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Realizing the potential of gasified biomass in the EU

Realizing the potential of gasified biomass in the EU. Policy challenges in shifting from pilot/demo plant phase to commercial phase. Hans Hellsmark Staffan Jacobsson Energy and Environment/ESA Chalmers Technical University 031 772 8602 hans.hellsmark@chalmers.se

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Realizing the potential of gasified biomass in the EU

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  1. Realizing the potential of gasified biomass in the EU Policy challenges in shifting from pilot/demo plant phase to commercial phase Hans Hellsmark Staffan Jacobsson Energy and Environment/ESA Chalmers Technical University 031 772 8602 hans.hellsmark@chalmers.se staffan.jacobsson@chalmers.se

  2. Outline • Introduction and purpose • Case studies • Cost to absorb technical risk • Financial magnitude of market risk • Contextual factors and policy options

  3. Introduction (1) Strong push towards developing fossil and biomass based alternative liquid fuels to substitute conventional oil • Security of supply • Higher oil price • Peak oil • Incentives to reduce GHG emissions (1)-(3) primarily benefit fossil alternatives, such as coal to liquids (CtL) with higher GHG emissions than oil Gasification of biomass is the 2nd gen biofuel (..) and is a desirable process as • it has high resource utilization, • no or small contributions of GHG emissions • does not directly compete with food production

  4. Introduction (2) With the EU directive 2003/30/EC a substantial market has been created for biofuels, 5.75% 2010, and with a suggestion of 10 % by 2020 The purposes of this project are to: • analyze the emergence of an industry with the capacity of realizing gasified biomass in Sweden, Finland, Germany and Austria • draw policy lessons from the historic development of the technology field and • specify the current and future policy challenges for realizing the technology on an industrial scale

  5. Case studies Status Start, March 2007 Finish – June 2010 4 countries Interviews: 70 of 80 Black Liquor, HT-EF, DME * Chemrec/HaldorTopsoe * Stora Enso/Foster Wheeler/Neste Oil Forest residues LT-FB, FT-Diesel Forest residues, LT-FICFB, BioSNG *UPM/AndritzCarbona GE/Eon/Repotec * ~ Chalmers * Värnamo - Forest Residues, LT-FB, FT-wax /DME Farm residues, LT-FB, FT-D/BioSNG CUTEC * Forest Residues, LT-cross draft +HT-EF, FT-Diesel * Choren/Shell/Daimler/VW FZK/Lurgi * Farm residues, LT pyrolysis+ HT-EF, MtG ZSW/EVF * *Repotec/Gussing Forest Residues, LT-FICFB, El, heat, BioSNG Forest Residues, LT-FICFB, BioSNG

  6. Pilot and demo: Cost to absorb technical risk • Pilot phase completed • Demonstration is under construction or ongoing and all projects but Värnamo are currently fully financed • Cost>246M€ (200M€ is secured)

  7. Commercial (demo): Cost to absorb technical risk Instruments: • Direct subsidies (losses are reduced but risk remains) • Soft loans • Bank guaranties The instruments are there to absorb the technical risk but • how much are financing agencies ready to risk in one or two projects? • national or EU level funding? • how much will be allowed by the EU? • Technical risk sharing : • Pre-commercial demo : >1085M€ • Commercial demo: > 3270M€

  8. Assessment of market risk for commercial size plants The first seven commercial size plants >2015 • 3270M€ investment • 2,1Mtons production capacity (need ~30Mt to reach 10% target (<1%)) 150 plants required (0.2 Mt, 4-800M€) to realize 10% market share (60-120 000M€ in total investment cost)

  9. Assessment of market risk for commercial size plants- Annual cost of realizing a BtL market (10% BtL fuels by 2030) (M$) Oil price, average (76-08) - 29$/bbl IEA ref price, 2030 - 62 $/bbl EIA ref price 2030 - 131 $/bbl EIA high price 2030 - 200 $/bbl

  10. Contextual factors when designing an instrument for absorbing the market risk • Time scale for transformation of the transport sector is short • Rapidly increasing emissions from the transport sector and limited time frame for transforming the transport sector (peak by about 2015 and major reduction 2050) • Long time scale to go through pilot/demo to commercial plants for each trajectory • Long time scale to go from 7 to 150 plants (10% of market by 2030?) =>all policies must be assessed with respect to their ability to deliver within a specified time frame (impossible to speak of efficiency without effectiveness) • To be effective, several alternative technologies that vary in scale, cost, feed-stock, products need to be developed and coexist - Good policy is designed to create markets for renewable technologies that out-compete fossil alternatives and not each other • Given large cost differences, a potential intra-EU trade in fuel may impact on policy choice and incentives to invest

  11. Policy alternatives for 2nd generation (1) • CO2 trade is not sufficient since income streams can not be calculated: price risk remains with respect to fossil fuel • Quota induces expansion in 1st generation. • Proposed double counting of BtL is not enough since the price risk is still there (price risk with respect to 1st generation) =>Effectiveness criteria excludes CO2 trade and quota, at best it induces sequential development

  12. Policy alternatives for 2nd generation (2) BtL blending quotas • Will take the cheapest Btl (Finland) if trade is allowed • Price levels will equalize (and approach the most expensive) • But if suppliers pursue aggressive pricing strategies out compete others – leads to sequential development • To be effective, there is not time for sequential development • May be resolved though a very high quota (but very high consumer cost) =>BTL blending quota possible but risky for variety, effectiveness and consumer costs

  13. Policy alternatives for 2nd generation (3) Feed-in with cost covering payment may lead to diversity and effectiveness • may need to adjust for feed-stock prices • may link policy to CO2 reduction performance (i.e. opens up for higher prices for more costly but higher performance fuels) • scope for SNG! Biogas feed-in law easy to implement (many plants) But, • Variety requires one tariff for each trajectory-manageable but need experience with full size commercial plants to calculate costs? • The first seven commercial size plants around 2015 – feed-in for 7 plants – is it meaningful especially when there is yet no competition in the capital goods sector within each trajectory? => BtL blending quota is more attractive

  14. Possible solution for the first seven plants? • Tax exemptions and guaranteed off-take price from public sector customer (Bonn, Berlin, Göteborg, Ministry of Defense) or trader or petrochemical firm • Experience generated to base further policy on

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