Demand-side management must become a significant element of the European energy market if the EU’s ambition to build a low-carbon economy is to be realized.  The latest survey of European smart grid projects by the European Commission’s Joint Research Centre (JRC) points out the importance of this requirement.  Smart Grid Projects in Europe: Lessons Learned and Current Developments (2012 update), a follow-up to a similar study carried out in 2011, notes that a majority of the 281 projects covered focus on “distributed ICT architectures for coordinating distributed resources and providing demand and supply flexibility.”

One of the latest projects to join the roster of demand-side management pilots is the Danish city of Kalundborg.  The fact that Denmark already obtains 30% of its electricity from wind power – and targets 50% by 2020 – is making such projects an increasingly urgent requirement for the country.

Symbiotic System

Kalundborg has a population of around 16,000 within a local kommune (or municipality) of the same name extending to 50,000 people.  Its relatively small size belies the fact that it is the second-largest industrial region in Denmark after Copenhagen.  It is also notable for its long established cross-industry program, Kalundborg Symbiosis.  This program has evolved over several decades as an integrated system for waste recycling within the local industrial system.  Residual products from one industry, such as steam, dust, gases, heat, slurry, or any other waste products, are physically exchanged between enterprises, thereby reducing energy consumption, production costs, and environmental damage.

Smart City Kalundborg is a 3-year smart grid pilot with a budget of $18 million.  Launched in November 2012, the project is led by Danish utility SEAS-NVE, Dansk Energi (Danish Energy Association), Spirae, and the municipality of Kalundborg.  Other participants in the project include ABB, CleanCharge, Clever, Danfoss, Gaia Solar, DONG Energy, Gridmanager, and Schneider Electric.  Smart City Kalundborg will look at the integration of energy management across power, water, heating, transport, and building systems.  This entire system will be based on an open, intelligent platform called the Energy Services Hub.  The Hub will enable diverse participants to make specific energy resources available to the system via a publish-and-subscribe model.  An individual enterprise, water utility, or demand aggregator, for example, could use the platform to offer a specified demand response capacity to grid operators looking to manage fluctuations in power supply or reduce the need for network reinforcement.

The technical and market challenges to delivering such a system at a city scale are significant, of course.  However, the biggest question may be who is in the best position to operate such an Energy Services Hub.  One solution would be a joint venture between a municipality, one or more utilities, and a platform operator, but other models are possible.

Smart City Kalundborg is an innovative approach to deepening the connection between smart grids and smart cities.  While Kalundborg has much in common with other market-focused demand management projects in Europe, it differs in its attempt to include a wider range of city operations, including water management, transportation, and district heating.  Kalundborg Symbiosis has provided a synergistic network for the industrial system; Smart City Kalundborg project could provide a similar network for the local energy system.

With a debate over the efficacy of the U.S.’ Renewable Fuel Standard (RFS) reopened on Capitol Hill in Washington and policymakers in Brussels wrestling with conflicting reports about whether biofuels impact the environment and global food prices, it’s just another day in the in the office for the global biofuels industry.  While the questions remain the same, the temperature of the debate feels different this time around.

Last year, severe drought prompted the UN to urge U.S. policymakers to scale back or waive mandated volumes of corn starch ethanol production.  In January, a U.S. federal appeals court ruled in favor of the American Petroleum Institute (API), arguing that the Environmental Protection Agency (EPA) could not require refiners to buy credits for cellulosic fuel since there has yet to be any gallons produced commercially and at scale.

Meanwhile, across the pond, European policymakers are struggling to align alternative fuel ambitions with strict sustainability standards.  Progress has been clouded by recent reports complicating an already contentious debate over the land use impacts of increased biofuels production.  Clarity on the issue appears increasingly elusive.

These events have cast considerable doubt on the future of biofuels production in the United States and the EU, the first and third largest markets for biofuels respectively.  Current production offsets just 4% to 5% of petroleum consumption despite outsized ambitions from end-users like commercial airlines, defense, and ground transportation.  The mandates have been likened to filling a swimming pool with a thimble.

Shifting Gears

At the core of biofuel ambitions over the next decade is the commercialization of a host of conversion technologies targeting everything from agricultural residues to algae.  While conventional biofuels like ethanol and biodiesel derived from commodity crops are widely commercialized, advanced biofuels are still clawing their way toward commercial relevance.

