April 29, 2015
April 29, 2015
By Vojislav Milijić, CEO of Foragrobio CC d. o. o. / president of Serbian National Biomass Association Serbio
Biomass is the biodegradable part of products, waste and residues in forestry, agriculture industry and communal waste. Biomass from wood and agriculture residues is the first energy source used by humans and its significance has reduced only when fossil fuel utilization started to develop. However, significance of biomass started to grow again, due to exhaustion of fossil fuel reserves and their negative impact on climate and environment. Apart from the above-mentioned, utilization of biomass in the political context of the modern world enables countries to increase their energy independence. In the Balkans, biomass is the most significant renewable energy source, due to abundance of forests and agricultural areas.
All Western Balkan countries are dedicated to increasing the utilisation of renewable energy sources in compliance with EU 2020 goals and agreements with the Energy Community.
Table: Energy Community / EU 2020 goals, biomass potential, operational biomass-based CHP and district heating projects
Legislative and regulatory frameworks and support mechanisms aimed to increase the usage of biomass and other renewable energy sources are developing. Investors interested in biomass utilization in district heating (DH) systems and combined heat and power (CHP) plants are also present. However, despite all potential and advantages of biomass and the existence of potential investors, we cannot be satisfied with the level and modes of utilization for energy production in all Western Balkan countries.
Chart 1: Annual wood production / estimation of biomass processed annually for exported wood-biomass products
On the other hand, significant quantities of wood biomass are used inefficiently (as firewood) or are processed to wood chips, pellets and other products, which are exported to more developed Central European markets. This is positive from the aspect of industry development and export, but negative from the aspect of energy production. Most Balkan countries which utilize biomass inefficiently, or have developed processing of biomass, compensate energy which can be produced from biomass, now inefficiently used or used for exported products, by importing electricity, natural gas and fossil fuels. In addition, increased demand for firewood, wood pellets and other fuels reduces available quantities of biomass which could be used in local heating plants or power plants. Contrary to wood, utilization of agricultural biomass is still undeveloped, since except from the few examples of energy production for industrial purposes and traditional utilization in farming and agro pellet production, most of the biomass remains on fields. Thus we will focus on wood biomass in this article.
So far there are very few state-owned companies that declared willingness to develop biomass production-based projects. There are cities and municipalities with issues in heat supply to residents interested in biomass heating-production projects but without funds to develop it on their own. On the other hand there are private investors interested in public-private partnerships in biomass-based heat energy supply and development of CHP project. Also, there are industries interested in or with already implemented biomass energy projects for their own purposes.
As mentioned, some mechanisms of state support toward biomass (and other renewable energy sources) production are present. But obviously, perspectives of the state and the investors do not coincide. From the Balkan states perspective, the reasons to invest in biomass-based energy production are some of the following:
- Increase of RES share according to obligations toward Energy Community;
- Competitive feed-in tarifs;
- Reduction of energy production costs;
- Energy independence;
- Excellent biomass utilization potentials.
Chart 2: Feed-in tariffs for electricity from biomass
On the other hand, there is a single reason for a private investor to invest in biomass-based energy production. This is profit – which will be generated either by reduction of costs or increase of sales of added value products.
In order to generate the profit and invest in biomass-based energy production, an investor needs:
- Energy uptake – pre-contracted and guaranteed energy uptake for a certain period of time;
- Permissions from various state authorities;
- Last but not least – biomass in sufficient quantity and of adequate quality, from long-term supply contracts (at least as long as a duration of long-term energy uptake agreement), and at a competitive price.
Energy uptake is more or less regulated in Balkan countries. Also there are feed-in tariff systems in place and most of electric energy distributors have the obligation of energy uptake from biomass-based energy producers. This is however not the case in biomass-based heat energy. Permission policies are not unique in all Balkan countries, but nevertheless they all are implementing modern legislation aimed at accelerating the permission process. Financing opportunities for biomass-based project exist and are available for governments, cities and private investors. However, financing is always related to biomass supply guarantees and long-term contracts. In some cases, financial institutions ask for long-term supply contract to be based on biomass from state-owned forests.
This takes us to the last point, and with everything else more or less adequately regulated, the major issue in development of biomass-based energy production project – the biomass. First, quantities declared as technical potential for certain locations are not always economically viable – too much cost is related to their mobilization. Usually this issue is related to forest management practice, inadequate forest infrastructure, inadequate harvesting machinery and methods. Second, it is hard to find adequate quality; especially since best biomass (from wood industry) is already utilized by pellet and chipboard producers and exported. Third, long-term contracts, needed by investors to procure finances for the project development, are in most cases mission impossible. State-owned forest companies either declare that they do not have adequate quantities, or that it is not in their jurisdiction to make such contracts, while even those who have long-term contracts in practice impose a trial period of one or two years with annual contracts. Long-term contracting with private forest owners is possible, but very hard, due to the large number of owners of small forests and the lack of developed forest owners cooperatives and organisations. And fourth, competitive price is a combination of previous three factors mentioned plus the optimization of biomass mobilization and logistics.
Chart 3: State/private forest area share in WB countries
Nevertheless, overall situation in biomass utilization is moving forward and more companies managing natural resources become interested in biomass utilization, especially faced with issues of climate change. In addition, Central European biomass-based products market became globalised, therefore it is hard for Balkan producers to compete with Canadian, U. S., Baltic countries, Ukrainian and even Russian ones in terms of quality, quantity and prices. With reduction of production of biomass based products aimed for export, we can expect more interest in increasing of biomass based energy production from forest management companies as well. This, however, takes time. Or, considering the significance of biomass energy production often declared by Balkan countries government officials, who control state-owned forest companies, we should expect more support and commitment in implementation of biomass-based projects. Or explore, develop and implement models of support for private forest owners and farmers aimed at increasing biomass production, and this also takes time.