Navigant Research Blog

Bioenergy Transition: The Challenge Ahead

— October 13, 2014

Despite the relative abundance of biomass as a fuel source in many places, the bioenergy industry has failed to gain the traction as a cornerstone renewable resource that many envisioned just 5 to 10 years ago.  Facing stagnant industry growth, the industry is in desperate need of a shot in the arm from policymakers.

Baseload biomass plants, for example, were especially hard hit by the restricted lending and general economic malaise of recent years.  Commercial installed capacity was historically much higher than wind and solar power combined, but it has been eclipsed by wind generation sources in recent years.  Global installed capacity currently stands at an estimated 3% of global generating capacity.

The European Union (EU), which envisioned a broad surge in bioenergy power and heat production to deliver its 20-20-20 goals, expects to achieve just 83% of its target by 2020.  A combination of market forces, weakened policy support, contentious debate over the sustainability of bioenergy, and the relative success of wind and solar has stifled investment across the industry.  Contending with similar but more severe headwinds, growth for the bioenergy industry in the United States has been mostly nonexistent.

New Openings

With the regulatory vice tightening on carbon-emitting power producers in the past year, however, the opportunities to co-fire diverse biomass feedstocks in coal-burning plants or switch these plants over to dedicated biopower production looks to be shaping up as an attractive proposition again.  As a feedstock, biomass remains a compelling option for reducing carbon emissions from centralized power plants because it eliminates the need for a significant overhaul of existing hardware.

Unfortunately, while recent policy and regulatory developments in the EU and United States look promising on paper, they are unlikely to give the industry the boost it needs in the near term.

Under its framework for climate and energy policies presented in January 2014, the European Commission called for 27% renewables by 2030.  Meanwhile, the Environmental Protection Agency’s (EPA’s) proposed Clean Power Rule in the United States is a potentially positive development for the bioenergy industry.  Yet, biomass will need to be recognized under the Clean Air Act as a renewable source of energy, with a favorable carbon profile when compared to fossil fuels, for the industry to gain significant traction.

Cost Gains

Longer-term developments look more positive.  According to a recent McKinsey Insights article, bioenergy in Europe has the potential to lower the levelized cost of energy (LCOE) by up to 48% by 2025 through gains like boiler efficiencies and greater plant standardization.  Although the relative abundance of cheap coal and softer emissions regulations in the United States (relative to Europe) require greater LCOE gains to reach price parity with coal-based generation, these developments would be positive for bioenergy development in both regions.

For bioenergy to capitalize on these positive trends, logistical challenges related to the collection, aggregation, transportation, and handling of biomass will need to be overcome.  Higher growth will depend on breakthroughs in carbon densification processes for biomass resources, for example, and the increasing commoditization of biomass feedstocks (including the expansion of the international trade in pellets) for power production.

 

EPA’s Clean Power Rule a Setback for Emerging Algae Industry

— October 2, 2014

From ethanol refineries to steel mills, major industrial processors are partnering with emerging advanced biofuels producers to monetize their emissions in a process loosely referred to as carbon capture and utilization (CCU).  With carbon regulations once again gaining traction, this could prove to be the paradigm of industrial synergy.  Industrial players generate revenue from a liability, otherwise regarded as waste; biofuels producers gain access to carbon-rich flue gases, which their proprietary industrial microbes or algae consume, resulting in the production of bio-based fuels and chemicals.

Companies targeting waste streams as a strategic feedstock for advanced chemical and biofuels production avoid one of the primary hurdles to commercial scale for conversion processes: the lack of access to inexpensive feedstock.  In the case of flue gas, advanced biofuels producers avoid a costly frontend feedstock conversion that can derail project feasibility.

Growing on CO2

There are many advanced biofuels ventures targeting carbon-rich gaseous feedstock sources through colocation partnerships with industrial facilities.  In the United States, BioProcess Algae, which designs, builds, and operates commercial-scale bioreactors that convert light and CO2 into high-value microbial feedstock, has deployed a demonstration plant at a first-generation ethanol plant in Iowa.

