First clean coal plant likely by November 2010

[LahoreEstate]

ARTICLE (August 10 2009): Pakistan will have its first clean coal power generation facility by the end of next year, said Hillard Herzog, the CEO of a US-based energy firm Bergamo E&A in an interview with BR Research of Business Recorder. "Ours is a 544 megawatt clean coal energy project to be set up in Jamshoro, under the terms of your government's rental (power) programme" said Herzog, who oversees the firm's energy business in Pakistan.

"It will be the first coal sequestration project in Pakistan implying clean coal energy with no emission, no carbon footprint. All emissions will be pumped back into the ground and used for industrial purposes". The $420 million project, which will use coal obtained from Lakhra, is estimated to take around 12 to 14 months for completion. "The project should be underway by October - November 2010," said Herzog.

Bergamo E&A - a publicly traded company in the US - has already signed two Letter of Intents; one for coal power generation plant signed with Pepco and the other LoI signed with the Alternative Energy Development Board for a renewable solar energy project. The firm plans to set up a manufacturing plant that would employ 9,000 to 10,000 local workers to make solar parabolic structures to be used for the production of renewable energy. Please turn to page 8 for full text of Hillard Herzog's interview.

At the end of last month, Bergamo E&A signed two LoIs with the government bodies to invest in coal and alternative energy production in the country. In this interview, CEO of Bergamo, Hillard Herzog, shows his optimism on clean coal energy generation and his excitement concerning solar energy based power production in the country. The following are excerpts from the interview.

BR Research: Your firm is currently undertaking two projects in the country; one coal and the other solar power. Can you give us some details about your coal project for starters?

Hillard Herzog: Ours is a 544-megawatt clean coal energy project to be set up in Jamshoro, under the terms of your government's rental program. The first LoI has been signed with Pepco and the terms and conditions are at finalisation stage. The project involves 420 million dollars of investment. This amount covers the equipment, the installation and project costs to bring the project to completion, but it does not include cost of running the plant for five years. The project will produce facility of 544MW (per hour) production in 12 months. The facility is a little cheaper than thermal energy.

BRR: Have the feasibility studies been completed? HH: All feasibility studies, technical requirements with regard to the project have been completed. The project is ready to go forward. Our project will be the first coal sequestration project in Pakistan implying clean coal energy with no emission, no carbon footprint. All emissions will be pumped back into the ground and used for industrial purposes.

BRR: Are you going to import coal or use local Thar coal?

HH: The coal is local, but not from Thar. It's Lakhra coal.

BRR: What is the difference between Thar and Lakhra coal?

HH: Lakhra coal contents are quite different from Thar coal. The basic content of the coal will generate the necessary BTUs without the addition of any foreign coal. The plant would use 300 tones/day of local coal, mined from a designated area (800 acres) that would be sufficient for 5 years.

BRR: Does this coal have high moisture content?

HH: The coal used does not have high moisture content; it has high limestone content. The by-product of the coal is the ingredients that would produce cement blocks. It would produce slack cement for cement blocks as a by-product.

BRR: How long will it take to produce energy?

HH: 12-14 months are required to generate energy after the signing of agreement, which is likely to be signed in the next 30 days. The project should be underway by October-November 2010.

BRR: The problem with thermal projects is its high running costs and imported furnace oil. Here, the coal is indigenous and cheaper. So what would be the running cost and price available to the consumer?

HH: The price we will discuss with NEPRA includes our basic cost of 5 cents per kilowatt and the maximum would be around 9 cents per kilowatt (Rs 7.5 per kilowatt). So, finalised price would be roughly around 9 cents. It would be relatively cheaper than other rental plants.

BRR: So the project will run from 2011 to 2015. And would the cost increase?

HH: No, it has the coal pass through; the coal is based on a specific price so the coal price is fixed. And we've included that cost into the 9 cents. Our cost includes operations, maintenance and repair, whatever has to be done.

BRR: How much coal will be used?

HH: 300 tons per day of coal will be used to run this project.

BRR: And does your company have 100 percent investment in this project?

