The Dollars and Sense of Bioenergy

Transcription

1 The Dollars and Sense of Bioenergy Presented by Dr. William Strauss President, FutureMetrics October 9, 2012 International Bioenergy Days, 2012

2 Who is FutureMetrics? We are Globally Respected Consultants in BioEnergy 8 Airport Road Bethel, ME 04217, USA 2

3 FutureMetrics Services: Research, analysis, and strategic guidance for the bioenergy sector. We combine data driven analysis with a depth of knowledge across the bioenergy sector to provide full spectrum reporting that enables our clients to make optimal decisions. Selection of Clients 3

4 FutureMetrics LLC Prefeasibility and feasibility studies Due diligence Financial modeling Risk analysis Economic impact analysis Expert advice 4

5 Recipient of the 2012 International Excellence in Bioenergy Award 5

6 Does Bioenergy Make Sense? It depends on the what you do with it Construction Cost per kw Size (MW) Capacity Factor Price at the Generator Costs amortized over 25 years Natural Gas at at 6.00% $3.5 per MMBTU Install Cost Annual Capital Cost Amortization Annual Output (kwh) Fixed Capital Cost per kwh Fixed Maintenance and other per kwh Variable Cost per kwh Hydro $ 2, % $ 2,180,000,000 $ 170,534,246 7,884,000,000 $ $ Total Cost per kwh $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Natural Gas Combined Cycle $ 1, % $ 234,000,000 $ 18,305,052 1,576,800,000 $ $ Coal $ 2, % $ 1,374,500,000 $ 107,522,624 3,723,000,000 $ $ Landbased Wind $ 1, % $ 74,250,000 $ 5,808, ,740,000 $ $ Nuclear $ 4, % $ 4,930,000,000 $ 385,657,721 7,884,000,000 $ $ Biomass (electricity only) $ 3, % $ 658,800,000 $ 51,535,762 1,489,200,000 $ $ Offshore Wind $ 2, % $ 144,500,000 $ 11,303, ,920,000 $ $ Solar PV $ 5, % $ 575,000,000 $ 44,980, ,800,000 $ $ analysis by FutureMetrics If minimizing price of electricity is the objective, then green electricity in the current market is challenging.

7 If minimizing CO 2 is the objective Era of Combustion of Fossil Fuels Thousands of Years Source: NOAA

8 CCSR/NIES: Center for Climate System Research [1] & National Institute for Environmental Studies, [2], CCSR/NIES AGCM + CCSR OGCM Models CCCma: Canadian Center for Climate Modelling and Analysis [3], CGCm2 Model CSIRO: Commonwealth Scientific and Industrial Research Organisation [4], CSIRO- Mk2 model Hadley Centre: Hadley Centre for Climate Prediction and Research [5], HADCM3 model GFDL: Geophysical Fluid Dynamics Laboratory [6], R30 Model MPI-M: Max Planck Institute für Meteorologie [7], ECHAM4/OPYC coupled model NCAR PCM: National Center for Atmospheric Research [8], PCM model NCAR CSM: National Center for Atmospheric Research [9], CSM Model

9 How do we combine the economics of low cost energy with the environmental benefits carbon neutral or very low carbon energy? The focus has to be on Thermal applications not Electricity generation (more on transportation later).

10 Let s look at the US and Sweden s aggregate numbers

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15 GDP/Capita vs. Competitiveness $120,000 $100,000 Sweden $80,000 R² = GDP/Capita $60,000 United States $40,000 $20,000 $ Competitiveness Index source: World Economic Forum, analysis by FutureMetrics

16 GDP/Capita Luxembourg $ 113,533 Qatar $ 98,329 Norway $ 97,255 Switzerland $ 81,161 United Arab Emirates $ 67,008 Australia $ 65,477 Denmark $ 59,928 Sweden $ 56,956 Canada $ 50,436 Netherlands $ 50,355 Austria $ 49,809 Finland $ 49,350 Singapore $ 49,271 United States $ 48,387

17 The solution? The real green energy source: Biomass for Heat (and combined heat and power)

18 How can we generate heat reliably, cleanly, and sustainably with fuel from our forests. We follow in the footsteps of many European countries.

19 Biomass Thermal can be good for the suppliers, the users, and the economy if the right strategy is well executed. We think that the economic story is powerful enough. Carbon pricing is not necessary assuming a free market But first, is it a free market?

