IAEE 2009 Does bioenergy contribute to more stable energy prices? Lukas Kranzl, Gerald Kalt, Fritz Diesenreiter, Bernhard Stürmer, Erwin Schmid
Motivation: Commmon argument: Renewable energy leads to more stable energy prices due to diversification of resources substitution of highly price volatile fossile fuels independence of world markets and speculation But: Recent years have shown partly substantial price fluctuations of bioenergy. Is the common argument valid also for bioenergy? Under which conditions and for which bioenergy carriers and bioenergy systems is it valid? 2
Research questions and structure of this paper Does bioenergy contribute to more stable energy prices? To what extent are the volatilities of bioenergy prices relevant for macro-economic indicators and balances? Have prices of biomass fuels been less volatile than fossil fuel prices in the last years and decades? What are the system and markt linkages between oil and bioenergy prices? What are the strategies leading to more stable bioenergy prices and finally to more stable prices of energy services? 3
Research questions and structure of this paper Does bioenergy contribute to more stable energy prices? To what extent are the volatilities of bioenergy prices relevant for macro-economic indicators and balances? Have prices of biomass fuels been less volatile than fossil fuel prices in the last years and decades? What are the system and markt linkages between oil and bioenergy prices? What are the strategies leading to more stable bioenergy prices and finally to more stable prices of energy services? 4
Macroeconomic impact of bioenergy prices (1) I/O-Analysis Taking into account direct, indirect, secundary, substitution, public and private budget effects Bioenergy systems compared to fossil reference systems Exemplary results for Austria: net value added and net employment impact Analysis of price sensitivity of these results Strong impact of private and public budget effects! They depend strongly on the price difference of bioenergy and fossil energy systems. 5
Employment impact of biodiesel, subject to price fluctuation (AT, 2006) Employment impact liquid biofuels (AT 2006) [jobs full time equivalent/gwh] 0.0-0.1-0.2-0.3-0.4-0.5-0.6-0.7-0.8-0.9-1.0 Variation of fossil oil and oil seed price -20% 0% 20% 40% 60% 80% Employment impact of biofuels increases with higher oil price (no link to oil seed price) Change of oil price Link of oil and biofuel price Employment impact of biofuels decreases with higher biomass price 9
Research questions and structure of this paper Does bioenergy contribute to more stable energy prices? To what extent are the volatilities of bioenergy prices relevant for macro-economic indicators and balances? Have prices of biomass fuels been less volatile than fossil fuel prices in the last years and decades? What are the system and markt linkages between oil and bioenergy prices? What are the strategies leading to more stable bioenergy prices and finally to more stable prices of energy services? 10
Price develoment of different bionergy fractions Selected bioenergy carriers and commodities: Agricultural commodities: oil seeds, cereals, Pellets, wood log Wood chips and saw residues Data base: International monetary fund www.indexmundi.com Propellets Statistics Austria Forst-Holz-Paper Österreich 11
Agricultural commodities (world market prices) 6 5 Price index (Jan 2000 = 1) 4 3 2 Rapeseed oil crude Palm oil crude Wheat Maize Crude Oil 1 0 Sep.84 Sep.85 Sep.86 Sep.87 Sep.88 Sep.89 Sep.90 Sep.91 Sep.92 Sep.93 Sep.94 Sep.95 Sep.96 Sep.97 Sep.98 Sep.99 Sep.00 Sep.01 Sep.02 Sep.03 Sep.04 Sep.05 Sep.06 Sep.07 Sep.08 12
Pellets (AT) Source: crude oil price: US Energy Information Administration 2009; Saw dust price: FHP - Kooperationsplattform Forst Holz Papier 2009; pellet price: propellets, Pellets@las database 2009 13
Wood chips and saw residues (AT) 6 5 Price index (Jan 2000 = 1) 4 3 2 Crude Oil Wood processing residues Wood chips 1 0 Jän.99 Jän.00 Jän.01 Jän.02 Jän.03 Jän.04 Jän.05 Jän.06 Jän.07 Jän.08 Jän.09 14