HH: The government of Pakistan is involved in the project only as a result of the rental program and we're in conformity with the rental program. The government is giving a 14 percent advance which and a guarantee to purchase and pay for the power. That 14 percent is against the sale of the energy. We should produce about 200 million dollars of revenue a year and the government is giving 14 percent of the gross revenue for five years. And that's really a loan; we have to pay it back. Each year we pay back one fifth.

BRR: Do you have plans to set up more coal-based projects in Pakistan?

HH: No, we don't. Although, this project is for five years, the plant can be used for 20 years. Hence, anyone can use this plant for remaining 15 years as a normal IPP.

BRR: Let's talk about your solar power project now?

HH: Yes, solar power technology is an exciting development. Our company develops technology that uses solar power to produce energy. The difference between our technology and the older photovoltaic technology is that photovoltaic requires minimum of 7 to 8 acres per megawatt. We have developed a technology of a self-contained units of 2.5MW each. Furthermore, our cost runs roughly 40 percent of the costs of current photovoltaic.

Your government is interested in purchasing solar power based on a 15cents per kilowatt price. In this regard, we have become the first renewable energy project and our set up would be allowed to connect to the national grid. To produce 50MW of energy using photovoltaic required about 300 million dollars of investment. The same 50 MW, when produced with our technology, will cost about 140-150 million dollars.

Second, the current technology in photovoltaic is not running 24/7, you can't store the energy. We have the capacity to store energy that's created during the day. Pakistan has roughly 300 sun energy days per year. That's a very high count.

Thirdly, and very importantly, we are going to build the first manufacturing facility in Pakistan to actually construct the parabolic structures that are necessary to produce solar energy. The plant will employ 9,000-10,000 people. Some of our people will assist in building and training. At the same time, we'll be importing smaller amounts of solar facilities, in 2.5MW blocks to help jump start energy production. We have decided to install two 2.5 MW units of solar power at Larkana as a model of our first installation.

And if I may add, for me, personally, the excitement has been in what our project can do for you. The name of our project has been; "Pakistan: The Solar Capital of the World". My feeling is that you have the ingredients, we have the technology, we have the investment, we have everything that is necessary to build a facility that's required to build a solar product that you need desperately. For the government, the first priority is that everything that is produced in this facility is used in Pakistan.

BRR: How much area is required for the project?

HH: 4 acres for 2.5MW at the cost of $8 mn.

BRR: What do you think will be the life of this project?

HH: Well, we hope that the life of this project will be well beyond the twenty-year period. The investment in that structure is close to 500 million dollars including the building, the equipment, the training, the structure, everything. Once the deal is signed, that structure will be up and running within 12 to 14 months and we can produce the parabolic structures. Once we do that, we will able to quickly expand the solar megawatt production. The first goal we have in the first 12 months after the plant is open is 500MW of solar. We can produce 500MW of solar at 15 cents a kilowatt at our cost, this is a gigantic step.

BRR: So 14 months are required to finish the plant. How long would it take to produce electricity out of it?

HH: Without waiting for the factory to be set up we can start producing electricity in approximately 6 months. The first 5MW and from that point onwards, depending upon what our people see when they come over here, we can as fast as we can, in producing as much MW as possible.

BRR: Why should one go for solar energy when it's more expensive?

HH: Because it's renewable. In order to generate the amount of megawatt capacity that you need and the investment required, if you don't get off fossil fuels you will not generate sufficient energy.

So solar energy may not be economically viable in the short term but if we look at the long term, with the oil reserves depleting, it would be beneficial. So this short term high cost is just a stepping stone to produce solar energy in Pakistan. And this eliminates the need for fossil fuels.

BRR: How far have you negotiated with the government? When would the final deal be signed?

HH: We have signed the first LoI. The final deal would be signed by the end of August.

BRR: How much energy will be produced by your solar project?

HH: For initial 12-14 months it will produce 500 MW. When the factory will complete, we hope the government to commit 2,000 MW.

BRR: Who are you signing with, the Government of Sindh, the Government of Pakistan or the Ministry of Water and Power?

HH: We are signing with PEPCO. PEPCO has issued us LoI for coal and Alternative Energy Board has issued us the LoI for solar.

BRR: How optimistic are you that this project will be successful in Pakistan?

HH: I have absolutely devoted the last 2 years of my life to bring this to Pakistan. I am confident that we can do this.

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