1. Rules of the game National, EU and global regulations, and their possible effects on the wood energy and district heating sector. Daniel Friberg Swedish Energy Agency Wood Energy and Cleantech, Linköping, 24 August 2011

2. Purpose and scope of presentation Overview of the Swedish district heating market. How district heating and woodfuels are affected by: - Political goals, directives and policy instruments.

3. Energy usage in the residential sectors, TWh Oil usage is down with 90 per cent since 1990 Electricity used for heating is down with 30 per cent since 1990 District heating is up with 40 per cent! Source: SCB and Swedish Energy Agency

4. Actual commercial energy prices in Sweden (taxes included) 1970–2010, öre/kWh Electricity prices have doubled in 10 years! Wood chips have almost doubled in 10 years. District heating prices increasing more sharply since 1996 (deregulation) Source: SCB and Swedish Energy Agency

5. Usage of district heating, TWh Usage primarily in the housing sector Share of losses has diminished from around 19 per cent in the 1980s to around 11-12 per cent today. Source: SCB and Swedish Energy Agency

6. Share of renewable energy increasing in district heating, TWh Year 1980 oil = 90 percent of district heating production, year 2009 oil = 4 percent! Year 2009 biomass, refuse, peat and waste heat = 66 percent. (2010 = 73 percent) Electricity consumption in the district heating sector is declining Source: SCB and Swedish Energy Agency

7. Wood fuels and refuse on the increase 2009 wood fuels = 55 procent! Refuse (Waste) = 22 procent!

8. Policy measures and incentives behind the development Energy taxation the most important - Energy, CO 2 and SOx Introduction of CO 2 tax in 1991 Major tax increases on fossil fuels (heating, motor fuels) Increased energy tax rates, but focus on gradually increased CO 2 tax rate Two levels of taxation for heating fuels, per ton CO 2 –high for households and service (24 € in 1991; 113 € in 2011) –low for industry, forestry and CHP (in 1991: 6 €; in 2011: 34 € outside EU ETS, 0/ 8 € within EU ETS) Housholds and servicesIndustry, agriculture, forestryCHP HeatHeat only CO2Energy taxCO2Energy taxCO2Energy TaxCO2Energy Tax EU-ETS 2010--15% * 105 öre/kg0 öre/kg15% * 105 öre/kg1-8 öre/kWh94%*105 öre/kg1-8 öre/kWh EU-ETS 2011--0 öre/kWh2,4 öre/kWh7% * 105 öre/kg2,4 öre/kWh94%*105 öre/kg8 öre/ kWh EU-ETS 2015--0 öre/kg2,4 öre/kWh7% * 105 öre/kg2,4 öre/kWh94%*105 öre/kg8 öre/ kWh Outside EU-ETS 2010105 öre/kg1-8 öre/kWh21% * 105 öre/kg0 öre/kWh---- Outside EU-ETS 2011105 öre/kg8 öre/kWh30% * 105 öre/kg2,4 öre/kWh---- Outside EU-ETS 2015105 öre/kg8 öre/ kWh60% * 105 öre/kg2,4 öre/kWh---- Source: Proposition 2009/10:41

9. …EU-ETS - European Emission Trading Scheme (Cap and trade, 2009/29/EC ) 2005-2007 2008-2012 2013-2020 - National allocation plans are replaced by EU-wide allocations: Emission reductions (within EU- ETS) with 21 percent by year 2020 compared to 2005 - Electricity production have to buy emission rights (mainly by auction) - Heat and industry allocated free allowences (specifics under discussion) - Product benchmarking for most installations - Allowances decreasing from 80% yearly to 30% of product benchmark by 2020 - Carbon leakage get 100% allowances based on product benchmark until International agreement Majority of emission allowences allocated for free Purpose of reducing green house gas emissions (in synch with Kyoto/UN) Ca. 730 Swedish facilities within energy and industry Ca. 13 000 facilities on EU-level = 40 % CO2 emissions Most DH-production in Sweden included Source: Swedish Energy Agency and Swedish Environmental Protection Agency