Algae are the ideal partner for industrial carbon emitters, digesting CO2 as they grow.  The more CO2 the algae consume, the faster they grow.

During this process, the algae return clean oxygen to the environment while also producing high-value oils and proteins.  These oils and proteins can be used in the production of transportation fuels, animal feed, chemicals, and food products.  As an added bonus, once the lipids and other co-products have been extracted from the algae, the residues can be used as a fuel for power generation, either co-fired in combustion facilities or converted to biogas in an anaerobic digester.

Left Behind

Among many advanced biofuels production pathways, algae’s unique advantage is high per-acre productivity.  Microalgae can potentially produce 2 to 20 times more oil per acre than other plants, making algae platforms a compelling solution to offsetting petroleum imports without converting large swaths of farmland to grow dedicated energy crops.

Unfortunately for the emerging U.S. algae industry and other companies targeting flue gas in the United States, though, the Environmental Protection Agency (EPA) excluded CCU as an approved strategy for emissions mitigation in its proposed Clean Power Rule.

Most algae companies today have long-term aspirations to partner with utilities for access to CO2 produced at power plants.  With nearly 5,000 potential industrial sources of CO2 across the United States – most of these power generation facilities – the addressable market for these emerging technologies is significant.  At its demonstration facility in Hawaii, Cellana currently relies on flue gas from diesel generators to feed its algae.  A CO2 source from power plants could potentially make the operation more economically feasible in the future, according to the company.

While algae companies argue that their technologies are ready for prime time after years of researching and building small-scale test projects, challenges remain.  Industrial algae production is effectively an agricultural play that requires advances in cultivation and harvesting to lower production costs to a level that can compete with commodity products.

 

Waste-to-Energy Needs New Regulations

— September 18, 2014

A recent study published by the Earth Engineering Center (EEC) of Columbia University estimates that if the total volume of municipal solid waste (MSW) produced in the United States were incinerated in waste-to-energy (WTE) power plants, 12% of the country’s total electricity demand could be met.  This is more than 5 points higher than the current share of U.S. energy demand met by renewable sources today (7%), with WTE representing just a small fraction of the total energy mix.

Just 86 WTE plants are in operation in the United States today.  No new plants have been built since 1995.  Meanwhile, Waste Management recently divested its Wheelabrator Technologies subsidiary, which operates 17 plants around the country.

With so much upside, why does this market continue to stagnate?

Waste Pyramid

The United States currently produces 250 million tons of trash annually across the country.  This represents 15% to 20% of the global total.  Despite an abundance of feedstock, three primary barriers limit market growth: lack of regulatory support, lack of public support, and low electricity rates.

Among these, lack of regulatory support is often cited as the primary barrier to realizing the market’s full potential.  Across the United States, for example, landfilling continues to be the de facto solution for disposing of MSW, with relatively few exceptions.  On average, about 11% of the MSW is diverted to WTE and around 35% is recycled or composted.  The remainder (54%) is landfilled.  This reflects a waste management regulatory regime in the United States that falls well short of more aggressive policies set forth by European policymakers.

European principles articulated under a waste management hierarchy pyramid framework provide strong support for WTE and energy recovery.  A combination of land constraints, higher electricity prices, and a perilous dependence on Russian natural gas has provided European policymakers the motivation needed to enact strong support for WTE and other energy conversion technologies.  Combined with higher tipping fees – the cost of disposing of waste – these policies help reduce dependence on landfills.

Plenty of Fuel

By contrast, waste management in the United States is not coordinated at the federal level.  Instead, policy implementation is left to state discretion.  Individual states – Connecticut, Maine, Massachusetts, Minnesota, and New Hampshire among the leaders – have been far more aggressive in investing in infrastructure to boost recycling and energy recovery from MSW, but these policies have not yet found broad support across the rest of the country.

Recent market developments in the United States, however, signal a likely pendulum shift in favor of WTE and other waste conversion technologies.

