Case study 10.1 Tongonan Geothermal Power Plant, Leyte, Philippines

Source: ESCAP Environment and Development Series, Environmental Impact Assessment, Guidelines for Industrial Development, p. 52.

Notes: The case can be used to show how environmental aspects have not been costed

The complete case study, of which this is a part, was adapted by Somluckrat Grandstaff from materials prepared by Beta Balagot, and may be found in Dixon and Hufschmidt (1986). It presents the analysis of the cost-effectiveness of various options for disposing of wastewater from a geothermal power plant built on the island of Leyte in the Philippines. The decision to build the power plant and to tap the local geothermal energy had already been made; it was necessary to decide which means of wastewater disposal from the plant would protect the environment in the most cost-effective manner.

Seven ways of disposing of wastewater are considered in the full case study; the costs of building and operating each are different and each has a different effect on the environment. The analysis examines each option in turn, determining its monetary values and, where possible, its environmental effect.

Not all of the effects on the environment can be quantified and given a monetary value, but those which cannot be quantified should not be ignored in the analysis. These effects are listed in a qualitative manner and taken into consideration when the final decision is made. In this way the decision maker or project designer is presented with a range of information on the actual costs of construction and operation of each option as well as the various effects of each upon the environment.

While each option is subjected to a complete benefit-cost analysis, a more complete presentation would include a benefit-cost analysis of the entire project including the differing options for design of the power plant as a whole as well as those for disposing of wastewater. In this way the economic worth of the entire project, not just one part of it, could have been explored and then compared with other ways of producing electricity.

Background information

In the past the Philippines has been highly dependent on imported crude oil to meet its energy requirements and so has adopted an energy policy which will promote various forms of domestic energy production. These include nuclear energy, hydroelectric power, coal, petroleum, natural gas, and geothermal energy. Geothermal energy is derived from the natural heat of the earth. With existing technology only geothermal reservoirs associated with recent hot intrusive rocks and with vulcanism can be harnessed for the generation of electrical power. High temperature geothermal energy is found in two forms: dry-steam fields, as seen in the geysers of the United States, and hot-water (wet) fields, as seen at Wairakei and Broadland in New Zealand. At present, the Philippines is exploiting only the wet fields, which produce a mix of steam and water.

Exploration at Tongonan in Leyte started in 1973, and in 1978 a potential productive capacity of 3000 MW of geothermal electricity was confirmed. This case study considers Phase 1 of the Tongonan Geothermal Power Plant (TGPP) which has a capacity of 112.5 MW. This power station relies on a wet-steam geothermal resource and produces residual liquids and gases. These have chemical and thermal characteristics that may affect the environment adversely; the degree to which they might do so depends on the rate and frequency of discharge and the method of disposal.

Environmental dimensions

An environmental impact report prepared by Kingston, Reynolds, Thom, and Allardice Limited (KRTA), consultants to the Ministry of Energy and the Philippine National Oil Corporation, indicated that the major adverse effects on the environment would be caused by the disposal of the geothermal waste fluids. The fluids from the Tongonan wells contain more dissolved solids than those from most other geothermal fields; these include chloride, silica, arsenic, boron, and lithium. Arsenic, boron, lithium, and mercury all have known toxic effects on plants, animals, and people, and the full case study examines these effects. The indiscriminate disposal of geothermal wastewater would have severe effects on health and productivity and, to minimize these, the government has set limits to its discharge. Concentrations of arsenic, boron, and lithium in water from the Tongonan wells were found to exceed the limits recommended by the National Pollution Control Commission.

Although the full case study examined the costs and benefits of all seven methods of disposing of the wastewater, our abbreviated version will outline the analysis of only four of them; the analysis of the remainder may be found in Dixon and Hufschmidt (1986).

The data

Seven options for disposal for the wastewater of the plant were proposed:

1. Reinjection

2. Discharge into the Mahiao river without treatment

3. Discharge into the Mahiao River after treatment for the removal of arsenic

4. Discharge into the Bao River without treatment

5. Discharge into the Bao River after treatment for the removal of arsenic

6. Discharge at sea without treatment through an outfall at Lao Point

7. Discharge at sea without treatment through an outfall at Biasong Point.

In option 1, geothermal fluids from separator stations would be piped to reinjection wells within the field. At full capacity the 112.5 MW power plant would need seven such wells. A standby disposal system consisting of thermal ponds and other contingency structures would also be needed. They would be used while the reinjection system was temporarily shut down either for maintenance or for some limited emergency. When the system is shut down for longer periods the stand-by scheme would permit the discharge of chemically treated waste fluids into the river.

