Finland s promising market segments for heating with solid biomass (> 100 kw)

Finland s promising market segments for heating with solid biomass (> 100 kw) Horizon 2020 Coordination and Support Action number 646495: Bioenergy for Business Uptake of Solid Bioenergy in European Commercial Sectors Deliverable No. Dissemination Level Partner Name Work Package Status D.2.1 Country Summary Report of promising market segments for use of bioenergy Public Motiva Work package 2 In-depth analysis of market segments Final Version Task 2.4 REPORT Authors Timo Määttä Kirsi Sivonen Päivi Suur-Uski Client European Commission Innovation and Networks Executive Agency Horizon 2020, LCE-14, 2014 Date: Helsinki, June 2015

LEGAL DISCLAIMER This document is funded under the LCE 14 2014 Support Programme Market uptake of existing and emerging sustainable bioenergy, as part of the Horizon 2020 Framework Programme by the European Community. The content of this document reflects solely the views of its authors. The European Commission is not liable for any use that may be made of the information contained therein. The Bioenergy4Business consortium members shall have no liability for damages of any kind including, without limitation, direct, special, indirect, or consequential damages that may result from the use of these materials.

Executive Summary Based on the interviews with bioenergy experts, the most prominent market segments in Finland are in the industry sector. In public sector the use of bioenergy is already quite extensive. Business parks and industrial zones in locations which are not connected to district heating networks represent a high potential. The following three segments were selected for further promotion in the project: metal industry, food processing industry and also other small and medium scale manufacturing industry. Metal industry is divided into two separate sectors. Manufacture of basic metals has quite large centralized facilities and companies which is a different feature from the other subsector, Manufacture of machines and metal, consisting of small businesses and facilities. In the project s point of view, the latter one seems to be more promising sector for using biomass. The segment Other small and medium scale manufacturing production uses still considerable amounts of oil and is therefore a potential customer for heat entrepreneurs who use mostly wood chips for heat production. Food processing industry is potential for shifting to bioenergy because it uses lots of heat and is dispersed all over Finland. Finland is a large country and transportation of wood chips is rarely profitable for long distances. In order to start using bioenergy, for companies one of the most important factors is the security of fuel supply and/or energy for long term at a competitive price. In favour of bioenergy is still its price, despite the fairly low oil price in recent years. Improvement is needed in the availability of training, information and guidance about bioenergy. The key actors would benefit of targeted and well formulated bioenergy information to support their decision making. The heat entrepreneurs and industry key personnel need more information and training in order to understand and optimize their energy systems. Most of the potential industrial bioenergy customers have lack of knowledge about bioenergy heating, even though there would be information material and guidance available. Therefore there is need for active contacting towards the selected industry segments. The information given to the target segments should include also financing related issues. In addition, the companies and local administration s planning department may need guidance on permitting procedure and planning. In the selected target segments the estimated CO2-mitigation potential is in total about 300 000 tco 2 /a. The largest potential is in metal industry but small and medium sized industry is also significant. There the shift from oil to bioenergy could be easier and more probable. III

Contents 1 INTRODUCTION 7 2 FOSSIL FUEL USAGE IN FINLAND 8 2.1 Share of fossil fuels in gross Finland energy consumption 8 2.2 Domestic usage of fossil fuels 8 2.3 Origin of fossil fuels 10 2.4 Prices of fossil fuels 12 3 FINLAND S SUPPLY SITUATION OF SOLID BIOMASS FOR ENERGY PURPOSES13 3.1 Energy wood from domestic forests 13 3.2 By-products of wood-based industries 17 3.3 Pellets and Briquettes 19 3.4 Straw and other agricultural residues 20 3.5 Development stage of domestic biomass supply side 20 3.6 Development stage of domestic solid biomass combustion technology 21 4 FINLAND S SOLID BIOMASS BOILER MARKET BEYOND 100 KW HEAT LOAD 22 4.1 Number of domestic installations of solid biomass boilers 22 4.2 Capacity of domestic installations of solid biomass boilers 23 5 RESULT OF STAKEHOLDER INTERVIEWS 25 5.1 List of interviewees 25 5.2 The most promising bioenergy sources 26 5.3 The most promising market segments 26 5.3.1 Criteria for selection of promising market segments and their influence regarding market penetration 27 5.3.2 Summary of the most important factors that influence the success of market introduction at the most promising market segments 29 5.4 Most promising market segments abroad view from Finnish market actors 29 6 CHARACTERISATION OF PROMISING MARKET SEGMENTS (FACTS & FIGURES) 31 6.1 Summary selection of most promising market segments 31 6.2 Metal industry 31 6.2.1 Structural and business data 31 6.2.2 Final energy consumption 32 6.2.3 Estimation of the CO 2 -mitigation potential (direct emissions for stationary combustion) 33 6.3 Food processing industry 34 6.3.1 Structural and business data 34 6.3.2 Final energy consumption 34 6.3.3 Estimation of the CO 2 -mitigation potential 35 6.4 Other small and medium sized manufacturing industry 35 6.4.1 Structural and business data 35 6.4.2 Final energy consumption 36 6.4.3 Estimation of the CO 2 -mitigation potential 36