Comparison of price volatility Standard deviation of price fluctuation 0,7 0,6 0,5 0,4 0,3 0,2 0,1 The price volatility of all considered Crude Oil commodities has increased. Heating oil (retail, AT) Retail prices in general show a Palm oil crude lower price volatility. Rapeseed oil crude The oil price shows a high volatility. Wheat However, Maize it is not much higher than for plant Wood processing oil. residues The lowest price volatility can be Wood chips observed Pellets (retail, for woody AT) biomass retail products. Wood log (retail, AT) starchy products (wheat, corn) plant oil fossil oil (crude oil, heating oil retail price ) fossil woody oil biomass (crude (saw residues oil ä,, heating wood chips oil ) biomass heating fuels retail prices, (pellets, wood log ) 0 Jän.99 Jän.00 Jän.01 Jän.02 Jän.03 Jän.04 Jän.05 Jän.06 Jän.07 Jän.08 Jän.09 1997-2008 overlapping 3 year periods price difference to long-term average price level Total standard deviation over the period 1997-2008 15
Research questions and structure of this paper Does bioenergy contribute to more stable energy prices? To what extent are the volatilities of bioenergy prices relevant for macro-economic indicators and balances? Have prices of biomass fuels been less volatile than fossil fuel prices in the last years and decades? What are the system and markt linkages between oil and bioenergy prices? What are the strategies leading to more stable bioenergy prices and finally to more stable prices of energy services? 16
Oil price influences input prices of agriculture Variable production costs [ /ha] 3500 3000 2500 2000 1500 1000 500 0 Main impact of oil price on production costs: -Fuels -Nitrogen fertilizers -Grain drying 40 50 60 70 80 90 100 110 120 Crude oil price [US$/bbl] Wheat, 6 t/ha Rye, 6 t/ha Barley, 6 t/ha Corn, 12.3 t/ha Rape, 3.5 t/ha Sugarbeet, 55 t/ha Potatoe, 30 t/ha Silage Maize, 51.2 t/ha Forage, 32.3 t/ha 17
Oil price influences output prices of agriculture Energy Non-Energy (e.g. Food, Wood products) Price 20 18 16 14 12 10 8 p* energy 6 4 2 0 D energy S bio 0,0 5,0 10,0 15,0 Quantity S total S fossil 20 18 16 14 12 Price 10 8 p* non-energy 6 4 2 0 D bio total D bio nonenergy S bio 0,0 5,0 10,0 15,0 Quantity Fossil prices create a floor price for biomass products (if markets are completely integrated). Fossil prices create an upper price cap for biomass products (if the amount of biomass in the energy market is high enough). 18
Wood chips and wood processing residues (AT) 6 5 Price index (Jan 2000 = 1) 4 3 2 Crude Oil Wood processing residues Wood chips Floor price for wood processing residues due to (relatively new) market integration. 1 0 Jän.99 Jän.00 Jän.01 Jän.02 Jän.03 Jän.04 Jän.05 Jän.06 Jän.07 Jän.08 Jän.09 20
Sensitivity of energy systems to price volatility (heating) Oil boiler 25kW Pellet boiler 25kW 0 20 40 60 80 100 120 Heat generation costs [ /MWh] capital boiler capital thermal storage capital fuel storage O&M fuel costs taxes Heat generation costs relative to baseline 140% 120% 100% 80% 60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 140 120 100 80 60 40 20 0 Heat generation costs ( /MWh) Variation of fuel price Pellet boiler (%) Oil boiler (%) Pellet boiler ( /MWh) Oil boiler ( /MWh) 21
Sensitivity of energy systems to price volatility (liquid biomass transport fuels) Biodiesel FT-Diesel 2030-10 0 10 20 30 40 50 60 70 Fuel production costs [ /MWh] capital O&M feedstock costs income power 150% 100 Fuel production costs relative to baseline 125% 100% 75% 80 60 40 20 Fuel production cost ( /MWh) 50% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 0 Variation of feedstock price FT-diesel (%) Biodiesel (%) FT-diesel ( /MWh) Biodiesel ( /MWh) 22
Conclusions (1) Increasing the share of bioenergy in the energy mix leads to more diversification of energy sources. However, in terms of energy price stability part of it is offset due to the correlation of bioenergy prices with oil prices. Major reasons of price volatility of bioenergy: Link of agricultural input factor price to volatile oil price Link of agricultural output price to volatile oil price Speculation Natural phenomens (bad harvest due to drought etc) Price volatility differs considerable between different bioenergy fractions. (plant oil high, wood log low) Price sensitivity differs considerable between different (bio)energy systems. (1st generation biofuels high, heating systems lower) 23
Conclusions (2) Promote biomass fractions with low price volatility. Promote biomass systems with low price sensitivity. Support methods and strategies for dealing with bioenergy price volatility (e.g. storage capacities for bioenergy as a means of national energy security). Need for more biomass resources? => Biomass fractions with higher price volatility. => Without reducing energy consumption bioenergy will not necessarily lead to more stable energy prices. Bioenergy can only contribute to significant higher energy price stability if it is combined with a correspondingly high level of energy conservation. 24