20 Sources: Internal Revenue Service, U.S. Department of Energy (Energy Information Administration), Congressional Joint Committee on Taxation, Office of Management and Budget, & U.S. Department of Agriculture, via Environmental Law Institute.

21 Source: The Historical Role of Federal Subsidies in Shaping America s Energy Future, DBL Investors, Sept

22 What about Natural Gas? We think low prices are very temporary.

23 LNG export will open the US natural gas market to world prices. $20.00 $19.00 $18.00 $17.00 $16.00 $15.00 $14.00 $13.00 $12.00 $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $- Natural Gas Price per MMBTU at Market Exchange Rates (prices from data between 2010 to 2012 and may not be exactly correct for some countries today ) Median $11.46 Canada Russia United States New Zealand Romania Thailand United Kingdom Finland Belgium Bulgaria Spain Turkey Netherlands Estonia Ireland Luxembourg Poland Lithuania Italy France Greece Croatia Czech Republic Slovakia Portugal Slovenia source: EIA, 2012, analysis by FutureMetrics Chinese Taipei (Taiwan) Korea Hungary Japan Switzerland Sweden Denmark

24 We expect that by 2020, a significant proportion of the world s rolling fleet will have converted to natural gas. Current residential natural gas prices in the US are around to $10/MMBTU ($14 in Maine!) or the equivalent of about $1.20/gallon gasoline. We expect that the demand for natural gas as a transportation fuel will push prices significantly higher.

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26 Okay, so what is the US Energy Policy and can Biomass play a role?

27 We do not have a strategic vision at the Federal level. We do have Renewable Portfolio Standards at the State Level (more on this later)

28 Why does biomass thermal make sense?

29 Source: 2012 Maine Energy Profile, Governors Energy Office, analysis by FutureMetrics.

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31 Heat for homes and buildings is not made from electricity.

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33 Number of Homes and Businesses NOT connected to Natural Gas (proportion of total locations in parenthesis) Wisconsin (52%) Minnesota (34%) 975,159 1,158,449 Total NOT Connected = 7,952,935 Michigan (32%) 1,294,524 Iowa (22%) 572,573 Indiana (33%) 1,270,308 Illinois (35%) 2,681, ,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 source: US Energy Information Administration, US Census, 2012, analysis by FutureMetrics 33

34 Number of Homes and Businesses NOT connected to Natural Gas (proportion of total locations in parenthesis) Connecticut (68%) Maine (96%) Massachusetts (51%) New Hampshire (80%) New York (45%) Pennsylvania (49%) Rhode Island (51%) Vermont (84%) 899, ,320 1,248, , , ,840 Total NOT Connected = 9,435,569 2,390,090 3,558,339-1,000,000 2,000,000 3,000,000 4,000,000 source: US Energy Information Administration, US Census, 2012, analysis by FutureMetrics 17.6 million households in NE and MW with no natural gas. 34

35 The gap between high heating oil use and low natural gas availability makes Maine and the other NE states unique in the nation. But wherever there is no natural gas infrastructure AND is it cold AND there are forests that can sustainably supply wood Percent of Households using Heating Oil and Natural Gas US ranking for heating oil and natural gas use in parenthesis Lower rank is more reliant, higher rank is less reliant Heating Oil Natural Gas Maine (50) (1) New Hampshire (47) (2) Vermont (48) (4) 0% 10% 20% 30% 40% 50% 60% 70% 80% source: EIA 2012, analysis by FutureMetrics - data excludes Alaska and Hawaii 35

36 Residential pellet boilers can replace central heating systems and replace heating oil. 36

37 Wood pellet fuel is common in Europe where more than a million homes have home heating systems automatically fueled with refined solid biofuel. 37 The owner never touches or sees the fuel. It is delivered in bulk by truck.