6.5 Summary 37 7 LITERATURE 39 8 ABBREVIATIONS 41 9 LIST OF FIGURES 43 10 LIST OF TABLES 45

1 Introduction The Horizon 2020 project Bioenergy4Business aims to increase the usage of bioenergy through an (at least partial) fuel-switch from coal, oil or natural gas, which are used in in-house boilers in commercial sectors for heat purposes or in district heating, to solid biomass sources. The erection of completely new biomass heat applications is considered as an option as well. Bioenergy4Business focuses on solid biomass sources and on medium and large heat-only boilers (> 100 kw heat load) providing low temperature and process heat for commercial usage. Bioenergy4Business builds bridges between policies and markets to support the creation of an enabling environment, the use of sound business and financing models and the careful assessment and implementation of bioenergy heat in local and district heating and in in-house applications. These aspects are considered for the most promising market segments among industry and commerce, residential buildings, agriculture and commercial and public services. Bioenergy4Business involves partners from 12 EU Member States and Ukraine. 11 of these project partners (AT, DE, BG, CR, FI, GR, NL, PL, RO, SK and UA, except BE and DK) are target countries, where tailor-made activities for the most promising market segments will take place from January 2015 until August 2017. Figure 1: Countries where Bioenergy4Business is implemented. Bioenergy4Business helps exploiting the considerable economic and sustainable potential of European bioenergy sources for heating, which are locally available at reasonable prices. These can offer a viable alternative to vulnerable European businesses currently depending on fossil resources, which are often imported from politically unstable regions. Bioenergy4Business makes new market segments for solid biomass usage accessible and enhances the use of both more solid biomass sources and so far not used ones (e.g. pellets, straw etc.) in European heat markets. National contact point: Timo Määttä / timo.maatta@motiva.fi / +358 9 6122 5024 7

2 Fossil fuel usage in Finland All figures show the status of 2013 in GWh 2.1 Share of fossil fuels in gross Finland energy consumption Wood fuels and oil were two most important sources of Energy in Finland in 2013 (Figure 2). Coal and natural gas were also important fossil fuels. GWh Oil 87 951 Coal 41 985 Natural gas 29 709 Nuclear energy 68 713 Hydro power 12 673 Wind power 774 Wood fuels 94 082 Peat 15 807 Others 14 054 Net imports of electricity 15 716 Total 381 465 Figure 2 Total energy consumption in Finland 2013. 2.2 Domestic usage of fossil fuels In Finland hard coal is used mostly in conventional condensing power and combined heat and power (Figure 3). Over half of the oil used in Finland is used in traffic but almost 40 % in other uses that includes heating in one family houses. (Figure 4). Natural gas is important in combined heat and power for district heating and industry (Figure 5). Peat is also important fuel in combined heat and power (Figure 6). 8

Figure 3 Usage of hard coal Figure 4 Usage of oil 9

Figure 5 Usage of natural gas Figure 6 Usage of peat 2.3 Origin of fossil fuels Almost all fossil fuels used in Finland 2013 is imported from Russia: Nearly 90 percent of coal (Figure 7) Over 70 % of oil (Figure 8) All of the natural gas. The total amount of natural gas imported was 3 299 milj. m 3. 10

Figure 7 The origin of coal 2013 Figure 8 The origin of oil 2013 11

2.4 Prices of fossil fuels Fossil fuel prices follow international market prices. Oil and gas have risen steadily since 1993, the price of hard coal has remained fairly stable. There have been sudden price moves especially in oil prices. Figure 9 Average import prices of fossil fuels from 1993 to 2011 12

3 Finland s supply situation of solid biomass for energy purposes 3.1 Energy wood from domestic forests Finland has a significant wood fuel potential. About 60 % of Finland s land area is forest land. Of this, the share of coniferous forest is about 80 %. It is possible to produce forest residues in the form of logging residue chips from final felling and in the form of chipped small diameter wood from young forests, i.e. from young stand management and thinning areas. Figure 10 Forest land in Finland (Source: Luke) Availability of energy wood depends on forest industry decisions and its raw material needs for pulp and paper production. It is not cost-effective to transport wood chips over long distances, so the potential also depends on local use of wood chips. An increased number of wood chip users can lower the transportation costs due to shorter distances. Forest wood is used mainly as wood chips in Finland (Figure 11). The small scale use of wood (i.e. firewood) is also an important way to use wood (Figure 12). 13

Figure 11 The usage of forest chips and national target for the year 2020 Figure 12 Usage of wood in small scale. The Finnish Forest Research Institute (Metla) has done a survey on forest wood chips harvesting potential. The survey indicates that the potential of wood chips harvesting from felled (and lopped) trees is 6,2 million m 3 and from whole trees 8,3 million m 3 (Figure 13). If the energy crop harvesting is integrated with industrial wood 14

harvesting the potential is 6,6 10,4 million m 3. There is also potential in crowns and stumps. The estimated total usage in 2020 is about 12 million m 3 or 24 TWh. Figure 13 Estimate of forest wood chips harvesting potential (Metla 2013). Situation can also vary inside the country. The balance between use and supply is positive in eastern and northern Finland (Figure 14). On the other hand balance is negative in western Finland and at the coast. This indicates that the best potential to increase the use of forest wood chips is in eastern and northern Finland. 15

Figure 14 Balance of forest wood chips potential and use in municipalities (Metla 2012). The price of forest based wood chips has increased during the past few years, but is still competitive in comparison to fossil fuels. Figure 15. Price development of forest chips in Finland. All figures in Euro/MWh 16

3.2 By-products of wood-based industries Wood-based by-products of industries are the most important source of bioenergy in Finland. The use of black liquor was almost 40 TWh (Figure 16) and the use of industrial wood residues was almost 20 TWh in 2013 (Figure 17). Figure 16 Usage of the black and other concentrated liquors and national target for the year 2020 17

Figure 17 Usage of industrial wood residues and national target for the year 2020 The price of wood residues has been quite stable in the recent years. Wood chips Saw dust Bark Figure 18 Price development of wood chips, saw dust and bark. ( /MWh) The potential is not growing because the production capacity was not expected to be increasing. However, recently more positive development in forest industry suggests that the situation might be changing, hence wood residues supply could be growing as opposed to earlier predictions. 18

