Use of biomass for power- and heat-generation possibilities and limits

Ecological Engineering 16(2000)S41–S49Use of biomass for power-and heat-generation:possibilitiesand limitsWolf Hatje *,Matthias Ruhl 1Department of Coporate Strategy ,PreussenElektra AG ,30457Hanno 6er ,GermanyAccepted 14December 1999AbstractAlthough biomass covers 10%of the world’s energy consumption,its share in industrialised countries represents only niche-markets with alternating sizes.Due to its huge potential,the best cost-efficiency inside the renewables and the corresponding positive role for CO 2reductions programs,the use of biomass for energy purposes is expected to increase.As there are substantial differences in the markets for forestry goods and energy,one of the most challenging tasks is to integrate both markets by new and innovative organisational schemes.In order to get a secure and low-cost supply of fuels,it is a necessity for potential fuel suppliers to take part in the equity risks of biomass-plants.Following the developments on the North American energy markets,the world’s energy markets will be liberalised,although there are differences as to timing and path of petitive application of biomass will enter in energy-economic well-founded markets.Environmentally and politically stimulated markets as well as markets for green /biomass-energy offer additional applications for biomass.Any future support-model for renewables must have a sound market-orientation.Adapted to the scale and scope of supply,the design for biomass projects should be uncomplicated as possible and as innovative as necessary.©2000Elsevier Science B.V.All rights reserved.Keywords :Biomass;Power and heat generation;Energy consumption /locate /ecoleng1.IntroductionThe use of the forest and wood,respectively,for energy purposes has a long tradition.Up to the middle of the 19th century,wood was the dominant fuel for energy generation,when itsposition was taken over by fossil fuels like coal and oil (Fig.1).Actually,biomass covers 10%of the world’s energy consumption.The penetration of energy markets by biomass varies sharply from region to region and even from country to country.The use of fuel-wood in developing countries contributes significantly to satisfying the daily energy needs for cooking and heating.In industrialised coun-tries biomass only represents niche-markets with alternating sizes.Despite this unfavourable situa-tion,discussions often focus on how to increase*Corresponding author.Tel.:+49-511-4394043;fax:+49-511-4394185.1Tel.:+49-511-439-2073;fax:+49-511-439-4185.0925-8574/00/$-see front matter ©2000Elsevier Science B.V.All rights reserved.PII:S 0925-8574(00)00050-1W .Hatje ,M .Ruhl /Ecological Engineering 16(2000)S 41–S 49S42the share of biomass for power and heat generation.There are a number of actors such as political parties,environmentalists and renewable energy associations that are reclaiming a higher penetra-tion of energy markets by biomass.Fig.1.Epochs of energy supply.Fig.2.Motivation for using biomass.W.Hatje,M.Ruhl/Ecological Engineering16(2000)S41–S49S432.DiscussionWhat are the reasons for this wide consensus? (Fig.2).2.1.Climate protection and reduction of CO2 emissions in particularAfter a1-day extension the3rd conference on the‘United Nations Framework Convention on Climate Change’in Kyoto came to a binding protocol on the reduction of greenhouse gases between1990and2012.Whereas the results are considered‘the least minimal compromise’by some groups,they are nevertheless a starting point on the long road to cutting emissions.For example,Germany’s ambitious official reduction goal was set by the federal government at25% between1990and2005.2.2.Huge annual production of biomass( 100 bn t)exceeds the world’s annual energy consumption(12bn t coal equi6alent)by a factor of six to se6enThe existence of such a potential is one neces-sary condition for the use of biomass for energy purposes,but not more.Without a detailed inves-tigation of the regional or national market in question with its specific regulatory and energy economic framework,any estimation of biomass exploitation is senseless.2.3.Best cost-efficiency of biomass inside the renewables(except hydro energy)with respect to total energy cost and CO2-reduction-cost per t According to various analyses and to the expe-riences we have gained so far,biomass leads the group of renewables from the economic point of view.Unfortunately,this has not been reflected on most of the energy markets in industrialised countries.The reasons for that are market inter-ferences and politically motivated(supporting) laws with preferences for other renewables such as wind and photovoltaics.Compared with other renewables such as wind and photovoltaics,biomass can be stored easily and delivers secured contributions for meeting the energy load.Thus,from the technical point of view,there are no obstacles to the integration of biomass into energy-supplying systems.Due to the lower energy content of biomass compared with hard coal,oil and gas,it requires significant higher volumes in order to reach the same net energy value.That increases the cost for handling (transportation and other processing cost).In the end,the specific investment cost of biofuel-pow-ered plants exceeds the correspondingfigures for its main competitors—gas and oil—by a factor of three to four.Another heavy burden for a larger penetration of energy markets by biomass is the substantial difference in the markets for forestry goods and energy.We are quite aware that the following comparison might be too general and easy,but it should be considered as an attempt to describe briefly the principles of both markets(Fig.3). Energy markets of the past in industrialised countries can be characterised as follows:long-term