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Hungary: Pannongreen Pécs Fuel Conversion Project
(Prototype Carbon Fund)

3 Project Documents

Helping To Meet The Challenges Of European Union Accession Through Conversion To Renewable Fuel

In Central and Eastern European towns and cities, blocks of flats, individual dwellings, hospitals, schools and other buildings receive their heat supply from “district heating systems“ that involve centralized boilers connected to a distribution pipe network. District heating is the most economical way to provide heat to high-density urban areas, and is the dominant form of space heating in many cities.

The Pannonpower Group’s hard coal-fired CHP plant in the southwest Hungarian city of Pécs, supplies the country’s second largest district heating network with 2,250 terajoules of heat per annum, and provides an additional 550 gigawatt of electricity annually to the grid. Pannonpower faces major investment requirements since the plant can no longer continue operation in its current form and still meet the tightening limits on sulphur dioxide emissions from 2005.

Pannonpower evaluated a wide range of alternatives including different mixes of fuels and technologies: scrubbers, “clean“ coal, fuel switch to natural gas and fuel switch to natural gas and biomass. Without carbon finance, the baseline study indicated that the most financially attractive alternatives would have been either continuous operation on coal with a scrubber or fuel switch to natural gas— natural gas being marginally more expensive—while fuel switch to biomass came a distant third.

Biomass fuel is available in the region in the form of substantial excess firewood residues and sawdust. Biomass for the project will be supplied by Forest Stewardship Council certified forests under long-term fuel supply contracts with two state-owned, regional forestry companies.

With the long-term fuel supply contracts with the two forestry companies, and an Emission Reductions Purchase Agreement with the PCF for the sale of 1.2 million tons of carbon dioxide equivalent emission reductions from 2008, financing for the conversion of one of four blocks from coal to biomass was secured from Hungary’s largest commercial bank. Pannongreen, the project company, will be the owner and operator of the biomass block. Two other blocks will be converted to natural gas. Commercial start is scheduled for September 2004.

The biomass block will have a capacity of 65 megawatts thermal and 49 megawatts electric, with annual generation of 160 terajoules heat and 334 gigawatt electric.

Through the use of carbon financing to kick-start the process, Pannonpower will assure a continuous heat supply in a way that will benefit all parties. Due to improved efficiency of the refurbished plant, the plant will be able to maintain its output with a smaller capacity and lower fuel use. As for the local and global environmental benefits, the company should now be able to comply with the new European Union environmental standards.

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