3.3 Pellets and Briquettes Use of wood pellets at heating plants has grown significantly in the past ten years. On the other hand, at the same time its use in households and farms has decreased (Figure 19). About 30 % of wood pellets produced in Finland were exported in 2013. Briquettes usage is fairly small in Finland. Figure 19. Usage of wood pellets in Finland. (TWh) The price of pellets has been quite stable in the recent years. Figure 20. Price development of wood pellets in Finland. 19

3.4 Straw and other agricultural residues Straw and other agricultural residues are not widely used in Finland. Some agricultural residues are used in the production of biogas. Also the use of energy crops is very minimal. Reed canary grass has been tried to be produced in larger scale, but the targets were not reached due to various reasons. Even at its peak period in 2007-09 the total cultivated area was about 20 000 ha and nowadays it has dropped significantly. No statistical data were found on the usage of agricultural residues in Finland. Because usage is so small, there is no real market price for straw or other agricultural residues. The obstacle is more in technology, i.e. logistics and handling of straw. Corncobs are not used in Finland. 3.5 Development stage of domestic biomass supply side Private individuals and families own around 60 percent of the forests in Finland. There are some 632,000 individual forest owners in Finland, if all those who own forest holdings jointly and forest holdings larger than two hectares are included. This means that nearly 12 percent of Finns are forest owners. The Government owns 25%, forest industries 10%, and municipalities and parishes 5% of the Finnish forested area. Private forest estates are relatively small, one estate being on average of 30 hectares. The number of private forest holdings of at least two hectares is about 347,000. Private forestry has a key role in Finland, because 80% of Finnish wood used by the forest industry comes from privately owned forests. Despite the 13% reduction in forest area in 1944 due to the losses of land in the war, Finland's wood resources are currently more plentiful than in the pre-war years. According to the 1st national forest inventory (1921 1924), the total growing stock volume was 1 588 million m³. The latest estimate, based on the 11th inventory, is 2 332 million m³. The annual average of total drain has been 69 million m³ during the last five years. (Source: Finnish Forest Research Institute) Total growing stock Annual growth 2 332 million m³ 103 m³/ha 105 million m³ 4.6 m³/ha Forestry employed 23 000 people in 2011, as compared with 63 000 in 1980. The Finnish biomass supply chains are well developed and fairly effective. There have been government financed specialized development programs already in the 1990 s. The logistics can be partly integrated with the well-functioning forest industry transportations. Although the distances are quite long, the logistics work everywhere in Finland. The economically maximum transportation distance by truck has increased significantly over the past decades. It can be well over 100 km nowadays. 20

3.6 Development stage of domestic solid biomass combustion technology Using bioenergy has a long history in Finland. It has been used both in small scale at homes and in larger heat and power plants. The market has created boiler manufacturers. There are lots of boiler manufacturers in Finland, but most of them are fairly small companies operating in domestic market only. The regulation on boiler emissions in Finland has not been as strict as it is in many central European countries, especially when considering small boilers. That has led to situation where there is a lot of variation in the quality of the boilers available in the market. The boiler manufacturers exporting boilers to other European countries of course have to meet the demands abroad. Newer boiler manufacturers have even developed small scale CHP production technology. Long history of using biomass has accumulated lots of know how in the country. There are plenty of boiler manufacturers and planners having very good knowledge and experience of heat production from solid biomass. Certifying boiler installers has recently started also in Finland. Many boiler manufacturers educate their own installers themselves. The heat entrepreneurs are trained in annual seminars organized by Motiva and Bioenergy association. 21

4 Finland s solid biomass boiler market beyond 100 kw heat load 4.1 Number of domestic installations of solid biomass boilers The statistical data on biomass boiler installations in Finland are not complete. In this chapter there are some estimates of biomass boiler installations in total. The annual increment of the boilers is not known because of the lacking statistical data about small scale biomass boilers. Table 1 shows the number of biomass boilers 100-1000 kw in Finland. Most of them are in detached houses and farms or in larger heating plants. Table 1 The number of biomass boilers over 100 kw and under 1 MW (Tuomi 2011). > 100 kw pcs Detached house 3 700 Row house 700 Apartment house 300 Others 3 700 Total 8 000 In detached houses firewood is the most important fuel but in the larger scale wood chips are the most important fuel (Table 2). The firewood boilers are often very small and not in the scope of this study. Only about 2 % (3 700) of the boilers are over 100 kw. Table 2 Biomass boilers and used fuels in biomass boilers under 1 MW (Tuomi 2011) Firewood Wood chips Pellets Peat Agrobiomass Total psc GWh psc GWh psc GWh psc GWh psc GWh psc GWh Detached house 171 900 5 000 29 000 1 600 17 200 350 3 100 120 700 30 222 000 7 000 Row house 700 40 400 10 3 1 000 60 Apartment house 200 10 100 10 10 300 30 Others 4 500 1 300 600 250 100 140 5 000 1 700 Total 172 000 5 000 34 000 3 000 18 000 600 3 000 300 700 30 228 000 8 800 There are over 500 biomass boilers maintained by heat entrepreneurs (Figure 21). New installations have been quite rare in recent years partly because of changes in financing situation. Heat entrepreneurs use mostly wood chips and are important local actors. 22

Figure 21 Development of the number of installed biomass boilers for heat entrepreneurs (TTS 2014) 4.2 Capacity of domestic installations of solid biomass boilers The use of district heating has grown steadily and the use of biomass in production has also grown (Figure 22, Figure 23). There were 735 stationary heating plants whose capacity was 13 610 MW in 2013. Moreover, there were 375 transportable heating plants with total capacity of 1 270 MW. Totally the heating capacity feeding the district heat networks was 23 270 MW of which the rest part was the heating capacity of CHP plants. District heating is important in space heating in Finland. The market share of district heating was 46 % in 2012. Production capacity GW Heat load of the customers GW Figure 22 District heat capacity and connected heat load of the customers. (Finnish Energy industries) 23