relations between suppliers and demanderslimited number of actors;well-organised;stable markets with respect to security of sup-ply and price-stability.Forestry markets can be characterised as follows:short-term relations between suppliers and demanders;high number of actors with heterogeneous sup-ply structure;missing transparency;unstable markets with respect to security of supply and price-stability.The challenging task is to integrate both mar-kets by creating and developing new innovative organisational schemes.We consider it a necessity for potential fuel-suppliers to take part in the equity risks of plants. This is different from what has been practised in conventional energy markets of the past.The market for forestry goods and its corresponding prices are very volatile.The aim is to give incen-tives to fuel suppliers—such as marketers of recycled/used wood and forestry companies—to guarantee a secure and low-cost supply of fuels.W.Hatje,M.Ruhl/Ecological Engineering16(2000)S41–S49 S44Fig.3.Description of energy and forestry markets.Fig.4.Energy markets with differentiaton by pace of growth.These schemes have to take into account the very specific regional frame of both markets. Woodfuels mustfit into the different energy sys-tems as one potential energy carrier.Today’s energy markets are facing a deep and ongoing change.A lot of this has already been implemented,e.g.the new German Energy Law, but a great deal more change will come(Fig.4).With respect to pace of growth,we can differ-entiate markets as follows:Stagnation markets;substitution markets;increasing markets.Unless we have different types of markets, there are more and more ongoing similarities(Fig.5).W.Hatje,M.Ruhl/Ecological Engineering16(2000)S41–S49S452.3.1.Tendency to more liberalisation and globalisationThe time of protectionism of national markets is over.While the key word‘globalisation’is well-known to large industrial companies,more and more small and medium-sized enterprises face international competition.Energy markets of the past with their monopolies will be liberalised and opened for competition.2.3.2.Worldwide transformation of energy industries;differences in the timing and path of the transformationAs in many otherfields of cultural and eco-nomic life,the developments in the North Ameri-can energy market are stimulating a drive for change on most of the world’s energy markets, including Europe in particular.2.3.3.Con6ersion of energy into a‘normal’commodityEnergy will no longer be a special or‘extra treated’good.Buyers will become customers, which means more customer-focus inside the whole business.An impressive impact on already free markets such as Norway is,for instance, petrol stations offering electricity to customers.Within the short-term future,we may be able to buy electricity in supermarkets.2.3.4.Occurrence of new and unknown risks for energy industries,such as uncertainties in the regulatory framework and new competitors Thanks to well-defined exemption rules,elec-tricity and gas were more or less excluded from competition.When analysing the European path for deregulation,it was a long and difficult task to define a compromise,the so-called European Di-rective for an Internal Electricity Market.Within its ongoing transformation into national laws,it is still unknown whether the spirit of free competi-tion will be pared with the above-mentioned uncertainties the uncertainties concerning the potential new competitors are negligible.2.3.5.Entrance of new actors with ample experience in commodity marketing and trading Although there are risks as to timing of the changes and the regulations,liberalised energy markets are very attractive for companies familiar with the marketing and trading of a commodity. Banks and brokers with ample experience in the financial sector and in netting-principles in partic-ular are especially keen to enter the energy markets.Fig.5.Energy markets of tommorrow.W.Hatje,M.Ruhl/Ecological Engineering16(2000)S41–S49 S46Fig.6.Potential markets for renewable I.2.3.6.Pressure to cut costs and pricesLike a sword of Damocles,the danger of losing customers is present within the group of the‘old’actors.Thefirst reaction of most utilities was to increase efficiency of the whole supply chain and to cut cost the companies that will do best are those that have started to do so as early as possible.2.3.7.Unknown future for all renewable energies that are not economic and thus requiringfinancial supportAs it was difficult for renewables to enter the energy markets in the past,the situation has not improved with the forthcoming liberalisation.It will be more and more important to answer the questions:Which renewables shall be supported? When do we start(with the support)?How many funds will be available?Who will pay the extra costs?3.ConclusionsAt the end of the day renewable energy sources will have tofind their position in a liberalised market,which means they must be competitive. Their share of the total energy supply will be restricted as to natural potential and the cost of production.This may be seen as trivial,but its displacement very often produces disputes be-tween political will and entrepreneurial acting. Politicians generally call for an increase in the use of renewables,while companies have to follow economic rules,which means restriction on the renewables that are feasible.Presently,we can differ between two kinds of potential markets for renewables(Fig.6).3.1.Energy-economic well-founded markets(open markets)Need for new capacity;huge natural(technical)potential for renewables;high energy cost;no environmentally friendly generation;increasing energy demand;lack offinancing;often limited access to new technologies such as biomass conversion.From the energy-economic point