating.
Helsinki states on their webpage the following Clean energy production plan for the city owned energy company Helen (City of Helsinki, 2020)
“Clean energy production
The development programme of Helen Oy, the energy company owned by the City, is responsible for emission reductions in energy production. Helen Oy’s procedures will reduce Helsinki residents’ district heating emissions by 74% by 2035.
Reducing the emissions from electricity production affects the emissions of the entire nation. The goal is to stop using coal entirely in the 2030s at the latest. The Hanasaari coal plant will be closed in 2024.
Among the procedures are:
- Replacing fossil fuels by building heating plants that run on renewable energy - Utilising waste heat
- Implementing heat pumps
- Utilising the demand response for heat and electricity - Switching to wind and solar energy in electricity production - Using electricity storage facilities
- Applying energy solutions of the future “
The second line item Utilising waste heat is directly relevant to the waste heat recovery process described and studied in this thesis.
Turku has published it’s plans for carbon neutrality on webpages (Turku, 2020)
“A carbon neutral energy system accounting for approximately two-thirds of greenhouse emissions in the Turku area. The heat, cold, steam and electricity used in the Turku area will be produced in a carbon neutral manner at the latest in 2029 (considering compensations).”
In the climate action points on the same pages Turku has stated that: “Two-way district heat system pilot in the sustainable city district, Skanssi
In Turku we are developing a Sustainable Development District, named Skanssi, where we pilot a two-directional heat trade and a low-temperature (65 ºC) district heating network. Here we can develop near-by energy production and distribution. Two-way systems make heat-trade possible, and in the future heat-users can play a more active role in managing their own energy consumption.”
The action point where Turku is planning to introduce two-way systems that will make heat-trade possible they are introducing trading system that is directly relevant to the waste heat recovery process described and studied in this thesis.
5.2.3 Changes in the market expectations in the CO2 emissions accepted for the generation of district heating
Recent changes in consumer behavior and expectations allows the assumption that there is increasing mass of customers that are willing to use carbon neutral waste heat generated energy and might even consider to accept moderate price increases due to the change in the production methods towards carbon neutrality.
When energy company Fortum published their plans to build the larges thermal storage tank in Finland to Suomenoja following statement was made. “The thermal storage is a 20 000 cubic meter water tank, where it is possible to store 800 MWh of heat energy.
This equals the heat energy consumption of 13 000 houses in a day.” (Fortum Oyj, 2015) The tank capacity of 1000m3 considered in this thesis would hence equal to heating 650 houses per day respectively, utilizing one ships waste heat potential.
5.3 Technical and operational feasibility of the system
5.3.1 Technical cost of the ships systems
The cost of building the system onboard will be effected by the price of number of systems. The cost will vary between ships that have such a facility built onboard from the new building phase i.e. new ships or the ships where the systems shall be installed in a retrofit phase i.e. existing ships. The systems effected are the same in both cases.
With comparison to a conventional design ship the additional systems or system upgrades and/or alterations are needed to the following:
• Heat recovery circuit to HT cooling system. This may be already utilized for fresh water generation or other heat recovery systems
• Large capacity exhaust gas economizers 10100kg/h
• Steam heating system for district heating water after the HT cooling system
• District heating water circulation pumping arrangement
• Tank capacity for two times 1000m3 insulated Energy Recovery Ballast tanks
• District heating water discharge pumping and manifold arrangement
• Automation system configuration for control and operation of the system
5.3.2 Port operation cost
The system will have cost relating to the operational demands in the port. The ferry ships are operating with tight turn around schedules. In this thesis that is assumed to be one hour and a half for the sake of simplicity in the calculations. One hour is used for the pumping of the district heating water from the ship to shore and simultaneously from the shore to the ship. Further some time is needed for connecting the ships manifold to the shore side manifold using flexible insulated hoses. The system is assumed to be automated and remotely operated and needing personnel on the quay only to connect and disconnect the hoses as part of the mooring procedure of the ship.
Port operating cost will be
• Time needed for personnel to do the manifold connections and disconnections
• Power cost needed for pumping for two times 1000m3 district heating water from and to the ship – two times 150kW of electric power needed for an hour, total 300kWh. One pump shall be onshore and the other onboard respectively for simultaneous pumping of the high temperature water from the ship and the low temperature water from the shore to the ship.