Figure 23 Fuels for district heat and CHP 56,8 TWh in Finland year 2013 The average capacity of heat entrepreneur owned plant is 600-800 kw, the size has an increasing trend. The capacity range can be between 300 kw 4 MW. 24

5 Result of Stakeholder Interviews The main objective of the stakeholder interviews performed was to identify at least 3-4 market segments in total, where a business case for commercial in-house or district heating with solid biomass seems to be most likely. In every country 2-3 biomass boiler manufacturers and 2-3 district heating developers/operators were interviewed for this purpose. Where those target groups were not existing domestic representatives of foreign biomass boiler manufacturers or domestic biomass associations and biomass experts were interviewed instead. 5.1 List of interviewees Table 3. Overview of interviewed key stakeholders to identify promising market segments for Bioenergy4Business activities. Name Function Company Type of business Hannes Tuohiniitty Juha Viirimäki Bioenergy specialist Bioenergy advisor Bioenergia ry Forestry center Bioenergy association Bioenergy promotion Interview details Physical Physical Website www.bioenergia.fi www.metsakeskus.fi Esa Kukkonen Director Renewa Oy Heat plan projects Telephone www.renewa.fi Timo Karjalainen Project manager, Bioenergy Kajaani University Consortium/ Cemis-Oulu Kimmo Kantalainen Director Ariterm Oy Source: Motiva Business development and promotion of bioenergy Boiler manufacturer All interviewees were asked the same following four questions. Telephone Telephone www.oulu.fi/kajaanin yliopistokeskus/bioen ergia www.ariterm.fi What are the most promising bioenergy sources being available in larger quantities locally (at reasonable prices) in Finland? What are promising market-segments (where a business case seems to be most likely) in Finland? Due to which technical, economic etc. criteria did you select these promising market segments and which influence do these criteria have regarding market penetration? In case you sell biomass boilers abroad: To which countries do you export and what are the promising market segments there? The interview guide that was used for all interviews can be seen at ANNEX xx of deliverable D2.2 Summary overview of promising market segments for bioenergy. The identified market segments are those on which national project activities will be focused on throughout project lifetime. The market segments identified may vary from partner country to partner country. 25

5.2 The most promising bioenergy sources In general, biomass availability was not considered to be a major obstacle for bioenergy growth. The potential of forest biomass in Finland is huge and the annual growth exceeds the cuttings. For the heating plants forest wood-chips are the largest source of biomass. The question in Finland is usually not the availability of biomass; not even in long term contracts. Regionally there can be some competition for wood chips. The supply depends heavily on existing support schemes. Pellets are especially suitable for fuel switch to replace fossil fuels. In addition, they are also good for back up heat production and to cover peak loads. Currently new pellet boiler capacity planned and in the pipe line is almost 200 MW. One major advantage of pellet is that it can be burned as dust. Straw is not widely used in Finland. Reed Canary Grass was tried in large scale about ten years ago, but it was not profitable, hence has not become a common fuel for heating purposes. Biomass from landscape conservation is also not widely used, but there are some cases where heat entrepreneurs can use it near larger cities and the citizens can bring it for free. 5.3 The most promising market segments According to the interviews and statistics, the most prominent market segments in Finland are in industry sector, partly because so far it has not received that much support for using bioenergy. Especially potential are Business parks or industrial zones in locations which are not connected to district heating network represent a high potential. The following three segments were selected for further promotion in the project: - metal industry - food processing industry - other small and medium sized manufacturing industry (based on statistical classification) Metal industry is seen potential, because it is profitable and has capability to invest. The need for process heat from biomass is growing, hence potential is seen in all industry which uses steam. There were also several other market segments which were mentioned, but were not selected as target segments of the B4B project. In the industrial sector the mining industry was regarded among the segments to have potential demand for biomass heat, it is concentrated in Northern Finland and is fairly large scale business. The current economic situation is not the most suitable for development work in the sector, so it was not selected. In agricultural sector the drying of grain is considered to have a growing market, but it was not selected either. The limitation there is that the investment cost for new grain dryer is very high compared to the economic resources of the farmers. Centralized dryers could solve the problem, but it takes more time and effort to make such arrangements. In public sector the schools and other public buildings still have potential, but were not selected here among the most promising segments because a lot has already been done in that sector. The roughly estimated potential for new mid size heating plants is expected to be almost 1 000 plants with the average size of 2-3 MW. This is the total amount for both industry and public sectors. The regional development organizations have conducted local projects to study the accurate potential for bioenergy use in 26

existing buildings and companies. However, such data is not available on the national level and couldn t be used for this report. It is interesting to notice that current market situation is not favourable for new CHP plants. Medium size heating plants are more popular and large plants minimize the electricity share because price is low. 5.3.1 Criteria for selection of promising market segments and their influence regarding market penetration 5.3.1.1 State Risk and support In general the state risk is very limited in Finland although there are some factors which could be more favourable for bioenergy. Support scheme should be in force for longer periods and hence be more predictable. Heat from biomass is very positively mentioned in the national energy and climate strategy. Most of the 2020 renewable energy target is to be covered by bioenergy. The new government has selected bioeconomy as one of the key areas to be developed in the following four-year period. Areal planning in some regions does not take district heating needs into consideration, so for example buildings can be scattered causing that it is not profitable to construct a district heating network. The regional planning authorities could more favour district heating in the buildings of a new area. More demand would of course increase the profitability of district heating. 5.3.1.2 Technical questions There are no major technical questions to address, but like with state risk, some points were raised by the interviewees. In general the quality level of biomass heat related services is good, e.g. installers and consultants are easily available. It was mentioned that sometimes system maintenance can be a problem, and there the role of the building manager is important. When a company is considering a switch to bioenergy, the existing infrastructure, especially fuel storage can cause practical level challenges. The needs of biomass storage were usually not considered when oil was used. Other smaller concerns can arise about the bioenergy emissions, pipe length requirements and fuel supply logistics. Sometimes problems can arise due to fire protection rules and their varying interpretation in different regions. 5.3.1.3 Economic questions Costs are the most important factor for all heat users when they make investment decisions. Finland has traditionally had fairly low subsidies and limited obligations or quotas as compared to many other European countries. In current economic situation the access to capital can be difficult to arrange, even though the biomass heat project is profitable. 27