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39 140, , ,000 80,000 60,000 40,000 20,000 0 Pellet Boilers in Austria 36,908 28,034 21,957 16,764 12, ,746 3,874 7,234 47,375 61, ,753 91,391 83,250 74, , source: the EU s Intelligent Energy Program, 2012, Analysis and 2012 forecast by FutureMetrics We are here in the US (15 years behind Sweden and Austria)! 39

40 Modern Wood Pellet Boilers are CLEAN and completely automatic 40

41 To put this into perspective, compare using one cord of wood in a fireplace with one cord of wood s worth of energy from wood pellets in a modern pellet boiler. 375 pounds Particulate emissions (SMOKE!) 0.28 pound 41

42 Estimated Annual Sustainable Production of Bioenergy Feedstock in green tons (50% of estimate of total sustainable wood harvest ) State Wisconsin 4,964,000 Minnesota 2,494,000 Michigan 6,112,000 North Dakota 155,000 South Dakota 135,000 Iowa 1,195,000 Illinois 2,393,000 Indiana 2,675,000 Total 20,123,000 forestland (green tons). Merchantable biomass is the main stem of all species > 5 d.b.h. between a 1-foot stump height and a 4 top diameter (outside the bark), including rough and rotten culls. from attribute.jsp analysis by FutureMetrics A very rough estimate of sustainable biomass available for energy based on Forest Inventory Analysis (FIA) data million tons of green wood can make enough pellets for about 1.26 million homes and businesses. Note that these numbers do not include an analysis of the potential for dedicated energy crops 42

43 New England and PA also are markets. The values for biomass below do not include current use by pulp and paper. Forest Biomass Production per Year for BioEnergy Potential Crop Biomass Production per Year Total Biomass Production per Year (green tons) Connecticut 100, , ,000 Maine 3,190, ,000 3,640,000 Massachusetts 110, , ,000 New Hampshire 400, , ,000 New York 3,330,000 8,766,000 12,096,000 Pennsylvania 2,800,000 3,894,000 6,694,000 Rhode Island 10, , ,000 Vermont 300,000 1,134,000 1,434,000 TOTAL 10,240,000 15,546,000 25,786,000 analysis by FutureMetrics 25.8 million tons of green wood can make enough pellets to heat about 1.8 million homes and businesses. 43

44 If we assume that each state provides biomass for its own needs, the table below shows the conversion rates. Wisconsin is highest proportionally with 10.12% of its homes and businesses converting. Michigan is highest in absolute numbers with 424,000 homes and businesses converting. Occupied Households Equivalent Number of Businesses and Other Total Number of Household Equivalents Total Biomass for Pellets Production per Year (green tons) Total Number Converting in each State if the is NO Interstate Transport of Pellets (based on 8 tons per user per year average) Wisconsin 2,624, ,846 3,407,204 4,964, % 344,722 Minnesota 2,347, ,170 3,047,371 2,494, % 173,194 Michigan 4,532,233 1,351,965 5,884,198 6,112, % 424,444 North Dakota 317,498 94, , , % 10,764 South Dakota 363, , , , % 9,375 Iowa 1,336, ,653 1,735,070 1,195, % 82,986 Illinois 5,296,715 1,580,010 6,876,725 2,393, % 166,181 Indiana 2,795, ,910 3,629,451 2,675, % 185,764 TOTAL 19,613,401 5,850,678 25,464,079 20,123,000 1,397,431 analysis by FutureMetrics 44

45 Maine and Vermont could convert almost half of their homes and small businesses from heating oil to pellet fuel with no significant impact on wood pricing to the traditional wood using industries. Occupied Households Equivalent Number of Businesses and Other Total Number of Households and Businesses using Heating Oil Total Potential Wood Pellets Produced by each State Total Number Converting in each State if the is NO Interstate Transport of Pellets (based on 8 tons per user per year average) Connecticut 1,323, , , , % 31,528 Maine 542, , ,536 2,022, % 252,778 Massachusetts 2,449, ,537 1,109, , % 42,222 New Hampshire 501, , , , % 48,194 New York 7,907,420 2,358,783 3,274,919 6,720, % 840,000 Pennsylvania 4,877,735 1,455,028 1,836,501 3,718, % 464,861 Rhode Island 405, , ,221 92, % 11,528 Vermont 251,000 74, , , % 99,583 TOTAL 18,256,155 5,445,811 8,454,273 14,325,556 1,790,694 analysis by FutureMetrics 45

