Risk Management in Biomass Power Plants Using Fuel Switching Flexibility

Abstract Thailand’s energy consumption from alternative sources continues to increase in recent years. This is largely due to the Thai government’s policy in promoting alternative energy development in all sectors, especially in biomass energy which accounts for a significant share of the total amount of alternative energy. Moreover, over the next 20 years, Thailand wants to double the amount of energy from biomass sources from 2,812 MW to 5,570 MW by 2035. In order to meet this ambitious target, the Thai government provides financial incentives through a program called Feed-in-Tariff so as to attract private developers to implement alternative energy projects. As for biomass power plants, however, a major risk is an input biomass price, which can be fluctuated according to season and availability in the area where the project is located. This paper is therefore to present a method that can help mitigate the risks stemming from biomass price fluctuation using a flexible design called “Fuel Switching Flexibility (FSF)”. The FSF is a design concept that takes advantage the notion that fuels for biomass projects can be from several sources. Then, project managers have the option to select the appropriate sources of input materials for the energy production of the project. Valuing the biomass power plants embedded with the FSF can be done with real option analysis. The results of the study showed that projects with FSF have increased in its financial values, without the help of government in handing the financial subsidy. However, the project with only the FSF may, during a certain period, still face financial difficulty, and this is why the government subsidy is still needed for alternative energy projects like biomass power plants.