In some industry sectors finding capital is not as big a problem. Their customers require the production to be environmentally friendly, i.e. also company image is important. Social acceptance and sustainability can have influence on decisions, especially if the company has international customers. On the other hand, for heat entrepreneurs finding the capital is one of the major problems facing new projects. There has been variation in oil price and currently investments do not seem to be as profitable as before because oil price is low. The cost of labour is high, raising partly the investment costs of bioenergy which needs more maintenance than oil. Price of wood chips has been stable so the fuel costs are fairly easy to predict. On the other hand investment subsidy and the subsidy for harvesting biomass from forest are changing over time fairly often which causes uncertainty for investors. In Finland industry and agriculture sectors can reclaim back part of the energy tax they pay. Lowering the level of this subsidy would encourage the demand for bioenergy. Considering the regional economic effects are in favour of bioenergy. The local economy benefits of using local fuel, because it increases tax income and brings employment opportunities. This aspect should be emphasized even more when evaluating the investments. The investment size has also an effect on the profitability and options available. For example the customer (SME, municipality) should have a need at least for a 300 kw - 500 kw boiler if he wants to outsource heat production to heat entrepreneur. Public procurement of biomass heating or own boiler can be a burdensome process. Therefore it could be easier to remain in the old fossil fuel based system and raise the taxes to cover the high operating cost of it. Solution is to raise awareness and giving easy solutions and examples to communal decision makers. 5.3.1.4 Organisational questions Organisational issues are at quite a good level in Finland. The main concern mentioned was that the investment subsidy and subsidy for harvesting biomass from forest have been changing over time fairly often causing uncertainty for investors. Therefore stability of subsidy schemes would be highly valued by the key market actors. Other factor needing improvement is the availability of training, information and guidance. Almost all the key actors would benefit of further information. Heat entrepreneurs with good know how on the business are quite rare and their skills vary significantly. Also the SME s need more information and training in order to understand and optimize their energy systems. There is an active district heating association operating under the Finnish Energy Industries. The smaller heat providers, i.e. heat entrepreneurs, are organised inside the Finnish Bioenergy Association. Both associations have many members and promote the district and local heating actively. Many companies want to outsource the heat production because energy is not their core business. This is also a suitable moment at the same time to switch from old fossil fuel system to bioenergy or other renewable energy system. 28

5.3.1.5 Motivation of investors The conditions affecting investors motivation have no major issues to be improved. There are already many bioenergy plants operating, so the whole energy production chain is shown to work well. One of the most important issues is the security of fuel supply for long term at competitive price. Also this aspect has a good track record in Finland. Some municipalities want to increase the use of local fuels, because local fuels have a positive impact on the local economy. At the same time the policy makers are interested only in savings. 5.3.2 Summary of the most important factors that influence the success of market introduction at the most promising market segments The most prominent market segments in Finland are in industry sector. Especially potential are business parks or industrial zones in locations which are not connected to district heating network. The following three segments were selected for further promotion in the project: metal industry, food processing industry and other small and medium sized manufacturing industry. One of the most important factors is the security of fuel supply for long term at competitive price. In favour of bioenergy is still its price, despite the fairly low oil price. Improvement is needed in the availability of training, information and guidance. The key actors would benefit of further information to support their decision making. Heat entrepreneurs and industry need more information and training in order to understand and optimize their energy systems. Most of the potential industrial customers have lack of knowledge about bioenergy heating, even though there would be information material and guidance available. Therefore there is need for active contacting towards the selected industry segments. The information given to the target segments should include also financing related issues. In addition, the companies and local administration s planning department may need guidance on permitting procedure and planning. Many companies want to outsource the heat production because energy is not their core business. There is need to develop heat entrepreneurs services and marketing and make them more credible for the industry companies. Stable support policy and predictability of market conditions are important for the whole bioenergy market. Unfortunately, there is not much a single company can do to influence the decision makers. 5.4 Most promising market segments abroad view from Finnish market actors There are tens of boiler manufacturers in Finland, most of them are small and operating in the domestic market only. The most promising markets in the European Union are France and Great Britain. Also Sweden has 29

traditionally been one destination country of boiler exports. The bio boiler exports to countries outside the EU are less extensive, although some of the companies make deals all over the world. In other countries there is still huge potential for wood boilers in district heating. For the industry sector the demand for renewable energy based process heat is expected to grow. Combustion of pellet dust has made technical progress which enables new customers in the industry sector. 30