Options 2 and 3 involve the direct discharge of waste fluids into the Mahiao River. Before being discharged, the fluids would be retained for a few days in a thermal pond where they may be treated with chemicals to remove arsenic.

In options 4 and 5 waste fluids would be discharged into the Bao River through a pipeline. A thermal pond would also be required for cooling the fluids before releasing them into the river. Option 5 would entail treatment of the fluids in the pond in order to precipitate the arsenic.

Options 6 and 7 involve the selection of an outfall at sea through which to discharge the wastes. Two possible sites have been studied: Lao Point and the Biasong Point. An outfall at the former would involve 22 km of pipeline and at the latter 32 km.

Costs and environmental effects of the options

Each of the seven options has different capital and operations, maintenance, and replacement (OM&R) costs, as well as different effects on the environment. They are briefly described here and 1980 prices are used in the analysis.

1 Reinjection. The construction of seven reinjection wells and the stand-by waste disposal system will take two years. Each well will cost P10 million, or P70 million in all. The construction of a system of pipelines for the separator stations to the reinjection wells will cost P20 million. The stand-by waste disposal system will involve another P17 million. The annual operation and maintenance costs will total P104 million.

Although reinjection is seen as the most ecologically sound method of disposal, it is not yet a well-established technology. In areas where water supplies are drawn from underground aquifers, as in the site of this project, it is important to know the local groundwater hydrology and to monitor carefully any effects of injecting geothermal wastewater.

Reinjection may also lower the temperature and hence the potential energy of the sub-surface geothermal water. In addition, the geothermal liquids at Tongonan contain large amounts of dissolved solids like silica which may clog the reinjection pipes. Such problems could be dealt with by adding chemicals to keep the solids in solution, but the effect of these chemicals may be to create other environmental problems.

2 Discharge into the Mahiao River without treatment. The construction of a thermal pond would take one year and cost P7 million. Operation and maintenance costs are estimated at P43,300 per year.

High levels of arsenic and boron in the untreated waste fluids discharged into the river would affect adversely the productivity of 4,000 hectares of rice fields served by the Bao River Irrigation System. If the irrigation waters are heavily polluted, farmers will probably not irrigate their crops; the consequence is a severe reduction in productivity. Irrigated rice fields yield an average of 61 cavans (1 cavan = 50 kg) per hectare against a yield of 37.9 cavans from unirrigated fields (NIA Region 8 Office, 1980). Production would also be reduced to one crop a year. However, since the rice produced in the Bao River Irrigation System is only a small part of the regional total, it can safely be assumed that these changes in production will not affect local rice prices.

Based on the cost of production data for the area over the 1975-78 period, the nett return per hectare for irrigated rice was estimated at P346 and for unirrigated rice P324, less if irrigation water were made unusable for the entire 4,000 hectares, the economic loss would be as follows:

4,000 ha × P346 per ha × 2 crops = P2,768,000

One crop of unirrigated rice could be grown, yielding the following nett return:

4,000 ha × P324 = P1,296,000

The annual loss, therefore, would be the difference, P1.47 million.

An added environmental cost of discharging untreated wastewater into the river system is the risk to human health and livestock. To evaluate this, the cost of a water purification system that will render the river water safe for domestic use and for drinking was also estimated. The construction of such a system would cost P50 million and cost P15 million annually to operate and maintain.

Estimating the costs to the freshwater ecosystem is more difficult, since there are no data on the economic value of the fishing along the river. However, another environmental cost which can be estimated will be the pollution of the delta, which will affect the marine fisheries of the area. The delta or mangrove area of Ormoc Bay plays an important role in sustaining productivity in the adjoining fishing grounds because it is the feeding and spawning ground of several species of fish.

Fishing is an important industry in the Ormoc Bay and Camotes Sea area. Based on 1978 figures, the nett return from fishing was estimated at 29 percent of the gross return from the catch. Although the annual value of the fish catch varied from year to year depending on the actual size of the catch and on market prices, a gross value of P39.4 million was taken as representative. If this fishery was lost as a consequence of heavy-metal contamination, the annual economic loss would be about P11.4 million (P39.4 × 0.29). It is assumed that the capital equipment could be sold or shifted to other areas, but that the lost catch would not be replaced by additional fish catches elsewhere.

