You get what you pay for: the true cost of water?

Despite the assumptions made by many analysts and environmentalists, coal remains a staple of the modern economy, particularly in Asia, and there are few signs that use of this key fuel commodity is decreasing. Throughout 2017, imports of thermal coal to South Korea, Japan and India all increased, with around 1.14 billion metric tons unloaded at ports and harbors globally.

But what is meant by a metric ton of coal? In fact, the properties of coal vary so significantly that its diverse types are arranged into grades, calculated according to calorific value, as well as sulfur, ash, and moisture content. The variation between these grades can prove dramatic – and naturally, so can the cost.

Hidden inefficiencies

It is easy to understand why Indonesian Coal Index (ICI) 5, the lowest grade, appears so commercially attractive. In theory, a purchaser can get three metric tons of ICI 5 coal, totaling 10,200 kcal, for less than the cost of a single metric ton of ICI 1 coal, totaling 6,500 kcal.

However, ICI 5 coal requires a power plant that can handle the high moisture content, which is more expensive to build compared with a power station intended for higher quality coal. Even so, on paper it seems this is still justified; ICI 5 coal means paying less for the coal and getting more kcal, and kcal is what in the end generates the kWh. But, this belies the true cost of ICI 5 coal.

High moisture content coal presents a challenge for all types of unloaders, including screw-type conveyors, bucket chains and grab cranes. It has a mud-like consistency, causing clogging problems and adding handling time at every stage of the value chain, all the way into the furnace itself.

With a moisture content of up to 50 percent, ICI 5 coal has the largest transportation costs of all, as although water cannot generate any power, it still takes up considerable cargo space. To have the same kcal as ICI 1 coal (6,500 kcal) an operator has to transport 1.9 times more ICI 5 coal. Furthermore, once the coal reaches the destination, additional costs are incurred before it can be burned, as the operator has to handle almost twice as much coal to generate the same kcal.

It is also worth mentioning the greater environmental impact that ICI 5 coal imposes. This is not only as a result of process inefficiencies, but from increased maritime transportation demands, which come with their own environmental load and further raise the pollution per kcal ratio.

The true cost of poor quality coal

In 2014, Siwertell published detailed calculations about the true cost of buying low-grade coal and it still stands by these figures. It considered the following example: a power station importing two million metric tons of coal per year, the value of ICI 1 coal stood at around USD 146,750,000, compared USD 46,960,000 for ICI 5 coal. This hinted at a saving of almost USD 100,000,000, making ICI 5 look like the best deal. But this figure was completely unsupported when operational calculations and net profitability were considered and the actual kcal purchased in relation to the volume handled was compared.   

On the contrary, Siwertell estimated that ICI 1 coal delivered the best deal, with annual cost benefits varying from USD 7,200,000 to up to USD 31,500,000. Even calculations taking into consideration the ash content of the coal supports the case for high-quality, high kcal coal.

The calculations made in 2014 were based on a targeted kcal per year figure; ICI 5 coal could not even be considered, because the number of unloading days required to meet this figure exceeded the number of days in the year.

Even thou the cost for coal as well as the cost for transportation has been changed the outcome is the same, low kcal coal has in addition to negative cost impact also a big negative impact on the environment due to its double handling.