6 Characterisation of promising market segments (facts & figures) 6.1 Summary selection of most promising market segments The most promising market segments are summarized in previous chapter 5. Table 4 presents oil, heat and natural gas consumption in the selected industrial sectors. Public sector is significant user of heat, too, but major part of public buildings are already connected to district heating networks. In addition, there are no separate statistics just on public sectors. Four industrial sectors were selected as the most promising ones and are presented in more detail in the following chapters. The statistics of energy use in industry can have large categories and hence is less detailed, meaning that some of the information given includes data of sectors which are not targeted in the project. Table 4. Usage of oil, heat and Natural gass (GWh ) 2013 in the industry sections mentioned in the interviews. Sector Oil Heat Natural gas Total Ranking Mining industry 767 47 814 5 Food Processing 644 1 615 246 2 505 3 Manufacture of basic metals 2 201 1 017 575 3 793 4 Manufacture of machines and metal products 537 1 072 67 1 676 2 Other small and medium sized manufacturing 1 1 237 323 372 1 932 industry Total 5 386 4 074 1 260 10 720 6.2 Metal industry 6.2.1 Structural and business data Metal industry is divided into two separate sectors. Manufacture of basic metals has quite large centralized facilities and companies (Table 5). Manufacture of machines and metal consist of small businesses and facilities and seems to be a more promising sector for using biomass. These small companies can be found all over Finland while manufacturing of basic metals is more concentrated to coastal areas. Table 5. Business statistics of the Finnish metal industry. Data 2012. Branch Number of Number of Turnover in Turnover/ Enterprises Employees 1,000 Euros Employee Manufacture of basic metals 178 14 527 8 435 581 Manufacture of machines and metal products 9 724 114 994 27 383 238 Total 9 902 129 521 35 818 277 Source: Statistic Finland 2013, illustrated by Motiva. 31

6.2.2 Final energy consumption Coal is the main fuel for manufacturing basic metals in Finland (Figure 24). Wood can compete with coal in small scale but in large scale it is still difficult. Large energy production facilities use so much fuel that wood should be transported from far distances which of course raises the costs. 30000 25000 20000 15000 10000 5000 Energy GWh Others Natural Gas Coal Heat Electricity Wood Peat Oil 0 2007 2008 2009 2010 2011 2012 2013 Figure 24. Development of the final energy consumption (GWh/a) of manufacturing of basic metals in Finland in 2007-2008. Source: Statistic Finland, illustrated by Motiva. Manufacturing machines and metal products consumes a lot of heat and oil which makes them very potential for shifting to bioenergy (Figure 25). This kind of production is smaller than manufacturing metals so that increases the interest in investing to bioenergy. 32

6000 5000 4000 3000 2000 1000 Energy GWh Others Natural Gas Coal Heat Electricity Wood Peat Oil 0 2007 2008 2009 2010 2011 2012 2013 Figure 25. Development of the final energy consumption (GWh/a) of manufacturing machines and metal products in Finland in 2007-2013. Source: Statistic Finland, illustrated by Motiva. 6.2.3 Estimation of the CO 2 -mitigation potential (direct emissions for stationary combustion) The potential of CO2-mitigation is estimated from oil use in metal industry in a short time period. The potential is estimated for short time period till year 2020. In Finland the goal for long run is to stop using oil in heating. Two branches of metal industry have totally different kind of use and production of energy. Manufacture of machines and metal products have more enterprises and their size is smaller than in manufacture of basic metals. That makes them more potential to shifting from oil to bioenergy (Table 6). Total emission reduction is estimated to be little less than 153 000 t/a. Table 6. CO 2 -reduction potential estimated from oil use in metal industry. Average oil Potential 2010-2013 GWh % GWh Manufacture of basic metals 3 911 10 % 391 Manufacture of machines and metal products 648 30 % 194 Total 4 558 585 CO 2 emission factor light fuel oil* Emission reduction potential * Emission factor used in Finland 261 tco 2 /GWh 152 770 t/a 33

6.3 Food processing industry 6.3.1 Structural and business data Food processing industry has been divided into production of food products and beverages. Of these two, food production is a much bigger branch in Finland (Table 7). Food production industry needs lots of energy which makes them interested in finding cheaper heat and steam. The industry is also investing in energy efficiency by using heat pumps for utilizing waste heat and also for cooling purposes. Table 7: Business statistics of the Finnish Food processing industry. Data 2012. Branch Number of Number of Turnover in Turnover/ Enterprises Employees 1,000 Euros Employee Manufacture of food products 1 739 29 660 9 941 335 Manufacture of beverages 88 3 292 1 255 381 Total 1 827 32 952 11 196 340 Source: Statistic Finland 2013, illustrated by Motiva. 6.3.2 Final energy consumption Food production industry uses lots of heat and that makes it very promising sector for bioenergy (Figure 26). The use of oil has been decreasing steadily but fairly slowly. 6000 Energy GWh 5000 4000 3000 2000 1000 0 2007 2008 2009 2010 2011 2012 2013 Others Natural Gas Coal Heat Electricity Wood Peat Oil Figure 26. Development of the final energy consumption (GWh/a) of Finnish food processing industry in 2007-2013. Source: Statistic Finland, illustrated by Motiva. 34

6.3.3 Estimation of the CO 2 -mitigation potential The potential of CO2-mitigation is estimated from oil use in food processing industry. The potential is estimated for short time period till year 2020. In Finland the goal for long run is to stop using oil in heating. Food processing industry uses heat and steam. The energy production is quite small so the shifting to bio is profitable and interesting (Table 8). Total emission reduction is estimated to be little less than 52 000 t/a. Table 8. CO 2 - reduction potential estimated from oil use in food processing industry. Average oil Potential 2010-2013 GWh % GWh Food processing industry 663 30 % 199 CO 2 emission factor light fuel oil* Emission reduction potential * Emission factor used in Finland 261 tco 2 /GWh 51 932 t/a 6.4 Other small and medium sized manufacturing industry 6.4.1 Structural and business data Other factory industry consists mostly of small and medium sized companies and facilities (Table 9). The size of these businesses is good for heat entrepreneurs to provide heat. Table 9: Business statistics of the other factory industry in Finland. Data 2012. Branch Number of Number of Turnover in Turnover/ Enterprises Employees 1,000 Euros Employee Printing and reproduction of recorded media 1 126 8 828 1 434 162 Manufacture of other non-metallic mineral products 897 13 765 2 837 206 Manufacture of furniture 1 027 7 280 1 175 161 Other manufacturing 1 301 4 484 752 168 Total 4 351 34 357 6 197 180 Source: Statisic Finland 2013, illustrated by Motiva. 35