46 Given these levels of penetration and assuming $20/ton profit for pellet manufacturing and $20/ton profit for pellet fuel delivery, the annual profit for pellet flow is more than $447 million. Installing 1.6 million pellet boilers with an assumed margin of $3500 per unit yields a total gross margin on boiler sales of about $4.9 billion. Annual Profits from Pellet Sales Total Gross Margin on Boiler Sales Wisconsin $110,311,111 $1,206,527,778 Minnesota $55,422,222 $606,180,556 Michigan $135,822,222 $1,485,555,556 North Dakota $3,444,444 $37,673,611 South Dakota $3,000,000 $32,812,500 Iowa $26,555,556 $290,451,389 Illinois $53,177,778 $581,631,944 Indiana $59,444,444 $650,173,611 $447,177,778 $4,891,006,944 analysis by FutureMetrics 46

47 Installing 1.8 million pellet boilers with an assumed margin of $3500 per unit yields a total gross margin on boiler sales of more than $6.2 billion across the northeastern states. Maine leads the nation in state of the art pellet boiler production. Modern pellet boilers are high tech clean and efficient fully automatic systems. See Total Homes Converting in each State if the is NO Interstate Transport of Pellets (based on 8 tons per user per year average) Annual Profits from Pellet Sales Total Gross Margin on Boiler Sales Connecticut 3.61% 31,528 $20,177,778 $110,347,222 Maine 46.59% 252,778 $161,777,778 $884,722,222 Massachusetts 3.80% 42,222 $27,022,222 $147,777,778 New Hampshire 11.78% 48,194 $30,844,444 $168,680,556 New York 25.65% 840,000 $537,600,000 $2,940,000,000 Pennsylvania 25.31% 464,861 $297,511,111 $1,627,013,889 Rhode Island 5.54% 11,528 $7,377,778 $40,347,222 Vermont 49.61% 99,583 $63,733,333 $348,541,667 1,790,694 $1,146,044,444 $6,267,430,556 analysis by FutureMetrics 47

48 At current heating oil prices, the Midwest states export more than 8 BILLION dollars per year* Number of Households that use Heating Oil or Propane Average Gallons Used per Year by all Users Average Total Expenditure Per Year (#2 at $3.80/gal) Amount that Does not Stay in the State (EXPORTED) Wisconsin 647, ,775,000 $ 2,028,345,000 $ 1,582,109,000 Minnesota 488, ,600,000 $ 1,529,880,000 $ 1,193,306,000 Michigan 765, ,125,000 $ 2,398,275,000 $ 1,870,655,000 North Dakota 103,000 84,975,000 $ 322,905,000 $ 251,866,000 South Dakota 137, ,025,000 $ 429,495, ,006,000 Iowa 312, ,400,000 $ 978,120, ,934,000 Illinois 413, ,725,000 $ 1,294,755,000 1,009,909,000 Indiana 436, ,700,000 $ 1,366,860,000 $ 1,066,151,000 Total 3,301,000 2,723,325,000 $ 10,348,635,000 $ 8,071,936,000 Source: US Energy Information Administration, 2012, US Census, analysis by FutureMetrics *The US EIA data shows that 78% of every dollar spent on heating oil leaves the region and most of those dollars leave the country. 48

49 At current heating oil prices, about a half a million jobs are destroyed as money is drained from those states economies and sent to other places. #2 Distillate Fuel and Propane use in Residential, Commercial, and Industrial (not Transportation) Average Gallons per Year Money Exported from Regional Economy at $3.80/gal Permanent Job Destruction Wisconsin 533,775,000 ($1,582,109,100) -106,285 Minnesota 402,600,000 ($1,193,306,400) -71,296 Michigan 631,125,000 ($1,870,654,500) -114,132 North Dakota 84,975,000 ($251,865,900) -16,142 South Dakota 113,025,000 ($335,006,100) -21,551 Iowa 257,400,000 ($762,933,600) -45,841 Illinois 340,725,000 ($1,009,908,900) -54,736 Indiana 359,700,000 ($1,066,150,800) -65,279 2,723,325,000 ($8,071,935,300) -495,262 analysis by FutureMetrics 49

50 At last winter s heating oil prices, about ONE MILLION NE jobs were lost in the northeast! 50

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52 Pulpwood Demand is Declining The wood-to-energy business will keep the largest manufacturing sector in Maine, the forest products industry, alive! 9,000,000 8,500,000 Maine Pulpwood Harvest (green tons) 1980 to ,000,000 7,500,000 7,000,000 6,500,000 Ice Storm! Estimate 6,000, source: Maine Forest Service, 2012, analysis by FutureMetrics 52

