1. 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

2. Profu Research and consulting company Energy Waste Environment Locally Nationally Internationally

3. 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

4. The importance of analyzing the fuel market

5. Energy prices are decisive for profitability

6. Energy prices are not stable Source: Swedish Energy Agency Price of “tops and branches” in Sweden 1994-2010

7. Energy prices can be local

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

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

10. 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

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

12. Fuel for district heating 1981 2001 2015 2008 Source: Waste Refinery There is a established market for wood fuel in DH in Sweden, which Profu follows

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

14. 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

15. 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

16. 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

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

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

19. Pathways to Sustainable European energy systems

20. Se more on: www.energy-pathways.org 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

21. Potential for DH in Europe

22. Development of DH in Europe PolicyMarket

23. Development of DH in Europe Bio mass Natural gas

24. 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

25. Bio energy flows in Europe

26. 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.

27. Bio mass supply in Europe Source: Refuel, 2008.

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

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

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

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

32. 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

34. 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?

35. 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

36. 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

37. 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

38. 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

39. 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)

40. 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

41. 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

42. Example of energy market scenarios (around 2030) Crude Oil (USD/barrel) Coal (USD/tonne) Natural gas (USD/Mbtu) Scenario 1234 90 113 90 130 914 9 Fuel prices 130 Carbon price (€/tonne) RES-E support (€/MWh) 1234 20 102010 20 50 Policy instruments

43. 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

44. Base load build margin CO 2 (kg/MWh el ) El. price (€/MWh) Scenario 1234 722345722140 CoalNGCCCoal 5459 8075 Electricity market Coal CCS Wood fuel price (€/MWh) NG price (€/MWh) - incl. CO 2 -price 1234 33 404754 2427 32 30 Fuel market Example of energy market scenarios (around 2030)

45. 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?

46. Comparison of two investment options

49. Remember!

50. Götaforsliden 13 nedre, 431 34 Mölndal 031-720 8396/8390, www.profu.se erik.axelsson@profu.se Profu Thank you for your attention