6.4.2 Final energy consumption Many of these facilities use oil which makes them more promising for shifting to bioenergy (Figure 27). The use of coal has decreased in recent years. 7000 6000 5000 4000 3000 2000 1000 Energy GWh Others Natural Gas Coal Heat Electricity Wood Peat Oil 0 2007 2008 2009 2010 2011 2012 2013 Figure 27: Development of the final energy consumption (GWh/a) of other processing industry in Finland in 2007-2013. Source: Statistic Finland, illustrated by Motiva. 6.4.3 Estimation of the CO 2 -mitigation potential The potential of CO2-mitigation is estimated from oil use in small and medium sized manufacturing industry. The potential is estimated for short time period till year 2020. In Finland the goal for long run is to stop using oil in heating. The small and medium sized industry might be the branch with the highest potential in shifting to bioenergy (Table 10). Total emission reduction is estimated to be little less than 98 000 t/a. Table 10. CO 2 - reduction potential estimated from oil use in other small and medium sized manufacturing industry. Other small and medium sized manufacturing industry Average oil Potential 2010-2013 GWh % GWh 1 247 30 % 374 CO 2 emission factor light fuel oil * CO 2 e mission reduction potential * Emission factor used in Finland 261 tco 2 /GWh 97 640 t/a 36

6.5 Summary The price of wood chips and pellets are competitive with oil and natural gas. The price development of wood chips and pellets are much more stable than of fossil fuels and that makes them a more interesting choice. The oil price has dropped quite fast recently but the general understanding is that it will rise up again. It might have effect on the interest to invest in bioenergy, especially in small scale production. In Finland coal is mostly used in large scale heat and power plants whereas wood is more popular in smaller scale energy production. The price of coal has been low for couple of years. There have been attempts to keep the price of wood and peat competitive with coal, but still the low price has increased the use of coal for a couple of years. There are some trials of burning pellets with coal and also producing bio coal from wood. These might increase the use of wood in large scale energy production. Food processing industry is potential for shifting to bioenergy because it uses lots of heat and is dispersed all over Finland. Finland is a large country and transportation of wood chips is rarely profitable in long distances. Metal industry has large facilities producing basic metals. Although the industry uses also large amounts of coal, for the project it is not as promising a market as is the manufacturing of metal products. Producing metal products is smaller scale business but more potential shifting to bioenergy. The segment Other small and medium scale manufacturing production uses still considerable amounts of oil and is therefore very potential customer for heat entrepreneurs who use mostly wood chips for heat production. Estimated CO2-mitigation potential is in total about 300 000 tco 2 /a. The largest potential is in metal industry but small and medium sized industry is also significant and there shift from oil to bioenergy might be more probable. 37

7 Literature Finnish Energy Industries. District Heating in Finland 2013. Statistical yearbook. http://energia.fi/en/statisticsand-publications/district-heating-statistics/district-heating Finnish Forest Insdustries. http://www.forestindustries.fi/ Metla, the Finnish Forest Research Institute. Metsähakkeen alueellinen korjuupotentiaali ja käyttö. 2013 http://www.metla.fi/julkaisut/workingpapers/2013/mwp267.pdf Metla, the Finnish Forest Research Institute. Kokopuuta, rankaa, latvusmassaa & kantoja teknologisia ratkaisuja energiapuun hankintaan. 2012. http://www.metla.fi/tapahtumat/2012/bioloppuseminaari/pdf/bio_19-4-2012_08-laitila.pdf Statistics Finland http://pxnet2.stat.fi/pxweb/pxweb/en/statfin/ Statistics Finland. "Statistics Finland, Energy statistics 2002 2014 (years 2001 2013)". Helsinki 2014. http://www.tilastokeskus.fi/til/ene_en.html Tuomi, Seppo. Esiselvitys energiatehokkuusdirektiivin edellyttämistä tarkastuksista biopolttoaineilla toimiville lämmityskattiloille. 2011. 39