In anticipation of tightening restrictions around coal-based generation from the U.S. Environmental Protection Agency (EPA), utilities and state policymakers are actively seeking alternative sources of energy that provide the coveted baseload capabilities of centralized fossil plants.  Among baseload renewables, WTE is among the few options logistically feasible across the country, with MSW generated in abundance and continuously in areas of high population density.

Meanwhile, according to findings in Navigant Research’s Smart Waste report, the traditional waste management market is facing a disruption similar to that faced by electric utilities at the hands of distributed generation.  Although these solutions seek to turn a liability (trash) into a strategic resource, WTE and other energy conversion technologies will benefit from greater emphasis placed on the value of waste as an input for renewable energy generation.

We expect energy recovery solutions to generate 70% of the revenue attributable to next-generation waste management technologies in North America.  While this represents a healthy growth opportunity, it’s just the tip of the iceberg, as the EEC study demonstrates.

 

Distributed Biogas Gains Footing in Revised Standard

— September 8, 2014

In July, the U.S. Environmental Protection Agency (EPA) finalized an extension of the beleaguered Renewable Fuel Standard (RFS2) to carve out a pathway for renewable biogas to qualify as a cellulosic fuel.  Expanding the scope of the RFS2 beyond liquid transportation markets could have promising implications for the slow-to-emerge cellulosic biofuels market.

Under the RFS2, the EPA requires domestic refiners and importers of transportation fuel to blend increasing volumes of renewable fuels into conventional gasoline and diesel.  The EPA sets the renewable volume obligations for various renewable fuels every year, and regulated entities must demonstrate their compliance by acquiring and retiring renewable identification numbers (RINs), which are publicly traded credits that fluctuate in value.

RINs provide an important financial incentive for the nascent advanced biofuels industry, helping these fuels compete with conventional fuels in the marketplace.  Cellulosic biofuels, a fuel pathway slated to deliver the greatest volume under the rule, have fallen short of expectations every year due to less capacity being built than otherwise predicted.

Expanding Universe

Under the expanded rules, biogas-derived compressed natural gas (CNG), liquefied natural gas (LNG), and electricity used to power electric vehicles would qualify for cellulosic RINs.  The final rule is likely to lead to a substantial increase in the production of cellulosic biofuels and create new markets for materials previously regarded as waste.  Opportunities for upgrading biogas to so-called bioCNG or bioLNG – also referred to as biomethane or renewable biogas and already used in fleet applications like garbage trucks and municipal buses – currently show high promise for biogas-to-transportation fuel.

As outlined in the U.S. government’s Biogas Opportunities Roadmap report released last month, biogas has broad applications across a range of diverse industries.  Livestock farms, industrial wastewater treatment facilities, industrial food processing facilities, commercial buildings and institutions, and landfills all produce biogas – either directly or in the form of waste feedstocks that can be converted into biogas.  According to Navigant Research’s Renewable Biogas report, the biogas capture market across the United States is expected to reach more than $4 billion in annual revenue by 2020.

All in all, biogas remains a vastly underutilized resource across the United States when compared to countries like Germany that have used a range of incentives to drive investment, particularly in agricultural applications.

The Curse of Versatility

The challenge for biogas in the United States is that to some it’s a fuel source, to others a waste mitigation strategy, and to others a distributed generation resource.  That makes it difficult to tailor policies that address all potential opportunities.  Adding to the confusion, distributed biogas is often treated by utilities as a strategic resource alongside solar PV and small wind, when in fact it can be utilized in the form of a traditional generator set, a fuel cell, or sometimes concurrently, in combined heat and power configurations.

With these issues in mind, the EPA’s final rule relating to biogas introduced a relatively novel and subtle feature for renewable energy markets: incentive flexibility.  Under the rule, the EPA not only expands the scope of RFS2, but allows the same amount of renewable electricity derived from biogas to give rise to RINs for transportation applications and renewable energy credits for electricity generation, while also qualifying for incentives under state renewable portfolio standards.

This potential for multiple revenue streams unlocks the versatility of biogas as a resource and is likely to attract new investment in the U.S. biogas market.

 

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