Economic and Policy Context of Woody Biomass

Utilization for Electric Power

Healthy Landscapes, Thriving Communities Bioenergy and Wood

Products ConferenceJanuary 21, 2004 – Denver

Dr. Mark Nechodom, US Forest Service Pacific Southwest Research Station

Mapping the Biomass Territory

With grateful acknowledgements to Bob Shleser

A Pricing Problem?

5.37.5

11.42

15.22

0

2

4

6

8

10

12

14

16

Cen

ts p

er k

ilow

att-

ho

ur

Wholesale Power(CA 2002)

Cost of BiomassGeneration

(Nechodom & Mason2003)

EnvironmentalBenefits & Potential

Income (Morris1999; Nechodom &

TSS)

Env/Soc Benefitsand Avoided Losses

(ShamelesslyHypothetical)

Huh…?!

Costs From Forest to Bus Bar = 7.5¢/kWh

Capital Amortization/ROI (.5)

Transportation (1.6)

Processing (.8)

Collection (.6)

Harvest (1.2)

Operation and Maintenance (2.8)

Sources: Nechodom, Mason & Hartsough in press; TSS Consultants Unpubl.

2002 Wholesale price (5.3)

Landfill (1.9)

CH4 (7.52)

Capacity Payments (2.0)

Forest Thinning (.13)

Hydrocarbons (1.1)

CO2 (-.23)

SOx (.01)

NOx (.13)

PM-10 (.71)

CO (.15)

Sources: Morris 1999; Nechodom & TSS (unpubl)

(Based

on

Califo

rnia

Wh

ole

sale

Mark

ets

, 2002)Potential Income and Avoided Costs

(public benefits) = 18.7 cents/kWh

Potential Income and Avoided Costs (public benefits) = 18.7 cents/kWh

CO (.15)

PM-10 (.71)

NOx (.13)

SOx (.01)

CO2 (-.23)

Hydrocarbons (1.1)

Forest Thinning (.13)

Capacity Payments (2.0)

CH4 (7.52)

Landfill (1.9)

2002 Wholesale price (5.3)

Sources: Morris 1999; Nechodom & TSS (unpubl)

(Based

on

Califo

rnia

Wh

ole

sale

Mark

ets

, 2002)

Huh…?!

Environmental and Social Impacts and Costs of Wildfire: At What Price?

Timber lossesWatershed damageWater treatmentTourism and recreationAmenity valuesWildlife habitatDisaster relief costsLost jobs and wages

Rehabilitation and restoration costsTransportation (movement of goods and services)Human health Evacuation and displacement Cultural and archeological sites

The Forest Thinning Problem:

1. How much does it cost?

2. How much do I get in return?

3. How do we calculate risk?

4. What is “it”?

1. (what is the level of public investment?)

2. (who benefits? who pays?

3. (what if we don’t invest?)

4. (what exactly are you planning to do out there?)

“Creating” Renewable Energy Markets

1. Public Goods Funds: taken off the top of ratepayer bills; allocated by govt or utility

2. Renewable Portfolio Standards: require the market (suppliers and consumers) to respond

3. Green Power Pricing: connecting demand (consumers) to supply (e.g., biomass plants)

4. Subsidies: transfers financial resources from taxpayers to ratepayers

Renewable Energy “Public Goods Funds”

$127 mil.

RI: $10 mil

MA: $332 mil

CT: $275 mil

NJ: $271 mil.

$85 mil.

$80 mil.

$32 mil.

$94 mil.

$1890 mil.

$40 mil.

$95 mil.

$10 mil.

$234 mil.• 16 states with

renewable funds• $4.3 billion to be

collected through 2012

DE: $11 mil.

$20 mil.

Source: Lawrence Berkeley National Laboratory

States with Renewable Portfolio Standards

WI: 2.2% by 2011

IA: 105 MW

MN: 825 MW by 2012

NV: 15% in 2013

TX: 2,880 MW by 2009

PA: varies by utilityNJ: 6.5% by 2012

CT: 13% by 2009

MA: 4% new by 2009

ME: 30% by 2000

NM: 10% by 2011

AZ: 1.1% by 2007

• 13 states• ~33% of total U.S.

load covered

Source: LBL, NREL, author

CA: 20% by 2017

Almost half of US electricity customers have access to a green power product

Policy-Level Support

MOU on Biomass Utilization – USDA, DOE, DOI – Signed June 16, 2003Healthy Forest Restoration Act (HR 1904 – Title II: Biomass)Increased policy-level interest in translating forest investments into cost-savings and revenues