8 Abbreviations AAAA Text Abkürzung 41

9 List of figures FIGURE 1: COUNTRIES WHERE BIOENERGY4BUSINESS WILL BE IMPLEMENTED.... ERROR! BOOKMARK NOT DEFINED. FIGURE 2 TOTAL ENERGY CONSUMPTION IN FINLAND 2013.... 8 FIGURE 3 USAGE OF HARD COAL... 9 FIGURE 4 USAGE OF OIL... 9 FIGURE 5 USAGE OF NATURAL GAS... 10 FIGURE 6 USAGE OF PEAT... 10 FIGURE 7 THE ORIGIN OF COAL 2013... 11 FIGURE 8 THE ORIGIN OF OIL 2013... 11 FIGURE 9 AVERAGE IMPORT PRICES OF FOSSIL FUELS FROM 1993 TO 2011... 12 FIGURE 10 FOREST LAND IN FINLAND (SOURCE: LUKE)... 13 FIGURE 11 THE USAGE OF FOREST CHIPS AND NATIONAL TARGET FOR THE YEAR 2020... 14 FIGURE 12 USAGE OF WOOD IN SMALL SCALE.... 14 FIGURE 13 ESTIMATE OF FOREST WOOD CHIPS HARVESTING POTENTIAL (METLA 2013).... 15 FIGURE 14 BALANCE OF FOREST WOOD CHIPS POTENTIAL AND USE IN MUNICIPALITIES (METLA 2012).... 16 FIGURE 15. PRICE DEVELOPMENT OF FOREST CHIPS IN FINLAND. ALL FIGURES IN EURO/MWH... 16 FIGURE 16 USAGE OF THE BLACK AND OTHER CONCENTRATED LIQUORS AND NATIONAL TARGET FOR THE YEAR 2020... 17 FIGURE 17 USAGE OF INDUSTRIAL WOOD RESIDUES AND NATIONAL TARGET FOR THE YEAR 2020... 18 FIGURE 18 PRICE DEVELOPMENT OF WOOD CHIPS, SAW DUST AND BARK. ( /MWH)... 18 FIGURE 19. USAGE OF WOOD PELLETS IN FINLAND. (TWH)... 19 FIGURE 20. PRICE DEVELOPMENT OF WOOD PELLETS IN FINLAND.... 19 FIGURE 21 DEVELOPMENT OF THE NUMBER OF INSTALLED BIOMASS BOILERS FOR HEAT ENTREPRENEURS (TTS 2014)... 23 FIGURE 22 DISTRICT HEAT CAPACITY AND CONNECTED HEAT LOAD OF THE CUSTOMERS. (FINNISH ENERGY INDUSTRIES)... 23 FIGURE 23 FUELS FOR DISTRICT HEAT AND CHP 56,8 TWH IN FINLAND YEAR 2013... 24 FIGURE 24. DEVELOPMENT OF THE FINAL ENERGY CONSUMPTION (GWH/A) OF MANUFACTURING OF BASIC METALS IN FINLAND IN 2007-2008. SOURCE: STATISTIC FINLAND, ILLUSTRATED BY MOTIVA.... 32 FIGURE 25. DEVELOPMENT OF THE FINAL ENERGY CONSUMPTION (GWH/A) OF MANUFACTURING MACHINES AND METAL PRODUCTS IN FINLAND IN 2007-2013. SOURCE: STATISTIC FINLAND, ILLUSTRATED BY MOTIVA.... 33 FIGURE 26. DEVELOPMENT OF THE FINAL ENERGY CONSUMPTION (GWH/A) OF FINNISH FOOD PROCESSING INDUSTRY IN 2007-2013. SOURCE: STATISTIC FINLAND, ILLUSTRATED BY MOTIVA.... 34 FIGURE 27: DEVELOPMENT OF THE FINAL ENERGY CONSUMPTION (GWH/A) OF OTHER PROCESSING INDUSTRY IN FINLAND IN 2007-2013. SOURCE: STATISTIC FINLAND, ILLUSTRATED BY MOTIVA.... 36 43

10 List of tables TABLE 1 THE NUMBER OF BIOMASS BOILERS OVER 100 KW AND UNDER 1 MW (TUOMI 2011).... 22 TABLE 2 BIOMASS BOILERS AND USED FUELS IN BIOMASS BOILERS UNDER 1 MW (TUOMI 2011)... 22 TABLE 3. OVERVIEW OF INTERVIEWED KEY STAKEHOLDERS TO IDENTIFY PROMISING MARKET SEGMENTS FOR BIOENERGY4BUSINESS ACTIVITIES.... 25 TABLE 4. USAGE OF OIL, HEAT AND NATURAL GASS (GWH ) 2013 IN THE INDUSTRY SECTIONS MENTIONED IN THE INTERVIEWS.... 31 TABLE 5. BUSINESS STATISTICS OF THE FINNISH METAL INDUSTRY. DATA 2012.... 31 TABLE 6. CO 2 -REDUCTION POTENTIAL ESTIMATED FROM OIL USE IN METAL INDUSTRY.... 33 TABLE 7: BUSINESS STATISTICS OF THE FINNISH FOOD PROCESSING INDUSTRY. DATA 2012.... 34 TABLE 8. CO 2 - REDUCTION POTENTIAL ESTIMATED FROM OIL USE IN FOOD PROCESSING INDUSTRY.... 35 TABLE 9: BUSINESS STATISTICS OF THE OTHER FACTORY INDUSTRY IN FINLAND. DATA 2012.... 35 TABLE 10. CO 2 - REDUCTION POTENTIAL ESTIMATED FROM OIL USE IN OTHER SMALL AND MEDIUM SIZED MANUFACTURING INDUSTRY.... 36 45

ABOUT THE AUTHORS About the authors MR TIMO MÄÄTTÄ (GROUP LEADER) Mr. Timo Määttä is a renewable energy expert. His work experience in the field of bioenergy is almost 20 years. Timo is in charge of the bioenergy projects in Motiva, including also training, dissemination of information, project development and execution. He has been a project manager of several national and international renewable energy projects. MS KIRSI SIVONEN (EXPERT) Ms Kirsi Sivonen is a bioenergy energy expert in Motiva. She is specialized in heat entrepreneurship, regional economic benefits of bioenergy and renewable energy auditing in municipalities. She has almost 10 years work experience. MS PÄIVI SUUR-USKI (EXPERT) Ms Päivi Suur-Uski has worked for 15 years in the energy field ranging from consumers to large companies. ABOUT THE AUSTRIAN ENERGY AGENCY The Austrian Energy Agency is the national centre of excellence for energy. New technologies, renewable energy, and energy efficiency are the focal points of our scientific activities. The objectives of our work for the public and the privat e sector are the sustainable production and use of energy and energy supply security. We are an independent think tank that manages knowledge, provides the basis for well-founded decision making, and develops suggestions for the implementation of energy-related measures and projects. We advise decision-makers in politics, science, and the industry on the basis of our mainly scientific work. We prepare political, energy and economic expert opinions, economic feasibility analyses, social analyses, feasibility studies, and evaluations.