Quantifying social costs of coal-fired power plant generation

Abstract

Coal has been dominating the electricity supply in Indonesia, especially in long-term power generation from fossil energy. This dominance is due to lower production costs in coal-fired power plant generation. However, this low price is only based on monetary costs and ignores the social costs. Therefore, this study aims to quantify the social costs of coal-fired generation. Using QUERI-AirPacts modeling, the present study quantifies the social costs resulting from the Tenayan Raya coal-fired generation in Riau, Indonesia. It includes the levelized cost of electricity and health costs into the generation costs. After that, this study calculates the net present value, internal rate return, and project payback period. The study found that as much as $50.22/MWh was the levelized cost of electricity. While $15.978/MWh or $0.015978/kWh was the social cost that was not included in the generating cost. At the electricity production level of 1,380,171.69 MWh per year, there is an expected extra cost of $22,052,383.30 uncounted when externalities are included. For instance, the net present value (NPV) is lower and even negative when external costs are included (–$24,062,274.19) compared to $176,108,091.52 when externalities are not considered. The internal rate of return (IRR) is much higher when the social costs are not considered. The payback period is also shorter when the social costs are excluded than when the externalities are included. This global number indicates that the inclusion of external costs would impact NPV, IRR, and the payback period. This result implies that the government should internalize the external cost to stimulate the electricity producers to conduct cost-benefit analyses. The cost-benefit analysis mechanism would lead the producers to be more efficient.