of view,those are the most interesting markets for renewables. The combination of abundance of technical po-tential and such energy-economic conditions leadsW.Hatje,M.Ruhl/Ecological Engineering16(2000)S41–S49S47to increasing competitiveness of renewables.The spur is already in place.Transfer of technology and capital and,last but not least,co-operation between national governments,national partners and foreign investors offers prospective business opportunities.As a windfall profit,this con-tributes indirectly to the further development of the whole technology of renewables(Fig.7).3.2.En6ironmentally and politically stimulated markets(protected and added6alue markets)No need for new capacity;low share of renewables at energy supply;highfinancing potential;political backing of renewables;voluntary declaration from the political side to reduce CO2emissions.From the energy-economic point of view,the chances for renewables on those markets are quite poor.There are other driving forces than the markets that are backing the renewables.In any case,extra cost for the support will occur and have to befinanced.But who will pay the bill and what is the best model for supporting the renew-ables’market introduction?(Fig.8).3.2.1.Go6ernment price regulationEnergy feed laws forcing the utilities to pay a politically set and guaranteed price per kWh(tar-iff as%of the average consumer-price)and no compensation of the occurred extra costs,such as the German electricity feed law.Energy feed laws forcing the utilities to take over energy from renewables at a set price(see above)but with a compensation of the extra costs by a combination of state subsidies and taxes such,as the Danish windmill law.3.2.2.Regulated competition(a)Tender models for renewable capacity,such as the English Non-Fossil Fuel Obligation (NFFO).(b)Individual renewable energy quotas for util-ities combined with the option for trading in between the utilities and across country borders (tradable green power credits),under discussion in the US and in Europe.3.2.3.Market-dri6en(a)Marketing of‘green’electricity by the utili-ties as part of their generation portfolio through extra-pricing schemes(‘green’tariffs)to the cus-tomers,such as in the US and Netherlands in particular.Fig.7.Potential markets for renewable II.W.Hatje,M.Ruhl/Ecological Engineering16(2000)S41–S49 S48Fig.8.Support model for renewables.(b)Introduction of energy/CO2taxes only for fossil and nuclear fuels,such as already imple-mented in Scandinavia and the Netherlands. Facing the liberalisation of the energy markets all over the world,any future supporting model for renewables has tofit into the forthcoming regulatory framework.The old as well as the just modified German Electricity Feed Law are neither in line with the liberalised markets nor did or do they support the use of renewables for heating-purposes such as biomass.In fact,in1997,the extra costs by wind energy feeding in the PreussenElektra-group amounted to 300m DM.This constitutes a heavyfinancial burden,and taking into account the expected growth of installations up to the year 2000,the extra cost will almost double.In order to stimulate further cost-reductions, any support model has to give incentive for com-petition inside the renewables while offeringfinan-cial support,but not at all endless subsidies.By maintaining the pressure to reduce the costs of the whole systems(manufacturer,suppliers,services), the chances increase for exporting renewable en-ergy technologies.There is no chance for us to recommend a paticular solution.A rigid,uniform approach to support renewables or biomass in particular on different markets is doomed to fail right from the start.Nevertheless,only a sound market-ori-ented model willfind wide acceptance from lobby-ists.Biomass has the potential to increase its share of the world’s energy supply significantly.The main focus will be in the heating sector and on the use of already obtained‘products’such as straw and wood.Within the latter,recycled or‘used’wood—which already has had a material use prior to its energy use—is the most cost-efficient biomass and is also‘CO2-neutral’like other biomass.In order to realise an ambitious goal of increas-ing the share of biomass for energy generation up to5%,these must parallel effort in severalfields:small-scale district-heating networks for house-holds(especially on green land);process energy for industrial enterprises;co-combustion in power plants(mainly coal-fired);fuel-wood in developing countries.All kinds of combustion-technologies have to be taken into account.Their choice is influenced by access to the technology and has to be adapted to the scale and scope of supply.In other words: as uncomplicated as possible and as innovative as necessary.W.Hatje,M.Ruhl/Ecological Engineering16(2000)S41–S49S49PreussenElektra has examined some projects, e.g.decentralised heat plants for industrial areas and the co-combustion of wood in coal-(hard coal and lignite)fired power stations.We are often asked to participate in various projects.We have learned that natural gas with its increasing competitiveness and actual abundance is the main competitor of biomass.4.ExpectationsWhat do we expect from biomass in the future and what are the conclusions for us?(1)PreussenElektra keeps a close eye on all the developments with respect to the use of biomass for energy generation.(2)As an energy supplier,we are open to using any energy carrier provided it is economically feasible.(3)The short and medium future will show if it is possible to market‘green energy’along the expected product-differentiation of the commod-ity energy.(4)According to our assessment,biomass leads the portfolio of renewables,although it has not yet received the corresponding public atten-tion..。