Profu Profu was established 1987 and has since then been an independent research and consultant company. The company works with strategic analysis within the fields of energy and waste management and has today 20 employees. Analyzing the fuel market Erik Axelsson, Profu Wood Energy and Cleantech Workshop, 24 August 2011

Profu Research and consulting company Energy Waste Environment Locally Nationally Internationally

Outline The importance of analyzing the fuel market Drivers for wood fuel prices – experience from the developed Swedish wood fuel market Development of district heating in European– results from the Pathways project Bio energy flows in Europe How to construct consistent energy price scenarios

The importance of analyzing the fuel market

Energy prices are decisive for profitability

Energy prices are not stable Source: Swedish Energy Agency Price of “tops and branches” in Sweden

Energy prices can be local

Policy instruments can have a great impact Source: Noordpool and Svenska Kraftnät

One needs to understand the (local) energy market to be able to run profitable energy companies

Outline The importance of analyzing the fuel market Drivers for wood fuel prices – experience from the developed Swedish wood fuel market Development of district heating in European– results from the Pathways project Bio energy flows in Europe How to construct consistent energy price scenarios

Wood fuel is a significant part of the Swedish energy system Source: Swedish Energy Agency

Fuel for district heating Source: Waste Refinery There is a established market for wood fuel in DH in Sweden, which Profu follows

Price Oil Substitution CHP Transportation fuel Supply Quantity Supply and demand sets the wood fuel price

Factors that decrease supply of wood fuel Decreasing activity in saw mills Increasing activity in pulp mills Decreasing use of new wood fuel fractions, such as stumps and residues

Factors that increase demand for wood fuel Increasing demand of district heat Decreasing use of waste fuel Increasing price of electricity certificates (e.g. due to poor development of wind power) Strong development of biofuel production (transportation fuel based on biomass) High export to other regions/countries

Scenario with high wood fuel price: Saw industry stagnates but pulp industry flowers. Stumps etc. are not used intensively Increasing demand of district heat and decreasing use of waste fuel Increasing price of electricity certificates (e.g. slow development of wind power) Strong development of biofuel production (transportation fuel based on wood) High export of wood fuel to other countries

By analyzing factors that influence fuel prices (e.g. wood fuel) one can make more qualified projections of the future fuel price.

Development of the European district heating: Results from the Pathways project

Pathways to Sustainable European energy systems

Se more on: Five year interdisciplinary project More than 40 researches More than 30 topics – e.g. DH Two main pathways are proposed: Policy Pathway, more demand side oriented Market Pathway, more supply side oriented

Potential for DH in Europe

Development of DH in Europe PolicyMarket

Development of DH in Europe Bio mass Natural gas

Increasing use of wood fuel in district heating is expected in Europe, but level of increase depends on the characteristics of the pathway of the European energy system

Bio energy flows in Europe

Bio energy trade is a cost effective option for meeting CO 2 emission targets Hansson and Berndes (2009) Future bioenergy trade in EU – modelling trading options from cost -effective perspective.

Bio mass supply in Europe Source: Refuel, 2008.

Supply of biomass and total energy use Source: Refuel, 2008 and Eurostat, 2011.

Supply of wood fuel compared to total energy use Flow of bio energy

Example of expected bio energy flows in Europe Hansson and Berndes (2009)

Sweden is not seen as a major net exporter of bio energy, while the Baltic states are.

Outline The importance of analyzing the fuel market Drivers for wood fuel prices – experience from the developed Swedish wood fuel market Development of district heating in European– results from the Pathways project Bio energy flows in Europe How to construct consistent energy price scenarios

Comparison of two investment options Bio CHP NGCC Inv: 100 M€ O&M: 1.2 M€/yr. Inv: 95 M€ O&M: 0,9 M€/yr. Biomass: 98 MW Heat: 80 MW Elec.: 28 MW NG: 185 MW Heat: 80 MW Elec.: 83 MW Which option is more robust in a future (2030) energy market?

Energy price scenarios What: Different energy price scenarios that outline possible cornerstones of the future energy market. “Package sensitivity analysis” Use: Analyze robustness of (future) investments with long life time. Important: Consistency within each scenarios. It is not: Energy price prognosis

Electricity price and associated CO 2 emissions Fuel prices and well-to-gate CO 2 emissions Policy instruments Fossil fuel market model Fossil fuel prices on the European commodity market Bio energy market model Biofuel price and CO 2 emission consequences of marginal use of biofuel Electricity market model Price and reduction of CO 2 emissions for heat Heat market model Principle method for constructing consistent price scenarios

Construction of scenarios Fossil fuel prices High Low Price on carbon emissions High Low High and low fossil fuel prices are combined with high and low prices for carbon emissions, to give scenarios with consistent price relations. Price of electricity and wood fuel for sceanrio 1 Sc 1 Sc 2 And so on

Electricity price and associated CO 2 emissions Fuel prices and well-to-gate CO 2 emissions Policy instruments Fossil fuel market model Fossil fuel prices on the European commodity market Bio energy market model Biofuel price and CO 2 emission consequences of marginal use of biofuel Electricity market model Price and reduction of CO 2 emissions for heat Heat market model Principle method for constructing consistent price scenarios

Electricity market model The electricity price is set to the production cost of the build-margin technology with lowest cost of: 1.Conventional coal 2.Coal with CCS 3.NGCC (4. Nuclear)

Electricity price and associated CO 2 emissions Fuel prices and well-to-gate CO 2 emissions Policy instruments Fossil fuel market model Fossil fuel prices on the European commodity market Bio energy market model Biofuel price and CO 2 emission consequences of marginal use of biofuel Electricity market model Price and reduction of CO 2 emissions for heat Heat market model Principle method for constructing consistent price scenarios

Bio energy market model Price of wood fuel i set to willingness to pay for two optional marginal user of wood fuel: 1.Co-combustion in coal power plants. 2.Biofuel producers Oil Substitution CHP etc Supply Co-firing in coal power plants Quantity Price Oil Substitution CHP etc Supply Co-firing in coal power plants Quantity DME production Price

Example of energy market scenarios (around 2030) Crude Oil (USD/barrel) Coal (USD/tonne) Natural gas (USD/Mbtu) Scenario Fuel prices 130 Carbon price (€/tonne) RES-E support (€/MWh) Policy instruments

Electricity price and associated CO 2 emissions Fuel prices and well-to-gate CO 2 emissions Policy instruments Fossil fuel market model Fossil fuel prices on the European commodity market Bio energy market model Biofuel price and CO 2 emission consequences of marginal use of biofuel Electricity market model Price and reduction of CO 2 emissions for heat Heat market model Principle method for constructing consistent price scenarios

Base load build margin CO 2 (kg/MWh el ) El. price (€/MWh) Scenario CoalNGCCCoal Electricity market Coal CCS Wood fuel price (€/MWh) NG price (€/MWh) - incl. CO 2 -price Fuel market Example of energy market scenarios (around 2030)

Comparison of two investment options Bio CHP NGCC Inv: 100 M€ O&M: 1.2 M€/yr. Inv: 95 M€ O&M: 0,9 M€/yr. Biomass: 98 MW Heat: 80 MW Elec.: 28 MW NG: 185 MW Heat: 80 MW Elec.: 83 MW Which option is more robust in a future (2030) energy market?

Comparison of two investment options

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