The future of one of Papua New Guinea’s highest profile green energy projects, PNG Biomass, appears under a cloud following the move by state-owned utility PNG Power to potentially cancel the power purchase agreement it has with the project.
The location for the PNG Biomass project. Credit: PNG Biomass/Oil Search
PNG Biomass, a project wholly-owned by PNG’s largest company, Oil Search Ltd, is based in Markham Valley in PNG’s Morobe Province. It aims to use wood chips from sustainably-grown plantation trees trees to power a 30 megawatt (MW) power plant to feed into PNG Power’s Ramu grid under a power purchase agreement (PPA) signed in December 2015.
The project has since added a 10MW solar power plant, which was expected to be funded by the AUD$2 billion (K5.42 billion) Australian Infrastructure Finance Fund for the Pacific. Neither plant has yet been built.
A statement from Oil Search last week, however, states that it has received an “unforeseen ‘notice of termination'” of the PPA from PNG Power, and says there company is ‘currently engaging with all key stakeholders including Markham landowners and development partners to assess the potential impact of a cancelled PPA.’
Conditions not met?
In March, a statement from PNG Power’s Managing Director Flagon Bekker pointed out that the PPA was ‘conditional upon the project reaching financial close within 18 months of the start of the agreement’, which has clearly not occurred.
‘PNG Power issued a PPA to this long-running project including repeated extensions to give it the best possible chance of success. However, despite these extensions this project is still unable to dispatch power into the Ramu Grid,’ explained Bekker at the time.
However, Oil Search last week contended it had abided by its obligations under the PPA.
‘We have met all obligations in the PPA under our control in order to reach financial close and we have strong funding support from international agencies who recognise the social benefits of this project,’ said Oil Search’s PNG Country Manager, Leon Buskens.
Low cost plan
PNG Power’s Flagon Bekker.
Ultimately, the notice to terminate may have more to do with PNG Power’s stated desire to implement its Low-Cost Power Development Plan, which would involve – in part – reducing the amount of money it pays to the country’s independent power producers (IPPs), including PNG Biomass.
Back in March, Flagon Bekker suggested that PNG Biomass may no longer provide the best value for money.
‘It should be noted that various studies had revealed that, although biomass was cheaper than current electricity production using diesel or heavy oil, it was not a least cost option for the future any longer. Technology in the sector has evolved bringing better and cheaper options to the market.’
In its statement last week, Oil Search argued that is has already brought down its tariffs on the project and has delivered other benefits to PNG Power too: ‘In 2018, Oil Search lowered the project’s power price significantly at the request of PPL.’
‘Ever since, the company has continued to work closely with all stakeholders, including lenders, grant funders and contractors, to ensure an extremely competitive levelized cost of power that will result in material savings to PPL. In the process, Oil Search has attracted grants from the international community to the benefit of PPL worth over USD40 million (K140 million).’
Industry opposition
PNG Biomass plantation. Credit: PNG Biomass
The move by PNG Power to renegotiate PPAs has not been met with enthusiasm by the country’s power producers.
‘The intention of the utility to renegotiate the price defined in a contract is problematic for IPPs; it will also have sector wide ramifications,’ David Burbidge, Chair of IP3, the peak body for PNG’s IPPs, warned back in April.
‘Setting the precedent that PPL can reopen PPAs at any time to renegotiate prices will be devastating for the power generation industry in PNG.’
Certainly, the risk to PNG Biomass is substantial should its PPA be terminated or substantially renegotiated.
Even before financial closure on the project, PNG Biomass claims it has already invested K18 million into surrounding communities ‘in the form of land rentals, employment, labour, contracts, sponsorships and much more’. The process of planting 20 million trees on 16,000 hectares of land is already well advanced, with 300 landowners and locals already employed on the project.
‘We have designed this project to be part of powering PNG and empowering our rural communities. We remain optimistic and shovel-ready to deliver.’
PNG Biomass has also been seen as helping PNG achieve its stated national goal of moving to 100 per cent renewable energy by 2050, and is also part of Oil Search’s own moves to mitigate its carbon footprint.
‘The company is committed to work with the PNG Government to provide sustainable opportunities that directly align with the government’s national development priorities in electrification, energy mix diversification, renewable energy, climate action under the Paris Agreement, reforestation, and sustainable inclusive economic growth’, Oil Search’s statement said.
With so much at stake, talks between PNG Power and PNG Biomass seem likely to continue.
‘We have designed this project to be part of powering PNG and empowering our rural communities. We remain optimistic and shovel-ready to deliver,’ said Leon Buskens.
Wonder what happened to this project. Is it still running under Santos?
Indonesia & power companies there need to get the Molten Salt Reactors manufactured and installed & now wait for the bureaucrats to study them for the next 10 years.
Burning bio-mass is dumb & so isn’t burning coal to produce electricity. Indonesia & power companies need to get the Molten Salt Reactor manufactured & start installing them.