• Heat losses from the system
5.3.3 Onshore installation cost
The onshore installation costs will accumulate from the added infrastructure needed for storing and moving the district heating water:
• Heat accumulator tanks and foundations
• Pumping arrangement
• The piping and insulation
• Manifold arrangement and hoses
The onshore system are not studied in-depth in this thesis.
5.4 Investment cost for the system
The district heating systems are owned and managed by different entities that are owning and managing the ships that would be used as energy source in such waste heat recovery system. This will result in a situation where the initial cost for building up such recovery system onboard and ashore would need commitment from different entities working for a mutually benefitting goal.
In this study the investment project is assumed to be conducted by a joint venture between the local district heating production company and the ship owner in 50/50%
shares. Hence the investment calculations below are made for one common project.
The assumed investment needs and the budgetary cost thereof for the onboard system and for the shore facility would be for the system upgrades and equipment onboard and for building the following facilities and for making system upgrades to existing District heating system and equipment onshore indicated in the table 9 below. The indicated
prices are approximate indications of total system costs inclusive of planning, purchasing and installation of the systems.
Table 9 The assumed investment needs for onboard and onshore systems
Investments for the onboard system
Technical water piping DH water systems
Piping 30 000,00 €
Contingency for project costs due to planning phase uncertainties 15 % TOTAL SUM OF UPGRADES with contingency 2 679 500,00 €
5.5 Investment calculations
There are number of different methods for making the assessment for the capital investment feasibility. From the reference material three main methods have been identified and used for defining the feasibility of this investment and for high lighting the factors effecting the decision making process for such investment project. Investment categories have been studies and implemented in to the feasibility study. In the reference book “Johdon laskentatoimi” (NEILIMO, 2001, p. 189) defines different investment categories to be the following:
- Mandatory investments: mandatory by legislation or regulation. No particular required rate of return is identified
- Investments made for securing the market position of the company, required rate of return is 6%
- Life cycle investments for production systems and equipment, required rate of return 12%
- Cost reduction investments, required rate of return 15%
- Investments for adding revenue, required rate of return 20%
- Investments made for opening to up new markets or launching new products with considerable risk, required rate of return 25%
These investment categories were used in the feasibility study to facilitate the decision making with the data showing in which risk category such investment project would naturally fall into. It would be way too easy to allow such project to fall into the Mandatory investment category with no identified required rate of return.
5.5.1 Net Present Value – NPV
Net Present Value (NPV) of a project or investment is defined as the difference between the present value of a project’s or investment’s benefits and the present value of their costs. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.
𝑵𝑷𝑽 = ∑ 𝑹𝒕
(𝟏+𝒊)𝒕
𝒏𝒕=𝟏 (10)
Equation 10 Net Present Value (NPV) formula (Source https://www.investopedia.com/terms/n/npv.asp)
Where:
𝑅𝑡 = Net cash inflow-outflows during a single period t
𝑖 = Discount rate or return that could be earned in alternative investments 𝑡 = Number or timer periods
𝑵𝑷𝑽 = 𝑷𝑽(𝑩𝒆𝒏𝒆𝒇𝒊𝒕𝒔) − 𝑷𝑽(𝒄𝒐𝒔𝒕𝒔) (11) Equation 11 Net Present Value (NPV) in easier way to remember (BERK, 2017)
NPV decision rule
Good projects or investments are those for which the present value of benefits exceeds the present value of the costs. Projects with negative NPV have costs that exceed their benefits and should be rejected. This logic is captured in the NPV decision rule in the book Fundamentals of Corporate finance 4th edition (BERK, 2017, p. 259). “When making an investment decision, take the alternative with the highest NPV. Choosing this alternative is equivalent to receiving its NPV in cash today.” continued on the page 260
”A common way companies apply the NPV rule in financial practices is when deciding whether to accept or reject projects. The NPV rule implies that we should
• Accept positive-NPV projects; accepting them is equivalent to receiving their NPV in cash today; and
• Reject negative-NPV projects; accepting them would reduce the value of the firm, whereas rejecting them has no cost (NPV=0)
Investment Net Present Value - Energy Yield 50% and 6%, 12% and 24% interest rates
Investment Net Present Value - Energy Yield 95% and 6%, 12% and 24% interest rates
Energy price estim. (19,85€/MWh) (64,00 €/MWh) (45,95€/MWh) (35% of rtl price)
Discount rate Cash flow per a 424 584,73 € 1 368 938,18 € 982 854,83 € 517 907,40 € 6 % 531 298,94 € 7 480 795,95 € 4 639 608,61 € 1 218 060,48 € 12 % - 249 089,48 € 5 087 451,84 € 2 905 694,86 € 278 276,94 € 24 % - 1 117 028,19 € 2 358 192,49 € 937 405,78 € - 773 600,75 € Table 10 Cash flow present value using Present value factor of individual payments - Energy Yields 50% and 95% and 6%, 12% and 24% interest rates.