10. …The Electric Certificate System 2003-2035 a market-based system to support the expansion of electricity production in Sweden from renewable energy sources and peat. Increase by 25 TWh “green” electricity by 2020 (relative to 6,5 TWh 2002) Current level (2010)18TWh Entitled: Wind, Solar, Geothermal, Wave, Bio, Peat, small scale hydro Quotas to be fulfilled by electricity suppliers Source: Swedish Energy Agency

11. Political goals and directives EU strategy for climate and energy 2020: 20-20-20 20 % increase in energy efficiency (compared to projections) 20 % less green house gas emissions (compared to 1990) 20 % renewable energy Source: http://ec.europa.eu/europe2020/targets/eu-targets/index_en.htm

12. –EU target, 20% renewable energy in 2020 20% renewable energy of the total final energy consumption 10% renewable energy of the total final energy consumption in the transport sector Renewable Energy Directive - RED (2009/28/EC) Binding target 2020 Current level (2008) Sweden49%44,4% Latvia40%29.9% Estonia25%19.1% EU (27)20%10.3% Source: Eurostat Member states have different binding targets

13. The RED 2020 target for Sweden is 50% (49%) The increase since 1990 is largely due to increased usage of biomass for heat and electricity production. Increased usage of heat pumps is another factor. How do we reach the target? Business as usual!

14. …and more directives Energy performance of buildings directive (2010/31/EU) Energy efficient buildings – less demand for DH (and electricity) Ecodesign directive (2009/125/EC) More efficient products – less demand for electricity (ca. 2 TWh in Sweden) Cogeneration (CHP) (2004/8/EC) Promotion of high-efficient cogeneration – More efficient use of primary energy Proposal - Merging of Energy of services directive (2006/32) and CHP directive Turning power plants (combustion installations) in to CHP-plants - Increased supply of DH on EU- level (in Sweden very little effect) Proposal – New directive for the taxation of energy products and electricity ( 2003/96/EC) No CO 2 tax within the EU-ETS? – removed CO 2 tax on DH? Swedish position?

15. Development of the EU energy- and environmental policies Renewable Directive (RED) - Sustainability criteria for biofuels for transportation – already in progress - Sustainability criteria for solid biofuels – a recommendation is already presented Purpose? Reduction of greenhouse gas emissions –35% by time of introduction (60% 2018) Protection of high biodiversity areas –Natural forests (Primary forest and other wooded land) –Protected areas (Reserves etc.) –Grasslands (Natural and non natural) Protection of high carbon stock areas –Wetlands –Peatlands –Continuously forested areas Effects on woodenergy? (could have big effect) Swedish response to criteria for solid biofuels: ”Sustainability criteria for biomass should be set nationally, rather than being EU-wide.” (Supported by the Baltic States, Finland, Slovenia, Austria)

16. Some further explanations to the development concerning biofuels and renewables: Large Forest Industry Continuous supply of domestic biofuels, logistical benefits etc. (forest residues) Large potentials Incentives for Combined Heat and Power production (CHP) the Electric Certificate system High electricity prices 35 new plants planned 2009-2015 Favourable taxation Availability of district heating networks District heating is highly versatile in using different fuels Prerequisite for producing heat in CHP production Source: Fjärrvärmen 2015, branschprognos

17. Other international aspects affecting the market Price development of fossil fuels (peak oil?) Price development of electricity (EU-ETS, input fuels etc.) International agreements about environment and emissions – e.g. Kyoto Increased biomass trade Energy crises etc.

18. Challenges and opportunities District heating market A market with low profitability and increasing prices Decreasing demand prognosis by ca 10-13 TWh 2007-2025 in houses with DH 2007 (Energy Performance of Buildings Directive, heat pumps, climate). - Svensk fjärrvärme Rapport 2009:21 - A decreasing heat demand can negatively affect the electricity production and hence supply (CHP) TPA (Third Party Access) Increased competition between DH-actors Increased possibility of marketing bio/renewable-DH (wood energy demand) Increased DH-prices? Effects on investments in DH? Waste heat instead of biofuel/wood energy? Wood fuels Wood vs. Refuse/Waste Increased wood energy prices due to increased bio fuel demand District Cooling Increasing market

19. Thanks for Your Attention Email: Daniel.friberg@energimyndigheten.seDaniel.friberg@energimyndigheten.se Swedish Energy Agency Eskilstuna, Sweden http://www.energimyndigheten.se