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
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.
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.
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).
Seven options for disposal for the wastewater of the plant were
2. Discharge into the Mahiao river without treatment
3. Discharge into the Mahiao River after treatment for the removal
4. Discharge into the Bao River without treatment
5. Discharge into the Bao River after treatment for the removal of
6. Discharge at sea without treatment through an outfall at Lao
7. Discharge at sea without treatment through an outfall at
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
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
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 =
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
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
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
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
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.
J. A. Dixon and M. M. Hufschmidt, eds., Economic Valuation
Techniques for the Environment: A Case Study Workbook, Johns Hopkins
University Press, Baltimore,