Micro-Price Optimization: An Industrial Case Study for Coal-Fired Utilities

"The supply chain for coal-fired power stations involve a multi-stage network of mining units, preparation plants, blending facilities and transportation systems. Attempts to optimize the supply chain have historically been difficult due to the lack of communication/coordination between the various groups involved in coal production, transportation and utilization. In light of this issue, a new approach for globally optimizing the coal supply chain called Micro-Price Optimization has been developed to simplify the optimization problem and to provide coal producers with fundamental insight needed to improve the profitability of their operations. This fundamental concept assigns unit values to each particles (or groups of particles) passing through production units. Optimization occurs whenever the maximum tonnage of positive value particles are recovered and passed to market, while the minimum tonnage of negative value particles are recovered. Elements considered by the concept include factors such as target boiler cost/efficiency, waste disposal costs, coal quality parameters, emission penalties, transportation charges, or other quantifiable impact factors. This article reviews the basis for the micro-price concept and provides a detailed industrial case study involving the determination of optimum coal qualities that need to be supplied by mine operators to feed a coal-fired power station. INTRODUCTION The performance of coal preparation plants have long been known to play an important role in determining the overall profitability of mining operations. This significance is due to the fact that the misplacement of just 1 ton/hr of clean coal to reject resulting from poor plant performance can represent nearly $300,000 per year in lost revenues for a mine producing a steam market coal (i.e., 1 ton/hr x $50/ton x 6,000 hr/yr = $300,000/yr). This loss can be even more pronounced, occasionally approaching $1 million per year for each 1 ton/hr of misplaced clean coal, for operations producing high-quality coking coal products sold into the premium metallurgical market (i.e., 1 ton/hr x $150/ton x 6,000 hr/yr = $900,000/yr). Detailed economic studies indicate that improvements in plant yield resulting from increases in organic efficiency have one of the largest overall impacts on mine revenue when compared to other cost centers within the mining operation. One of the first studies to show this important financial impact was reported by Norton-Hambleton Consultants (Norton, 1979). Their study indicated that an unfavorable change in plant efficiency was second only to coal transportation in terms of its impact on profitability, while an unfavorable change in the cost of underground mining was a distance third. This longstanding realization has continued to provide a strong financial incentive for coal producers to optimize the separation efficiency of their coal processing and blending operations."