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Analyzing the fuel market Erik Axelsson, Profu Wood Energy and Cleantech Workshop, 24 August 2011.

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  1. Analyzing the fuel market Erik Axelsson, Profu Wood Energy and Cleantech Workshop, 24 August 2011 Profu was established 1987 and has since then been an independent research and consultant company. The company works with strategic analysis within the fields of energy and waste management and has today 20 employees. Profu

  2. Profu Research and consulting company Energy Internationally Locally Nationally Waste Environment

  3. Outline • The importance of analyzing the fuel market • Drivers for wood fuel prices – experience from the developed Swedish wood fuel market • Development of district heating in European– results from the Pathways project • Bio energy flows in Europe • How to construct consistent energy price scenarios

  4. The importance of analyzing the fuel market

  5. Energy prices are decisive for profitability

  6. Energy prices are not stable Price of “tops and branches” in Sweden 1994-2010 Source: Swedish Energy Agency

  7. Energy prices can be local

  8. Policy instruments can have a great impact Source: Noordpool and SvenskaKraftnät

  9. One needs to understand the (local) energy market to be able to run profitable energy companies

  10. Outline • The importance of analyzing the fuel market • Drivers for wood fuel prices – experience from the developed Swedish wood fuel market • Development of district heating in European– results from the Pathways project • Bio energy flows in Europe • How to construct consistent energy price scenarios

  11. Wood fuel is a significant part of the Swedish energy system Source: Swedish Energy Agency

  12. Fuel for district heating 1981 2001 There is a established market for wood fuel in DH in Sweden, which Profu follows 2015 2008 Source: Waste Refinery

  13. Supply and demand sets the wood fuel price Oil Substitution CHP Transportation fuel Supply Price Quantity

  14. Factors that decrease supply of wood fuel • Decreasing activity in saw mills • Increasing activity in pulp mills • Decreasing use of new wood fuel fractions, such as stumps and residues

  15. Factors that increase demand for wood fuel • Increasing demand of district heat • Decreasing use of waste fuel • Increasing price of electricity certificates (e.g. due to poor development of wind power) • Strong development of biofuel production (transportation fuel based on biomass) • High export to other regions/countries

  16. Scenario with high wood fuel price: • Saw industry stagnates but pulp industry flowers. • Stumps etc. are not used intensively • Increasing demand of district heat and decreasing use of waste fuel • Increasing price of electricity certificates (e.g. slow development of wind power) • Strong development of biofuel production (transportation fuel based on wood) • High export of wood fuel to other countries

  17. By analyzing factors that influence fuel prices (e.g. wood fuel) one can make more qualified projections of the future fuel price.

  18. Development of the European district heating: Results from the Pathways project

  19. Pathways to Sustainable European energy systems

  20. Five year interdisciplinary project • More than 40 researches • More than 30 topics – e.g. DH • Two main pathways are proposed: • Policy Pathway, more demand side oriented • Market Pathway, more supply side oriented Se more on:www.energy-pathways.org

  21. Potential for DH in Europe

  22. Development of DH in Europe Policy Market

  23. Development of DH in Europe Bio mass Policy Market Naturalgas

  24. Increasing use of wood fuel in district heating is expected in Europe, but level of increase depends on the characteristics of the pathway of the European energy system

  25. Bio energy flows in Europe

  26. Bio energy trade is a cost effective option for meeting CO2 emission targets Hansson and Berndes (2009) Future bioenergy trade in EU – modelling trading options from cost -effective perspective.

  27. Bio mass supply in Europe Source: Refuel, 2008.

  28. Supply of biomass and total energy use Source: Refuel, 2008 and Eurostat, 2011.

  29. Supply of wood fuel compared to total energy use Flowof bio energy

  30. Example of expected bio energy flows in Europe Hansson and Berndes (2009)

  31. Sweden is not seen as a major net exporter of bio energy, while the Baltic states are.

  32. Outline • The importance of analyzing the fuel market • Drivers for wood fuel prices – experience from the developed Swedish wood fuel market • Development of district heating in European– results from the Pathways project • Bio energy flows in Europe • How to construct consistent energy price scenarios

  33. Comparison of two investment options Heat:80 MW Heat:80 MW Biomass: 98 MW Bio CHP NGCC NG: 185 MW Elec.:28 MW Elec.:83 MW Inv: 100 M€ O&M: 1.2 M€/yr. Inv: 95 M€ O&M: 0,9 M€/yr. Which option is more robust in a future (2030) energy market?