53 Even the Pulp and Paper industry is leaving print behind!! 53

54 Here is a pathway to incentivizing biomass thermal that does not require any participation by state government. We need a Renewable Portfolio Standard (RPS) that Awards both Electric and Thermal Renewable Energy Credits (RECs)

55 Our states export billions of dollars a year to pay for heating oil. Much of that money could be kept in the state economy if homes and businesses used regionally made biomass fuel. Thermal RECs would incentivize switching to lower cost regional biomass fuel and other renewable thermal technologies such as solar thermal and geothermal heat pumps.

56 The mechanism is a carve-out to the current RPS utility obligation that could be implemented beginning in We are proposing in Maine that the 2.6% thermal carve-out could be implemented at a rate of 0.2% per year for 13 years. The legislation could set the alternative compliance payment (ACP) for renewable thermal energy at $28/MWh (which would be by far the lowest level of any existing class).

57 Heat generated from renewable biomass is produced at very high efficiency: 87% or more for residential pellet boiler systems and 65% or better for industrial boilers. Electricity from biomass is produced at low efficiencies of 30% or less. Because thermal biomass applications are up to three times more efficient than biomass power, the lower cost of RPS compliance benefits homes and businesses by saving them money for power and, if they use biomass fuel, heat.

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59 The permanent jobs created per REC generated per year are many orders of magnitude higher for thermal RECs as compared to electric RECs from wind power. Wind produces jobs per 1000 RECs/year. Biomass thermal from pellet fuel produces jobs per 1000 RECs/year.

60 Year TOTALS Class I Thermal Carve Out % 0.20% 2.60% MWH of thermal energy 1 42, ,001 Projected $14/MWh 2 $602,701 $10,280,345 $65,435,276 Worst Case Projected Cost with $28/MWh $1,205,402 $15,288,022 $107,045,556 Reduced Heating Oil Equivlent (Gallons) 3 1,038,436 13,499,672 94,497,703 Retention of Heating Oil Expenditures in Minnesota Economy 4 $3,059,903 $61,257,990 $375,791,648 Direct Savings on Heating Bills to Minnesota Homes and Businesses 5 $1,529,952 $30,628,995 $187,895,824 Net Savings to Minnesota (@$14/MWh) $3,987,154 $81,606,640 $498,252,196 Net Savings to Minnesota (@$28/MWh) $3,384,453 $76,598,962 $456,641,916 Number of Homes Converted from Oil to Pellet Fuel at 900 gallons per year per home 1,154 15, ,997 Percentage of Homes in Minnesota that use Heating Oil that are Converted 0.24% 3.07% 21.52% Jobs Created (for biomass supply and using IMPLAN multipiers for indirect and induced jobs) 408 8,316 Jobs not "Exported" + multiplers 326 4,241 Jobs from increased disposable income + multiplers 155 3,094 Net Jobs Created ,650 Heating Oil Price (increasing at 3.5% per year) $ 3.85 $ 5.82 analysis by FutureMetrics 1 Assumes carve out % of REC Qualified MN Load 2 Since 2.6% is very small relative to the total heat used in MN, this assumes an oversupply of thermal RECs and thus a REC value significantly below the ACP value 3 1 MWH = 3,412,000 btu, 1 gallon heating oil = 138,000 btu 4 Using MN statewide average retail delivered price as of 9/20/2012 of $3.65/gallon; EIA estimates $0.78 of every $1.00 in heating oil expenditure leaves the MN economy 5 Assumes that geothermal, solar thermal, and biomass thermal reduce the annual heating bill by 1/2

61 There is a place for biomass thermal energy from totally within the framework of reducing the cost of energy. It makes good dollars and sense! Heating our homes, schools, offices, etc. with sustainable regionally produced fuel makes good economic sense AND is a carbon neutral solution*. *Biomass thermal is carbon neutral in combustion. The harvest and transportation and some of the pellet refining uses fossil fuel so in aggregate it is a low carbon solution.

62 AND With Thermal RECs everyone, is a winner. It is already law in New Hampshire. Your support for this here and in the other states along the northern tier would be welcomed.

63 I would be happy to answer any questions Thanks. Bill Strauss President, FutureMetrics