3 Discharge to Mahiao River after treatment. A thermal pond will be constructed at a cost of P7 million and completed in one year. In addition to the regular operation and maintenance costs of the pond itself, there will be further costs for the treatment of arsenic. These will amount to P4 million per year for each of the 15 producing wells. There are no scientific studies of the interactive effects of boron and arsenic on a rice field: hence there is no basis at this point for determining whether or not the effects on productivity will be less severe if the arsenic is removed. There may also be some residual effects on the aquatic ecosystems, but these are not identifiable.

Capital costs for a water purification system are estimated at P25 million and annual operating and maintenance costs at P7.5 million.

4 Discharge of untreated effluent into the Bao River. A thermal pond will cost P7 million. A pipeline some 6 or 7 km long would take two years to build at a cost of P13 million. Operation and maintenance costs will be P6.2 million a year. Since the point of discharge will be downstream from the diversion for irrigation, the area of the Bao River Irrigation System will not be affected by the waste fluids.

A water purification system will be needed to serve the residents along the reaches of the Bao River below the point of discharge. Its construction will take two years at a cost of P15 million. Annual operation and maintenance costs are estimated at P4.5 million. The information on fishery productivity used in option 2 will be used in this option to estimate the costs to the marine environment.

5 Discharge of treated effluent into the Bao River. The capital costs will be the same as in option 4. However, the operation and maintenance costs will be higher. The annual cost of treating the waste fluids for arsenic is estimated at P4 million per producing well. The cost of establishing a water purification system will be lower when the fluids are treated for arsenic. The capital cost is estimated at P7.5 million, but the time needed for construction remains the same. Operation and maintenance costs of P2 million are expected.

6 Discharge into the sea with an outfall at Lao Point. This scheme will need a 22 km pipeline which will take two years to build at a cost of P45 million. Its annual operating and maintenance cost will be P41.8 million. The disposal of wastewater at sea may affect the productivity of coastal fishing as well as the commercial fishing in Ormoc Bay and the Camotes Sea. Not enough information is available, however, to quantify these effects.

7 Disposal at sea with an outfall at Biasong Point. For this option a 32 km pipeline would be constructed. This would take two years and would cost P65 million. Operation and maintenance costs would come to P60.8 million per year. The productivity of marine fishing may be affected. In estimating the effects of options 6 and 7 on marine productivity, hydrological and dispersal patterns in Ormoc Bay and the Camotes Sea should be taken into account.

Analysis of the options

There is enough information available to carry out an analysis of some of the major environmental effects of the various options. While the overall approach is that of cost effectiveness analysis, individual effects are usually valued using direct productivity changes based on market prices.

The assumption is therefore that market prices can be used to value agricultural and fishery production: that is, that there are no major distortions requiring the use of shadow prices. This may or may not be correct for the Philippines, but in this example no price adjustments are made. A similar assumption is made in the case of imported capital equipment used in the disposal systems and for petroleum products used to power the pumps and other equipment involved. Again, if major distortions like subsidies, foreign exchange controls, or capital rationing exist, then shadow prices would be needed.

The present value of the direct costs and the associated environmental costs for each of the proposed wastewater disposal schemes are calculated with a discount rate of 15 percent and an estimated project life for the geothermal power plant of 30 years. Table 10.1 presents the calculations of direct capital, OM&R costs for options 1, 2, 3, and 6. Table 10.2 presents the calculation of environmental resource costs for the same options.

The results of these calculations for all seven options are summarized in Table 10.3, without including the values of environmental costs. Option 4, in which untreated waste fluids are discharged into the Bao River, would have been chosen because it entailed the lowest direct cost. Once the environmental effects are valued and added to the direct cost, the total direct and indirect measurable costs are obtained.

Options 3, 5, 6, and 7 can be rejected because they are all relatively costly compared to options 1, 2, and 4, among which the choice would now seem to lie. If the decision is based strictly on measurable costs, then option 4 is the cheapest scheme. However, both options 4 and 2 may seriously contaminate the marine ecosystem with unknown and unquantifiable results. Option 2, which calls for the discharge of untreated waste into the Mahiao River, is rejected because not only does it pollute, like option 4, but it is also more expensive. In contrast, the main non-quantifiable effect of option 1 is the possible loss of energy from the lowering of the steam temperature. Hence reinjection becomes the most desirable method, although its total measured costs are slightly higher than for option 4. In this case a slightly larger measured cost in option 1 is preferred over the greater environmental uncertainty inherent in option 4, the least cost alternative.

Further Reading

J. A. Dixon and M. M. Hufschmidt, eds., Economic Valuation Techniques for the Environment: A Case Study Workbook, Johns Hopkins University Press, Baltimore, 1986.