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Biopower and Biofuels: State of Disarray or Opportunity?

By Chris Zygarlicke | April 25, 2012

An entire quarter of 2012 has gone by, and it is time to evaluate where the U.S. is headed with the development of biobased fuels and energy.


A quick review of news articles could lead one to surmise that bioenergy is in complete disarray because of the sluggish energy economy, a weak set of federal incentives, and a fairly sudden development of huge natural gas resources. Further analysis, however, reveals that the real state of the bioenergy industry is fairly complex and not as bad as it seems.


Today, the primary driver for biofuels development in the U.S. is the second version of the 2007 U.S. Energy Independence and Security Act, commonly referred to as the Renewable Fuel Standard II (RFS2). The production tax credit incentive for ethanol is gone, and a similar tax credit for biodiesel is set to expire at the end of this year. The RFS2 rule is the only federal incentive remaining for biofuels, and corn ethanol and vegetable oil-derived biodiesel are the only commercially available biofuels in the U.S. Compounding the issue is lower demand in general for gasoline, so naturally the 10 percent blend of ethanol that is in most gasoline today is also in less demand. Overall, there is some amount of disarray in the biobased fuels business this year.


Biobased electricity is a different story, however, as the level of biopower output/consumption in the U.S. has remained stable for several years. Biomass continues to provide about 3 percent of electricity and heat. The primary driver for biomass power and heat remains individual state-promoted renewable portfolio standards (RPSs). Twenty-nine states mandate renewable energy production by their utilities. That leaves 21 states either with no RPS or an alternate energy production standard which includes energy from biomass technologies or from advanced fossil fuel technologies such as coal gasification. Most renewable electricity production in the country still comes from hydroelectric or wind resources.


For some states, an RPS has attracted development of  baseload biomass power plants between 20 and 50 MW. For other regions, communities have incentivized new biomass plants using local venture drives and grassroots support. These new biomass power plants have essentially replaced older units related to the pulp and paper industry. This offset, or build one close one scenario, is one reason the level of biopower remains at 3 percent nationally.


One unexpected impact on biomass-derived power is the fairly sudden increase of low-cost natural gas. In some states, RPSs are written to stimulate the development of wind, solar, and hydroelectric power, leaving biopower to compete in the electricity market against well-established coal generation and ever-increasing natural gas combined-cycle generation. With the upswing of low-cost natural gas, biomass has a more ferocious competitor. Some will say that we have seen these upswings and downturns before so nothing is different, but the data being presented seem supportive of a long-term sustained level of growing natural gas supplies with costs remaining stable. Of course, some new wrench could be thrown into this argument tomorrow, and these projections could all become nonsensical.


The bottom-line message is one of caution, not disarray. RPS incentives and green-minded communities are stirring up business for biomass. At a recent conference, several presenters from the Northeastern U.S. described nine different biopower projects, six of which were all fully funded, all completely permitted and in some phase of construction. In each case, the biomass supply was well resourced at a reasonable cost for sustainable supply; the local communities were behind the projects; pollutant emissions were well within limits and certainly lower than comparable coal or oil-fired plants; and investors were satisfied with the margins of return. In these types of niche opportunities, biomass power systems are finding ground and proving their worth both environmentally and economically. This is not a picture of disarray.

Author: Chris Zygarlicke
Deputy Associate Director for Research, EERC
(701) 777-5123
czygarlicke@undeerc.org

 

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