Four Key Developments Needed to Boost Global Biomass Industry

Kerschen and Easterly acknowledged the need for regulatory policies that consistently treat biomass emissions – specifically carbon dioxide (CO2) emissions – as being carbon neutral. “One of the biggest issues related to the uncertainty of the biomass power market is whether or not regulators will deem biomass CO2 emissions as neutral, meaning they absorb nominally as much CO2 during the growth cycle of biomass as is released during combustion,” Kerschen said. “If biomass emissions are considered neutral, projects will not get encumbered by greenhouse gas (GHG) emission regulations, which are impacting coal plant developers. GHG regulations can cause significant technical challenges, increase the cost burden, and strain the viability of these projects for developers and utilities.”

Martin Eastwood, Chief Engineer in the Sustainable Energy Solutions group for Black & Veatch’s global water business, agreed, saying, “Research has indicated that the harvesting of some biomass can give rise to an increase in CO2, either from land use change or from the impacts of harvesting material from some land types which go on to release CO2. However, the life cycle of biomass fuels is deemed to have a better carbon balance than fossil fuels. Addressing these sustainability concerns will be critical to the robust implementation of carbon-lean policies.”

There is a need for a well-balanced, unified definition of biomass in various federal regulations in addition to incentives that address biomass, similar to the biomass standards set by the European Committee of Standardization in the UK. In the U.S., for example, there are distinctly different definitions of biomass in the 2005 Energy Policy Act, the Energy Independence and Security Act of 2007, and the Food, Conservation and Energy Act of 2008. “Some definitions of eligible biomass for energy use include wood chips produced from tree limbs remaining after conventional forest harvesting for timber markets, but exclude wood chips from harvesting whole trees solely for energy uses,” Kerschen said. “A unified definition of biomass would provide a key element of continuity and should be a priority for the future success of the biomass industry.”

Both Kerschen and Easterly agree that a national RPS could be a first step in establishing a long-range vision for how the U.S. addresses its future energy security. Easterly also identified the need for clear and aggressive RPS that distinguish regional resources. “Not all states have the same ability to produce green energy, and so we recognize that the government cannot hold them to the same standard.”

In the UK, the process is a little clearer, according to Eastwood, as the UK has adopted a nationwide renewable obligation (RO) that requires licensed electricity suppliers to source a specific – and annually increasing – percentage of the electricity from renewable sources. “The current level of ‘compliance’ is 10.4 percent for 2010 and 2011, and it will rise to 15.4 percent by 2015,” he said. “Without the RO in place, there would be no incentive for a developer or utility to generate renewable electricity in the UK.”

However, in recent months, the system has been placed under review, and the UK government has announced a consultation on “Electricity Market Reform,” which Eastwood said will be the biggest shake-up of the electricity market in 30 years. With this, the new UK administration is proposing an alternative system to the RO, and this is sending cautious and concerned ripples through the investor community – again causing a hiatus in large biomass plant investment.

Finally, incentives with long-term applicability would be beneficial to foster the development of the global biomass industry. In the UK, for example, the RO, the Renewable Heat Incentive, and the Renewable Fuel Transport Obligation essentially establish a guaranteed market for premium payments for plants serving the electricity, heat or bio-liquid markets for the next 20 years. According to Eastwood, the level of this subsidy is subject to market reviews and has caused investment confusion in the past with respect to the timing of the review, the resultant level and the issue of “grandfathering.”

The U.S. has implemented the American Recovery and Reinvestment Act of 2009, which created a cash grant program in lieu of production tax credits and investment tax credits, but there are stringent deadlines a developer must meet in order to receive the grant, which covers 30 percent of the cost of the facility.

“Since the planning, permitting and construction of biomass facilities can take two to three years, it is important for these types of incentives to have a sufficiently long window of applicability to be effective in supporting biomass development,” Easterly said. “It’s also important that biomass receive the same incentives as other renewable energy segments. Otherwise, the lack of equitable treatment and sufficient incentives can cause obstacles in development.”