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Power Sector Economics & Planning-2-July-Dec-14

Power Sector Economics & Planning-2-July-Dec-14

Section A (20 Marks)

Write short notes on any four of the following

1.      Concept of Tariff Regulation

2.      Environmental Dangers of Non-renewable Energy Sources

3.      Role of Central Agencies

4.      Need for Good Quality Forecasting

5.      Adoption of Standards


Section B (30 marks)


(Attempt any three)

1.      Evaluate the concept of Tariff Determination Techniques.

2.      Recognise the concept of energy. Give an overview of Energy Technology.

3.      Discuss about Clean Development Mechanism.

4.      Identify the costs of unreliable quality and supply.


Section C (50 marks)


(Attempt all questions. Every question carries 10 marks)


Read the case “First Nations and Renewables” and answer the following questions:


Case Study: First Nations and Renewables

The Oujé-Bougoumou Biomass District Heating Facility (Quebec, Canada)

The Oujé-Bougoumou community is Cree Nation village in northern Quebec built between 1991 and 1995. The community planning and construction efforts were guided by a traditional philosophy of sustainable development. Among other innovations, the community installed a state-of-the-art biomass fuelled district heating system to provide space heating and domestic hot water for the entire village, using waste sawdust from nearby sawmills as a fuel. The new village, in general, represents a translation of traditional indigenous values into the context of contemporary technological possibilities. The Oujé-Bougoumou community received several noteworthy awards from the international community for its accomplishments and vision. The key features of the distributed heating system are:

  • Installed in 1993;
  • 135 homes and 16 public buildings;
  • Homes rated above the canadian r-2000 building energy efficiency standard;
  • Two biomass boilers, plus oil backup boilers;
  • Distribution system consists of 600 m of steel pipe, 2,300 m of plastic pipe (pex);
  • Typically consumes 3,000 to 4,000 tonnes of sawdust per year;
  • Costs c$25,000 per year in fuel for the entire village; and
  • Energy meters are installed at each household for billing purposes

The main contributors to the success of this project were:

  • Oujé-Bougoumou Community: investigated how to best use its funds for constructing a new village, and wanted to achieve a more sustainable community by using renewable energy.
  • Natural Resources Canada (NRCan): Government staff, under the direction of Michael Wiggin, had begun to develop some considerable expertise in the area of district heating and district cooling having been involved in a number of such projects in Canada. NRCan was contacted for technical assistance by the Cree Nation, and also provided funding.
  • Hydro-Quebec electric utility: Hydro-Quebec generates, transmits and distributes electricity in Quebec. Hydro-Quebec was strictly a financial contributor to this project.
  • FVB Energy: FVB is an international engineering firm in the energy field. In this project, FVB provided services such as market assessment and feasibility analysis, conceptual and detailed design of the whole district heating system and the commissioning.

The Decision-Making Process

The values of the community of Oujé-Bougoumou are very much focused on sustainability and the decision-making in the district heating project, as well as the development of the whole village, was governed by such principles.

The community first began to talk in 1986, in very conceptual terms, about the possibility of a district heating system fueled by biomass. They had seen such a system installed on a military base and it seemed much more economical. Furthermore, the biomass fuel, sawdust, was readily available in the region.

A first pre-feasibility study was performed by a management and engineering firm with which the community had had some previous contacts. The results of this initial study suggested that the cost of installing such a system would be prohibitive.

This is when they contacted NRCan for technical assistance. The NRCan team at the time was quite familiar with the latest technologies available in the field and was in contact with various professionals who possessed up-to-date expertise. The work of the NRCan team helped the community leaders take a more informed decision.

It is important to say that the decision to go forward with the project was governed by sustainability principles and not just short-term economic return. Such things as environmental impacts, community development, employment generation, impacts on the local housing program and long-term generation of income for the community were all part of the decision process. It was the interest in these potential benefits to the community, which was the driving force behind the community's exploration of the feasibility of such a system.

The Benefits

The main benefit of the biomass solution came from local ownership and substantial savings in operating costs. Community members pay a defined amount of money for their energy services.

By reducing the operating costs of heating homes, a greater portion of the funds received for energy services becomes available for the purpose of future housing construction. An important contribution is thus made to the community goal of self-sufficiency in the area of housing. Other benefits of biomass district heating for the community are:

  • Money spent on energy services remains in the community, rather than being paid to external companies. Future community development projects could thus be financed internally.
  • The project offers long-term hedging against increases in heating costs, since conventional energy costs are on the rise.
  • Employment creation within the community for plant operation, delivering the biomass fuel and reading the meters. There was no employment associated with conventional heating.
  • Emissions from the biomass system will reduce the production of nitrogen oxides by approximately 35 percent or 160 kg and carbon by 200 tonnes the first year compared with an oil-fired system.


The total initial cost of the biomass district heating system was approximately C$2.4 million, with approximately half of that amount spent on the distribution system. The average annual cost of the 3,000 to 4,000 tonnes of biomass fuel is C$25,000 and the oil backup boilers are hardly used at all.

At the early stage of the project, the community submitted a request to a federal energy efficiency program for funds to carry out an economic feasibility study of such a system in the new village. However, because the new Oujé-Bougoumou village was to be situated near an existing hydroelectric grid, it was deemed ineligible for program funding.

The community then decided that it had an obligation to contribute to its own future development by dedicating a substantial amount of resources from its own funds: a grant that was part of a socio-economic development fund, received as an agreement with the federal government, which could be used at the discretion of the community.

The community was also able to secure additional important contributions from NRCan and Hydro-Quebec. NRCan, besides its significant technical assistance, contributed approximately C$100,000 to finance the engineering costs. Hydro-Quebec participated with a contribution of approximately C$300,000 for the system. The amount was based on the utility’s avoided cost from an improved grid connection for the extra power that would have been required if electric space heaters and water heaters had been chosen instead of the biomass district heating system.

Again, sustainability was key when planning the financing of the operational costs of the district heating system. The community of Oujé-Bougoumou has put up a revolving fund in order to finance its housing needs in a sustainable way. This revolving fund was designed to finance the total construction cost of five to seven new houses annually. The payback process of the revolving fund is the following:

  • The owner is only required to pay back 50 percent of the total construction cost of his house,
  • The Oujé-Bougoumou community housing program requires the owner to pay 25 percent of his revenues to pay for the loan as well as the other housing costs, including energy supply, until the loan is paid back.

One can see that the rate of reimbursement of the fund is primarily a function of the owner’s income and the energy cost. The biomass system, which has operating costs that are only a fraction of that of a conventional energy solution, leaves more money in the fund for other future community developments (including the expansion of the district heating system). Again, this was certainly the major benefit of the biomass solution.

Comparative costs of producing 1.0 MW of heat from different energy sources



The Oujé-Bougoumou leaders and elders achieved their goal of more a sustainable community at various levels. The biomass district heating system was a very important tool in achieving this goal. However, the community’s vision does not stop here as they intend to push the contribution of renewable energy further in a near future. They will soon be interviewing potential partners for a run-of-river hydro project near the village. The plan, at this early stage, is to identify a partner to finance the project on the community’s land and share the surplus revenues from power sales to Hydro-Quebec with that partner.




1.      What are the key features of the distributed heating system?

2.      Throw some light on the natural resources of Canada.

3.      How was the biomass district heating system financed?

4.      Discuss the benefits of biomass district heating for the community.

5.      Compare the cost of producing heat from different energy sources.

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