Facing unresolved feedstock challenges – including access, cost, and security of supply – the global biomass power market is teetering on the verge of obsolescence. Combined with controversy around emissions, changes in subsidy programs, and a boom in natural gas power generation, an increasing number of projects have been cancelled in recent months across the United States and Europe. Meanwhile, a wave of biomass pellet plant installments may presage an industry boom – albeit much later than otherwise expected.
In the United Kingdom alone, roughly one-third of announced biomass power projects across the country have been abandoned in recent years. Many of these were dedicated facilities, ranging from 100 MW to 300 MW of capacity.
The Achilles heel of biomass power production is sourcing an adequate supply of feedstock at a reasonable cost. Biopower’s problem is not so much a function of scarcity – biomass is ubiquitous and currently the fourth largest energy resource worldwide after coal, oil, and natural gas – but it’s an inefficient source of carbon relative to fossil fuels. Unlike coal, oil, and natural gas, biomass lacks density in two ways. First, it’s scattered across large swaths of land (such as forest thinnings from national forests) and must be collected and aggregated. Second, its energy density is three-fifths that of coal, adding a premium to the cost of transporting volumes from source to customer.
Competing against low-price fossil fuels like coal and natural gas, biomass feedstocks can’t afford to rack up costs associated with harvesting, aggregating, processing, and transportation without heavy subsidization. Where coal producers capture efficiency through economies of scale and an international transport infrastructure, biomass production remains, at best, a cottage-based market.
For these reasons, the financial viability of biomass power falls off a cliff when resources are sourced outside of a 50-mile radius, making larger projects with bigger biomass appetites much riskier. These projects typically bank on a concentrated local source combined with the import of biomass pellets from international suppliers, a market still in its infancy.
Today, wood pellets are one of the largest internationally traded solid biomass commodities used specifically for energy purposes, but they represent only a fraction of the scale of the global coal trade. Biomass pellets have lower moisture content than raw biomass, which decreases fuel degradation during the storage period, increases energy density, and creates a more homogeneous composition, all of which translate to higher energy efficiency during combustion.
Growth in biomass power generation is dependent upon the expansion in the international trade of wood pellets over the next decade – principally from Canada, the Southern United States, Russia, and Baltic region of Europe to the European Union and Asia Pacific. Responding to the sudden surge in the global trade of industrial biomass pellets, Energy Exchange APX-ENDEX was launched in November 2011, becoming the world’s first dedicated exchange for biomass renewable energy. The exchange is expected to bring more transparency to the market by adopting several certification schemes for industrial wood pellets already used in today’s bilateral contracts in order to ensure that the wood pellets originate from sustainable wood sources.
With the trade in industrial pellets still in its infancy, many biomass power plant operators like RWE in Germany and Drax Group in the United Kingdom have taken matters into their own hands, investing in upstream pelleting facilities outside their domestic markets. Many oil majors – from Conoco to Chevron – are getting in on the action as well. Although the biomass pellet market is heating up, it will be 5 to 10 years before biomass power generation picks up steam.
Tags: Biofuels, Biopower, Finance & Investing, Renewable Energy, Smart Energy Practice
| No Comments »