Table 10 above indicates the NPV values for two energy yield scenarios with three different discount rates. Initial investment is assumed to have residual value (scrap value) of 10% after 10 years payback time. This is due to the long technical life time and general use of thermal storage tanks in district heating networks i.e. there is possibility that the thermal storage tanks will remain in use in case the waste heat recovery system is abandoned. Residual value present value has been calculated for each discount percentage using Present value factor of individual payments. The full NPV calculations are in the appendixes of this thesis.
5.5.2 Net Present Value (NPV) conclusions
Investment Net Present Value (NPV) calculations indicate that investing in the ship borne waste heat use in district heating project is profitable when energy yield is high (95%) and in cases where energy yield is relatively low (50%) when the energy price is high.
According the NPV rule the project would be acceptable.
5.5.3 Internal Return Rate – IRR
The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does.
𝟎 = 𝑵𝑷𝑽 = ∑ 𝑪𝒕
(𝟏+𝑰𝑹𝑹)𝒕− 𝑪𝟎
𝑻𝒕=𝟏 (12)
Equation 12 Formula for Internal Rate of Return (IRR) calculation (FERNANDO, 2020)
Where:
𝐶𝑡 = Net cash inflow during the period t 𝐶0 = Total initial investment costs 𝐼𝑅𝑅 = Internal rate of return
𝑡 = Number of time periods
IRR decision rule
“Take any investment opportunity whose IRR exceeds the opportunity cost of capital.
Turn down any opportunity whose IRR is less than the opportunity cost of capital.”
(BERK, 2017)
The IRR decision rule in mind the table 11 below were drawn and calculated using the excel function for IRR calculations.
Table 11 IRR estimates of profitability of waste heat system with different energy yield and prices
5.5.4 Internal Return Rate (IRR) Method conclusions
Following the IRR investment rule the indication is that investing in the ship borne waste heat use in district heating project is profitable when energy yield is high (95%) and in cases where energy yield is relatively low (50%) when the energy price is high. Further it indicates that with high energy yield the project would achieve IRR level between 9 – 14% even with moderate energy prices. IRR method allows the best way for vetting the projects returns and also gives grounds for decision according to the interest rate acceptable for different types of project categories. According the payback rule the project would be acceptable in cases where energy price is high and in cases where IRR of 9 – 14% is acceptable according to the project financial categories.
IRR - Energy Yield 95%
IRR cells indicate internal rate of return with following colors: <0,5% red, over 6% yellow, over 12%
light green, over 24% green
5.5.5 Payback Period Method
The payback period refers to the amount of time it takes to recover the cost of an investment. The payback period is the length of time an investment reaches a break-even point.
The Payback investment rule
Following payback investment rule is stated in the book Fundamentals of Corporate finance 4th edition (BERK, 2017, p. 264) “The simplest investment rule is the payback investment rule, which states that you should only accept a project it its cash flow pay back its initial investment within a prespecified period. The rule is based on the notion that on opportunity that pays back its initial investment quickly is a good idea. To apply the payback rule,
1. Calculate the amount of time it takes back to pay the initial investment, called the payback period.
2. Accept the project if the payback period is less than a prespecified length of time – usually a few years.
3. Reject the project if the payback period is greater than prespecified length of time.”
Following this rule the table 10 below was drawn. The table indicates how the payback
Following this rule the table 10 below was drawn. The table indicates how the payback