1. New bioenergy business concepts during emission trading in the Baltic Sea Region Pirkko Vesterinen VTT, Jyväskylä

2. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 2 PROJECT PARTNERS: VTT Processes, Finland University of Jyväskylä, Finland Tallinn Technical University, Estonia FNR, Germany EC BREC/IBMER, Poland BIOP Institute, Germany Vapo Oy, Finland AS Tootsi Turvas, Estonia FINANCERS: INTERREG IIIB National and local authorities in each country

3. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 3 Background Countries within EU have challenging targets to increase the use of bioenergy Russia has ample biomass resources Baltic Sea provides a natural market area for biomass trade Trade can be carried out by means of fuels (wood chips, tall oil, pellets, sod peat…), electricity, emission allowances, JI, green certificates… Preconditions of investments in different countries vary Denmark Finland Germany SwedenEstonia Latvia Lithuania Poland

4. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 4 Share of bioenergy of the primary energy in the beginning of 2000’s - varies from marginal to very relevant to the whole energy market 0 5 10 15 20 25 BSR % Denmark Estonia Finland Germany Latvia Lithuania Poland SwedenEU-15 EU-25 0 5 10 15 20 25 BSR % Denmark Estonia Finland Germany Latvia Lithuania Poland SwedenEU-15 EU-25 Marginal Relevant to energy market and prices

5. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 5 Share of RES-E from the total electricity consumption differs very significantly: from marginal to dominating Source: Eurostat 0 10 20 30 40 50 60 70 80 Denmark Estonia Finland Germany Latvia Lithuania Poland Sweden EU-15 EU-25 % 1993 1998 2003 2010 (target) 1993 1998 2003 2010 (target) Marginal Significant to energy market and prices -> differences in the share of hydro, typical capacities of plants, CHP/condensing plants, stand-alone/integration to industry

6. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 6 EU has decided to use of 20 % renewable energy sources by 2020, now the share is under 7 % - role of bioenergy in each country ? Background report

7. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 7 Total RES-E in 2001 and additional potential for bioelectricity according fo FORRES 2020 0 20 40 60 80 100 120 DenmarkFinlandGermanySwedenEstoniaLatviaLithuniaPoland TWh Biowaste Solid biomass Biogas 2001 - Largest market volumes for new investments and additional fuel in Germany and Poland, the next largest in Sweden and Finland - Structure of market (capacities of plants) differs considerably, as well as feasible promotion incentives

8. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 8 Total RES-H using biomass in 2001 and additional potential for 2020 according to FORRES 2020 0 2 4 6 8 10 12 14 16 18 DenmarkFinlandGermanySwedenEstoniaLatviaLithuaniaPoland Mtoe Biomass 2001 -Additional potential of bioenergy large in each country in the heating sector -Feasible for local and centralised (pellets, bio-oil…) fuel markets

9. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 9 Examples on Prices on Electricity Generated by Wood Fuels: incentives differ significantly 0 20 40 60 80 100 120 FinlandSwedenLithuniaEstonia Germany, 5-20 MW PolandLatvia Germany, 5-20 MW CHP EUR/MWh Feed-in tariff Certificates/subsidy Market price

10. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 10 GHG Emissions and Kyoto Targets Old EU-countries have challenging targets, and not sufficient national allocation of emission allowances within the emission trade Source: Eurostat 0 20 40 60 80 100 120 140 EUDenmark Estonia Finland Germany Latvia Lithuania Poland Sweden EU-15 EU-25 Index (base year = 100) 1993 1998 2003 2010 (target) 1993 1998 2003 2010 (target)

11. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 11 Fuel prices during emission trading (5-20-40 €/ton CO 2 ) in Finland in power production

12. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 12 Calculation of production costs of heat and electricity in each country for chosen plants Investment estimations for similar plants in each country Comparison of the heat and electricity production costs Case 1: District heating plant, 5 MW, peak load utilization 5000 h/a Case 2: CHP plant, 17 MWe / 40 MWth, peak load utilization 6000 h/a (Case 3: CHP plant, 3.5 MWe / 16 MWth, peak load utilization 6000 h/a)

13. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 13 Large variations in heat production costs because of differences in investment and fuel costs

14. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 14 Peak load operation hours should be at 4000 – 5000 h/a, preferably even more. Additional peak load units with low specific investment costs are needed. Overdimensioning is expensive!

15. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 15 Stability of fuel price is important because typical life times are 15 – 20 years. Solutions can be a well-developed fuel market and technical possibilities for multi-fuel use – preferably both

16. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 16 Long annual operation time is the key for good competitiveness!

17. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 17 Local conditions have a great impact on the electricity production costs

18. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 18 Existing pellet production capacity in Baltic Sea countries in 2005 and potential pellet capacity based on the production of saw mills Total capacities 3,896,000 (prod.) and 9,065,000 (pot.) tonnes Also other sources of raw material Also other uses for saw mill by-products

19. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 19 Conclusions Role of bioenergy varies in different countries significantly: from marginal to dominating in the energy market National incentives on bioenergy have significant variations -> Increase of biomass trade, spot markets -> Increase of volatility on prices of biomass-based fuels -> Bioenergy is not anymore only local, but widely utilised source of energy

20. VTT TECHNICAL RESEARCH CENTRE OF FINLAND 20 THANK YOU FOR YOUR ATTENTION! Pirkko Vesterinen pirkko.vesterinen@vtt.fi ET-Bioenergy project New Bioenergy Business During Emission Trading Co-financed by EU BSR INTERREG III B NP