©Hans Hellsmark 29 August, 2015 Chalmers University of Technology Realizing the potential of gasified biomass in the EU Hans Hellsmark Staffan Jacobsson Energy and Environment/ESA Chalmers Technical University Policy challenges in shifting from pilot/demo plant phase to commercial phase

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology Outline Introduction and purpose Case studies Cost to absorb technical risk Financial magnitude of market risk Contextual factors and policy options

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology Introduction (1) Strong push towards developing fossil and biomass based alternative liquid fuels to substitute conventional oil 1.Security of supply 2.Higher oil price 3.Peak oil 4.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 2 nd gen biofuel (..) and is a desirable process as 1.it has high resource utilization, 2.no or small contributions of GHG emissions 3.does not directly compete with food production

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology 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: 1.analyze the emergence of an industry with the capacity of realizing gasified biomass in Sweden, Finland, Germany and Austria 2.draw policy lessons from the historic development of the technology field and 3.specify the current and future policy challenges for realizing the technology on an industrial scale Introduction (2)

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology Case studies * Chemrec/Haldor Topsoe * Värnamo - * Stora Enso/Foster Wheeler/Neste Oil *UPM/AndritzCarbona * Choren/Shell/Daimler/VW FZK/Lurgi * GE/Eon/Repotec * ~ Chalmers *Repotec/Gussing ZSW/EVF * CUTEC * Black Liquor, HT-EF, DME Forest residues LT-FB, FT-Diesel Forest residues, LT-FICFB, BioSNG Farm residues, LT-FB, FT-D/BioSNG Forest Residues, LT-cross draft +HT-EF, FT-Diesel Farm residues, LT pyrolysis+ HT-EF, MtG Forest Residues, LT-FICFB, BioSNG Forest Residues, LT-FICFB, El, heat, BioSNG Forest Residues, LT-FB, FT-wax /DME Status Start, March 2007 Finish – June countries Interviews: 70 of 80

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology PilotDemo YearSizeCostYearSizeCost TU-Vienna/Repotec19950,1MW? MW10+? Chalmers/Metso20086MW1,120086MW1,1+? Chemrec20055MW720105MW/1.5kt28 Värnamo/Chrisgas X18MW45 Carbona/UPM20056MW10 FW/SE/Nesté 20075MW40 Choren19981MWNA2009?45MW/15kt100 FZK/Lurgi20050, MW/0,5thr4 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 Cost>246M€ (200M€ is secured)

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology Instruments: 1.Direct subsidies (losses are reduced but risk remains) 2.Soft loans 3.Bank guaranties The instruments are there to absorb the technical risk but a.how much are financing agencies ready to risk in one or two projects? b.national or EU level funding? c.how much will be allowed by the EU? Commercial (demo): Cost to absorb technical risk Pre-Commercial DemoCommercial size YearSizeCost (M€)YearSizeCost TU-Vienna/Repotec201030MW75 Chalmers/Metso 100 MW150 Chemrec2012/130,07Mt ~0,21Mt400 Värnamo/Chrisgas?0,2Mt400 Carbona/UPM ?0,2Mt ~0,2Mt500 FW/SE/Nesté ?0,1MtNA/est ~0,2Mt500 Choren 2015~0,2Mt800 FZK/Lurgi20115MWNA/est ~1Mt520 Technical risk sharing : Pre-commercial demo : >1085M€ Commercial demo: > 3270M€

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology Assessment of market risk for commercial size plants The first seven commercial size plants > M€ investment 2,1Mtons production capacity (need ~30Mt to reach 10% target (<1%)) 150 plants required (0.2 Mt, 4-800M€) to realize 10% market share ( M€ in total investment cost)

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology 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, $/bbl EIA ref price $/bbl EIA high price $/bbl

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology 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?) =>all 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

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology 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) =>Effectiveness criteria excludes CO2 trade and quota, at best it induces sequential development

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology 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) =>BTL blending quota possible but risky for variety, effectiveness and consumer costs

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology 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? => BtL blending quota is more attractive

©Hans Hellsmark 29 August, 2015 Chalmers University of Technology 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