  34. Energy price scenarios What: Different energy price scenarios that outline possible cornerstones of the future energy market.“Package sensitivity analysis” Use: Analyze robustness of (future) investments with long life time. Important: Consistency within each scenarios. It is not: Energy price prognosis

  35. Principle method for constructing consistent price scenarios Fossil fuel prices on the European commodity market Policy instruments Fossil fuel market model Fuel prices and well-to-gate CO2 emissions Electricity market model Electricity price and associated CO2 emissions Bio energy market model Biofuel price and CO2 emission consequences of marginal use of biofuel Heat market model Price and reduction of CO2 emissions for heat

  36. Construction of scenarios High and low fossil fuel prices are combined with high and low prices for carbon emissions, to give scenarios with consistent price relations. Fossil fuel prices High Low Price on carbon emissions High Low Sc 2 Sc 1 Price of electricity and wood fuel for sceanrio 1 And so on

  37. Principle method for constructing consistent price scenarios Fossil fuel prices on the European commodity market Policy instruments Fossil fuel market model Fuel prices and well-to-gate CO2 emissions Electricity market model Electricity price and associated CO2 emissions Bio energy market model Biofuel price and CO2 emission consequences of marginal use of biofuel Heat market model Price and reduction of CO2 emissions for heat

  38. Electricity market model The electricity price is set to the production cost of the build-margin technology with lowest cost of: Conventional coal Coal with CCS NGCC (4. Nuclear)

  39. Principle method for constructing consistent price scenarios Fossil fuel prices on the European commodity market Policy instruments Fossil fuel market model Fuel prices and well-to-gate CO2 emissions Electricity market model Electricity price and associated CO2 emissions Bio energy market model Biofuel price and CO2 emission consequences of marginal use of biofuel Heat market model Price and reduction of CO2 emissions for heat

  40. Bio energy market model Price of wood fuel i set to willingness to pay for two optional marginal user of wood fuel: Co-combustion in coal power plants. Biofuel producers Price Price Oil Substitution CHP etc Oil Substitution CHP etc Supply Supply DME production Co-firing incoalpower plants Co-firing incoal power plants Quantity Quantity

  41. Example of energy market scenarios (around 2030) Scenario Fuel prices 1 2 3 4 Crude Oil (USD/barrel) 90 90 130 130 Natural gas (USD/Mbtu) 14 9 14 9 Coal (USD/tonne) 90 90 113 113 Policy instruments 1 2 3 4 20 20 50 50 Carbon price(€/tonne) RES-E support(€/MWh) 10 20 10 20

  42. Principle method for constructing consistent price scenarios Fossil fuel prices on the European commodity market Policy instruments Fossil fuel market model Fuel prices and well-to-gate CO2 emissions Electricity market model Electricity price and associated CO2 emissions Bio energy market model Biofuel price and CO2 emission consequences of marginal use of biofuel Heat market model Price and reduction of CO2 emissions for heat

  43. Example of energy market scenarios (around 2030) Scenario Electricity market 1 2 3 4 Base load build margin Coal NGCC Coal CoalCCS El. price (€/MWh) 54 59 75 80 CO2 (kg/MWhel) 722 345 722 140 Fuelmarket 1 2 3 4 24 27 30 32 Wood fuel price (€/MWh) NG price (€/MWh)- incl. CO2-price 40 47 54 33

  44. Comparison of two investment options Heat:80 MW Heat:80 MW Biomass: 98 MW Bio CHP NGCC NG: 185 MW Elec.:28 MW Elec.:83 MW Inv: 100 M€ O&M: 1.2 M€/yr. Inv: 95 M€ O&M: 0,9 M€/yr. Which option is more robust in a future (2030) energy market?

  45. Comparison of two investment options

  46. Comparison of two investment options

  47. Comparison of two investment options

  48. Remember!

  49. Thank you for your attention  Götaforsliden 13 nedre, 431 34 Mölndal 031-720 8396/8390, www.profu.se erik.axelsson@profu.se Profu

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