1. EFFECTS OF CO-FIRING BIOMASS WITH COAL ON THE RETAIL PRICE OF ELECTRICITY David Bransby Professor, Energy Crops Auburn University bransdi@auburn.edu

2. BACKGROUND

3. Why energy crops? - High efficiency is the biggest problem in US Agriculture today. - Overproduction of corn, cotton, soybeans, wheat and livestock requires federal farm programs that cost 10 to 20 billion dollars every year! - Energy crops can help agriculture and reduce harmful emissions from coal.

4. Biofuels vs. Biopower ? Biofuels: - Need more research - Expensive, capital needed Biopower: - Limited research needed - Little capital needed

6. Coal and Power Production in Alabama 60%-70% of the electricity in Alabama is produced from burning coal. In 1990 Alabama produced more coal than it used. In 2002, 62% (about 18 million tons) of coal was imported from other states to produce electricity

7. Coal Production continued From 1990 to 1999 a total of 2,351 (36%) mining jobs were lost in Alabama At $25/ton, $450 million leaves the state each year to buy coal for production of electricity.

8. Coal Summary Advantages: - Cheap Disadvantages: - A large proportion imported - Emissions, including carbon dioxide, nitrogen oxides, sulfur dioxide, mercury, and radio-active compounds

9. Economic Development - State Level If: 10% of the coal were replaced with biomass and all that coal was imported, Then: $72 million would be kept from leaving the state each year, and there would be a new biomass market of $234 million per year.

10. Economic Development - Local Level If: The Alabama Power plant at Demopolis in the impoverished Black Belt region of the state co-fired 10% biomass with coal, Then: 316,000 tons of biomass and 63,000 acres would be needed, and a new market of $15.8 million annually would be created.

11. POFITABILITY ? Assume $50/ac fertilizer costs, $20/ton for custom harvesting and baling, and a price of $40/ton on the farm for biomass. Yield (tons/ac) Return over above costs ($/ac) 3 10.00 4 30.00 5 50.00 6 70.00 7 90.00 For no work!

17. The higher cost of biomass compared to coal appears to be a major disincentive. At $50/dry ton, biomass costs about $3.57/MMBtu, while coal usually costs $1.50 to $1.80/MMBtu. Why are utilities not co-firing on a continuous basis?

18. Possible approaches for mitigation of the higher cost of biomass 1)Subsidies such as a tax credit. 2)Pass the cost on to the consumer. 3)Market green energy at a premium. 4)Locate suitable host facilities.

19. Table 1. Economic projections for power produced from coal or biomass with a 1.8 cents/kWh tax credit or with green pricing. _______________________________________________________________________ Biomass/Tax credit Coal Biomass/Green Pricing ------------------------ cents/kWh ---------------------- Fuel cost 4.04 (+176%) 1.46 4.04 Prodn. & Distribution 3.00 3.00 3.00 Total cost 7.04 (+58%) 4.46 7.04 Retail Price 7.50 7.50 10.08 (+43%) Return before tax 0.46 3.04 3.04 Less 35% tax 0.16 1.06 1.06 Return after tax 0.30 1.98 1.98 Tax credit 1.80 0.00 0.00 Net return 2.10 (+6%) 1.98 1.98 _______________________________________________________________________

20. Table 2. Returns from co-firing 10% biomass with coal compared to coal alone. ________________________________________________________ 100% Coal 90% Coal/10% Biomass ----------------cents/kWh------------------- Fuel cost 1.461.72 Production & Distribution 3.003.00 Total cost 4.464.72 Retail price 7.507.76 (+3.5%) Return before tax 3.043.04 ________________________________________________________

21. CONCLUSIONS 1) If 10% biomass was co-fired with coal it would increase the retail price of electricity by only 3.5%. 2) If this was done over 10 years, the price increase would be only 0.35%/year, and would probably go unnoticed by consumers. 3) With all the other benefits, co-firing biomass with coal would not cost, it would pay, even without a tax credit!