1. 1 Closing the Biomass Power Cost-Price Gap B.R. Bock 3/5/04 Southern Bio-Products Conference Green Power Track Biloxi, MS

2. 2 Why Biomass Power? General –Renewable (replenishable) –Cleaner than from fossil fuels—NO x, SO x, Hg, CO 2 –Rural economic development –Solve biomass by-product and waste management problems –Other environmental benefits (e.g., energy crops vs. row crops) Utility Perspective –Possible renewable portfolio standards (RPS) Limited wind and solar resources in SE US Biomass—primary large-volume option in SE US –Other renewable mandates (e.g., Federal Executive Order 13123) –Demand for green power (i.e., willingness to pay premium)

3. 3 Direct Combustion Technologies 1/ TechnologyCapacityLevelized COE MW¢/kWh Coal-fired steam turbine1001.8 Biomass options ($20/dry ton; ~$1.20/MBtu): Co-firing with coal (100 MW plant)153.0 Stand alone boiler-steam turbine158.6 Combined heat and power (CHP)6 MW e 72 MW t 2/ 1/ www.antaresgroupinc.com/doerusreport.htmwww.antaresgroupinc.com/doerusreport.htm 2/ Assumes $6.00/MBtu steam (~$4.80/MBtu natural gas)

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5. 5 ΔCOE: Biomass Co-firing vs. Coal Biomass, $/dry tonΔCOE, ¢/kWh 0-0.10 100.55 201.20 301.85 402.50

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8. 8 Options for Closing the Gap Renewable energy incentives Mandated use of renewable power (renewables competing with renewables) Lower feedstock costs (technical, market, policy) Energy conversion improvements Increased revenue from co-products Systems optimization Environmental credits

9. 9 Renewable Energy Incentives Production tax credits (e.g., Section 45~1.8¢/kWh) –Closed loop –Open loop Renewable energy production tax credit (REPI) Tradable renewable energy credits Green power premiums* Green power tags* Above generally are mutually exclusive Other (e.g., accelerated depreciation)

10. 10 Mandated Use of Renewable Power (renewables competing with renewables) Federal or state renewable portfolio standards (RPS)* –Proposed levels generally in the 2 to 10% range Federal Executive Order 13123 –2.5% of Federal facility electricity consumption from renewables by 2005

11. 11 Lower Feedstock Costs Environmental pressures on wastes and by-products –Poultry litter –Swine manure* –Wood waste piles Commodity surpluses (e.g., small diameter wood) Higher energy crop yields (lower unit costs of production) Agricultural policy options for improving energy crop economics*

12. 12 Energy Conversion Improvements Higher efficiency (e.g., gasification combined cycle) Lower capital and O&M costs (e.g., lower cost gas clean-up) Refining biomass co-firing with coal*

13. 13 Increased Revenue from Co-products and By-products Combined heat and power Bio-refinery concept (power + fuels and chemicals) Fertilizers and feed supplements from poultry litter ash Other

14. 14 Systems Optimization Economies of scale Continuous operation Combined heat and power Systems integration

15. 15 CornEthanol Combined Heat & Power Poultry Litter Ash Poultry Feed DDGS Meat SE U.S. Markets Fertilizer Integrated Poultry and Ethanol Production Carbon Dioxide

16. 16 Energy Economics Ash value offsets poultry litter feedstock costs 5 MW electricity @ 3.5¢/kWh 100,000 lb steam/hr @ $3.50/MBtu NG eq. 65 MBtu hot air/hr @ $3.50/MBtu NG eq. 18% internal rate of return (before tax)

17. 17 Environmental Credits SO x NO x CO 2

18. 18 Value of CO 2 Credits

19. 19 Summary: Biomass Power Wind resources very limited in SE US Solar very expensive Biomass is primary large-volume renewable option, but currently has a significant cost-price gap Gap is smallest for co-firing and combined heat and power Also relatively small gaps associated with some waste- management and systems-integration opportunities Emerging incentives, premiums, policies, and environmental credits have good potential for closing the cost-price gap in short- to mid-term Technological advances can help bridge the gap in the longer term