Realizing the potential of gasified biomass in the EU

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_at_chalmers.se
• staffan.jacobsson_at_chalmers.se

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Outline

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

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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

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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

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Case studies
Status Start, March 2007 Finish June 2010 4
countries Interviews 70 of 80
Black Liquor, HT-EF, DME
Chemrec/Haldor Topsoe
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
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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
• Costgt246M (200M is secured)

  Pilot Pilot Pilot Demo Demo Demo
  Year Size Cost Year Size Cost
TU-Vienna/Repotec 1995 0,1MW ? 2001 81MW 10?
Chalmers/Metso 2008 6MW 1,1 2008 6MW 1,1?
Chemrec 2005 5MW 7 2010 5MW/1.5kt 28
Värnamo/Chrisgas     X 18MW 45
Carbona/UPM 2005 6MW 10  
FW/SE/Nesté     2007 5MW 40
Choren 1998 1MW NA 2009? 45MW/15kt 100
FZK/Lurgi 2005 0,1   2008 5MW/0,5thr 4
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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?

  Pre-Commercial Demo Pre-Commercial Demo Pre-Commercial Demo Commercial size Commercial size Commercial size
  Year Size Cost (M) Year Size Cost
TU-Vienna/Repotec 2010 30MW 75    
Chalmers/Metso   100 MW 150
Chemrec 2012/13 0,07Mt 140 2015 0,21Mt 400
Värnamo/Chrisgas ? 0,2Mt 400
Carbona/UPM 2011-12? 0,2Mt 400 2015 0,2Mt 500
FW/SE/Nesté 2011-12? 0,1Mt NA/est.400 2015 0,2Mt 500
Choren     2015 0,2Mt 800
FZK/Lurgi 2011 5MW NA/est. 70 2015 1Mt 520

• Technical risk sharing
• Pre-commercial demo gt1085M
• Commercial demo gt 3270M

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Assessment of market risk for commercial size
plants

• The first seven commercial size plants gt2015
• 3270M investment
• 2,1Mtons production capacity (need 30Mt to reach
  10 target (lt1))
• 150 plants required (0.2 Mt, 4-800M) to realize
  10 market share (60-120 000M in total
  investment cost)

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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
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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?)
• gtall 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

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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)
• gtEffectiveness criteria excludes CO2 trade and
  quota, at best it induces sequential development

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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)
• gtBTL blending quota possible but risky for
  variety, effectiveness and consumer costs

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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?
• gt BtL blending quota is more attractive

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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