First-of-kind biorefineries have come online in the past year with dozens more currently under construction, but the process has been slow, expensive, and arduous.  Navigant Research’s recently published study forecasts that just 9 billion gallons of advanced biofuel will be produced globally by 2020, a far cry from the lofty targets set by current mandates.

If the climate of uncertainty flowing from developments in Washington and Brussels persists, a mass exodus among advanced biofuel interests away from fuels production and toward bio-based products can be expected.  This migration is already several years in the making, but up to this point, most stakeholders have been content to hedge their bets in multiple markets.

Currently, the bio-based products market offers shorter runways to revenue than the fuels market.   In the low-margin, high-volume business of fuel production, profitability is predicated on economies of scale, which in many cases, are still a decade away for market interests.

By comparison, the bio-products market offers lucrative interests in high-margin, low-volume markets like food, feed, pharmaceuticals, chemicals, polymers, and paper.  Algae players are a key constituent in this group and are chasing high-value omega-3 fatty acid production.  Selling north of $2,000 a ton, omega-3s are a popular nutritional supplement, made more so by the increasing cost of seafood products due to overfishing.  By comparison, biofuels generate anywhere from $200 to $500 per ton.

The consequence of all of this is that advanced biofuels production at scale (for the sake of argument, greater than 7.5 billion gallons annually, or 1% of global petroleum fuel consumption) remains perpetually stuck on the horizon.  This will likely force policymakers to dial back biofuel ambitions to assuage public outcry for support of “snake oil.”  With Washington and Brussels jumping headfirst back into the debate, one wonders whether the biofuels industry has already reached this point.  Nevertheless, bio-based products and materials could provide a key stepping stone to advanced biofuels production profitability at scale.

Electricity generation from coal has plummeted from favor in the last few years.  A majority of Americans now favor stricter regulations on coal plants, even if it means higher energy prices.  In Europe public opinion has tilted away from coal even more sharply: a recent survey showed that 80% of Germans want to end coal-fired generation altogether.  The anti-coal movement has also gained steam, so to speak, in some unlikely places.

That doesn’t mean King Coal will be dethroned any time soon.  In confirmation hearings before the Senate, Gina McCarthy, President Obama’s nomination for the director of the U.S. Environmental Protection Agency, struck a conciliatory tone when asked about the future of the U.S. coal industry.

“Coal has been and will continue to be a significant source of energy in the United States, and I take my job seriously when developing those standards to provide flexibility in the rules,” McCarthy told lawmakers.  “Flexibility,” in this context, means “exceptions to the forthcoming rules on carbon emissions from power plants.”

German environmental minister Peter Altmaier was more blunt last year, speaking of the black fuel’s future on the continent: Coal-fired plants will be needed “for decades to come” to ensure reliable supplies of power.

In fact, coal consumption is rising, both in the United States and in Europe, to say nothing of China.  The U.S. Energy Information Administration (EIA) projects power generation from coal to increase by nearly 8% in 2013, bringing coal’s portion of total U.S. generation back to 40%, from 37.4% in 2012.  The cause, according to the EIA: “the increasing cost of natural gas relative to coal.”

(Source: Energy Information Administration)

High prices for natural gas are also driving a coal resurgence in Europe; carbon emissions in Germany, for example, increased by 2% in 2012, according to a feature in Nature, largely as a result of increased power generation from cheap coal.

Developments in Germany reflect the larger paradox facing nations attempting to move toward clean energy production: under the Energiewende, Germany’s national program to shift 35% of its power generation to clean sources by 2020, the country is investing €1.5 billion in renewable energy per year.  However, economic forces continue to push power production to fossil fuels.  Generation from solar photovoltaic installations actually decreased by 500 GWh in 2012, and Germany is currently building some 11 GW of coal-fired capacity (though a substantial portion of that will be so-called “clean coal,” replacing older plants with more efficient, lower-emissions technology).  Germany’s decision to shut down its nuclear power plants after the Fukushima nuclear accident is driving the country to coal for baseload power.

“One of Europe’s biggest energy providers, E.ON based in Düsseldorf, announced in January that it plans to close several gas-fired power stations across Europe that were operating at a loss,” Nature reported, “even though they are far less polluting than coal-fired plants.”

Eventually, coal will be phased out.  However, everyone anticipating a rapid changeover from the fuel that powered the Industrial Revolution has a long wait ahead.

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.

Pellet Pull

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.