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IOA News Letters Summary

George J. Y. Hsu Director, Center for Energy Studies Chung-Hua Institution for Economic Research, Taiwan, R.O.C. and Member of IOA

The Multiple-Product Ocean Thermal Energy Conversion Plan (MPOP) is a synthesized energy and resource project. The core of the MPOP project is Ocean Thermal Energy Conversion (OTEC).  Seawater is an unlimited and continuously renewable natural energy resource and could be used for base-load electricity production.  The products of MPOP include power generation, mariculture, desalinated water, air-conditioning, refrigeration and agriculture.  Because of the "NIMBY" (Not In My Back Yard) difficulty in developing new power units in recent years, Taiwan is facing a power shortage problem during summer peak periods and alternative power sources are needed.   OTEC is considered one of the possible alternatives and thus its economic effects should be evaluated.

A study has been made to evaluate the benefits and costs of MPOP in Taiwan.  For the study, the following hypothetical specifications are used for economic analysis.   A 5MW pilot OTEC power plant, which has a land-based and close-cycle design, is specified to be built at Chung-Yuan in eastern Taiwan.  The selected heat exchanger is to be of plate-type. The total length of the FRP cold water pipe is 4km and the diameter is designated to be 2.5m.  Starting from 1993, this OTEC plant is assumed to require six years for site preparation (e.g., land acquisition, legal process, etc.,) five years for construction (i.e., to be operated by the end of year 2003), and to have a 25-year economic life cycle (until year 2028).  The total area of Chung-Yuan which is designated for MPOP is about 100hc.  Of this, 15hc are designated for the OTEC power plant, 55hc for mariculture, and 30hc for agricultural use.

As for the OTEC by-products, we took small abalone (which is called "juou kong" in Chinese) and abalone as examples for mariculture, a 500-room hotel for evaluation of the air-conditioning benefits, and the oriental lily for the estimation of agricultural benefits.

For the economic analysis, the typical Levelized Unit Energy Cost (LUEC) method is utilized to evaluate the OTEC power generation cost, and the conventional Net Present Value (NPV) method is used for evaluating the benefits of the OTEC by products.

Some financial assumptions are made as follows:

strt174 The foreign exchange rate of NT$ to US$ is 25.5 : 1;
strt174 Expected inflation rate is 4.5%;
strt174 Interest rate for the construction expenses loan is 9.5% for NT$ and 8% for US$;
strt174 Market nominal interest rate is 10.5%;
strt174 Depreciation rate is 0.874%;
strt174 Tax rate is 0.03%.

According to the above assumptions, and with all of the costs and benefits presented in 1992 real terms, the real fixed charge rate for construction costs is 7.423%.  The annual levelized construction cost is thus calculated as NT$340,689,000.  The annual operation and maintenance cost is estimated to be NT$14,321,000.  The total cost for the power plant is therefore NT$355,010,000.  Based on the design concepts for the plant, the levelized generated power is forecasted to be 30,346,830 kwh annually.   The unit cost of power generation is thus NT$11.7 per kwh in 1992 real terms for a 25-year life expectancy.

As for OTEC by-products, taking a 6% real discount rate, the annual benefits would be NT$10,605,000 for abalone (which is equivalent to NT$0.3493 per kwh) and NT$20,571,000 for small abalone (which is equivalent to NT$0.678 per kwh).  Concerning air-conditioning, it would save NT$1,635,000 annually (which is equivalent to NT$0.054 per kwh), if we applied MPOP instead of conventional technology to produce air-conditioning.   As for agricultural aspects, the annual benefits would be NT$3,784,000 for oriental lilies, which is equivalent to NT$0.1247 per kwh.  Lastly, for desalinated water, the cost is about NT$25 per cu m according to PICHTR (1990), which is much higher than the current production cost of NT$8 per cu m in eastern Taiwan.  Because of the sufficient water supply in eastern Taiwan, there seems to be no significant benefits from desalinization of water.  Based on this analysis, the total benefit for the by-products is NT$1.21 per kwh in  1992 real terms.

In addition to the above economic analysis, consideration must also be given to environmental and social impacts. Since it is difficult to quantify intangible costs and benefits for the environmental and societal effects of MPOP, we describe these impacts through a qualitative analysis.  Generally speaking, among the alternatives for power generation, OTEC has very little impact on the environment.  There ae some negative environmental effects from OTEC during the plant construction period.  For example, the deployment of the cold water pipe could have some negative effects on the underwater topography and marine ecology.  The discharged cold water and working fluid overflow of the close-cycle system could also have long-term impacts for the environment. Futhermore, the power plant construction and mariculture facilities could potentially disrupt the natural scenery.  As for the social benefits, the development of OTEC is a way to increase indigenous energy resources and strengthen Taiwan's energy self-reliance.  Being a new energy alternative, OTEC could diversify the risks of energy supply as a whole.  In addition, the cold water discharge will create artificial upwelling and attract large amounts of marine life.  OTEC development could also reduce social costs by mitigating some of the environmental protests, such as rallies against nuclear or fossil fuel power.

To sum up the results of this analysis, given appropriate assumptions, it shows that the total levelized unit cost for the OTEC power plant is NT$11.7 per kwh and the total benefit for the by-products is NT$1.21 per kwh in 1992 real terms.  These results are summarized in Table 1.


Annual Generated Power (kwh)

Costs (thousand NT$)
Unit Cost
(thousand NT$)
Unit Benefit($/kwh)

Power Generation:


¡@ ¡@ ¡@ ¡@
Construction ¡@ 340,689 ¡@ ¡@ ¡@
O & M ¡@ 14,321 ¡@ ¡@ ¡@


¡@ 355,010 11.7 ¡@ ¡@


¡@ ¡@ ¡@ ¡@ ¡@
Abalone ¡@ ¡@ ¡@ 10,605 0.3493
Small abalone ¡@ ¡@ ¡@ 20,571 0.6780
Air-conditioning ¡@ ¡@ ¡@ 1,635 0.0540
Oriental lily ¡@ ¡@ ¡@ 3,784 0.1247


¡@ ¡@ ¡@ ¡@ 1.2100

Table 1 Summarized Benefits & Costs of   MPOP at Chung Yuan in Eastern Taiwan.

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