Use of forest chips for energy in Finland are the targets realistic?

Transcription

1 Use of forest chips for energy in Finland are the targets realistic? Maarit Kallio, Perttu Anttila, Megan McCormick, Antti Asikainen Finnish Forest Research Institute How Forest Sector Models Tackle Climate policies International Workshop, Nancy, 3 4 June 2010 Metsäntutkimuslaitos Skogsforskningsinstitutet Finnish Forest Research Institute

2 Outline Outline (1/1) I) ANALYSIS OF THE MOST RECENT GOALS FOR COMBUSTING FOREST CHIPS IN FINLAND Objective Background Energy production in Finland Policy goals ForENER model & Assumptions Results & Conclusions II) SHORT INTRODUCTION TO THE FINNISH FOREST SECTOR MODEL, SF-GTM

3 Objective (1/1) Objective Evaluate the target for the use of forest chips in Finland Develop a model for such analysis operational as such linkable to other forest sector models usable to study optimal plant locations

4 Energy production in Finland

5 Production of heat and power in Finland, 2007 Industrial heat, separate; 12 TWh Electricity, separate 51 TWh Industrial heat, CHP 49 TWh District heat, separate 8 TWh District heat, CHP 25 TWh Electricity, CHP 27 TWh Source: Statistics Finland

6 Fuel shares in electricity and heat production by production mode, % 23% 22% 20 % 18% 15 % 15% 12% 10 % 5 % 5% 6% 0 % Black liquor & other liquors Coal Natural gas Peat Other wood fuels Oil Other Condensate power CHP Heat, Separate

7 Fuel based electricity and heat production in Finland in % TWh % 88% Heat, industrial Heat, district Electricity Other Oil Other wood Peat Coal Nat.gas Black liquer 20 0 Condens. power (FUELS) 0 14 Condens. power (ENERGY) CHP (FUELS) 27 CHP (ENERGY) Heat alone (FUELS) 12 8 Heat alone (ENERGY)

8 Goal: 25 TWh forest chips combusted % of the energy in Finland from renewables by 2020 (EU) The Finnish government proposed : Combustion of forest chips 25 TWh 13.5 mill. m 3, 2020 (2007: 5 mill. m 3 ) subsidy for the chipping of small diameter wood subsidy for electricity production feed-in tariff for new small CHP-plants 3 biodiesel units making 7 TWh biodiesel

9 ForENER model - Market model for forest chips - Spatial partial equilibrium

10 ForENER model Demand and supply of energy produced from fuels Endogenous supply, demand, and prices of forest chips Exogenous roundwood harvests Transports are essential cost factor for forest chips!! Model regions are 420 municipalities Results by country, forest center, county,

11 ForENER model by municipality (420) Supply of fuels Endogenous price & limited supply: forest chips Heat and power plants Consumers Exogenous price & unlimited supply,e.g.: peat, coal, other fuels choose production and fuels st technology need thermal energy, regardless the price + electricity Photos: Erkki Oksanen/METLA

12 Forest Chips Supply Small trees from early thinnings Logging residues from final fellings Stumps from final fellings Metsäntutkimuslaitos Skogsforskningsinstitutet Finnish Forest Research Institute

13 Supply of forest chips: resources & costs Costs ( /m3) Logging residues Stumps Small trees from early thinnings Maximum supply 19 30% x spruce 6 8% x pine 10 17% x birch harvests 12% x spruce harvests Production costs Stumpage Other Transport x distance x distance 6.1 mill. m * x distance *) With current (so called KEMERA) subsidies, this can sometimes be as low as 16.1 /m

14 Forest chips supply In each municipality, there s a trader maximizing Net sales Production and transport costs s.t. Production < municipal resource availability deliveries to plants in a municipality + net deliveries to traders in other municipalities = production

15 ForEner model: Demand for energy Demand for residential heating must be satisfied Industrial heat or steam demand must be satisfied Electricity demand infinitive at a given price p (tied to marginal fuel coal and co 2 -price) Photos: Erkki Oksanen/METLA

16 Suppliers price for electricity = price of coal / x price of CO 2 emission allowance where 0.38 = efficiency of the coal fired condensing power plant 0.95 = CO 2 contents of coal based electricity price of coal: /MWh price of CO2 emission allowance: /t-co

17 Heat and power plants by municipality The model covers - DH producers - Heat and power plants using forest bioenergy - Roughly all peat and coal users (2007) - Most important new plants known to enter Photo: Erkki Oksanen/METLA Data on production, consumption of fuels

18 Problem of an energy production unit Maximize turnover + subsidies - fuel costs taxes and fees s.t. Production of energy Use of fuel PEAT,COAL, FCHPS Use of fuel OTHER FUELS Production of energy < Efficiency x Use of all fuels < Max Technical Shares x Use of all fuels = Fixed shares x Use of all fuels < Upper bound Joint constraint for all the producers in the same municipality: Production of thermal energy = Demand in the municipality How much substitution of peat & coal with forest chips???

19 Substitution of peat and coal by forest chips; our assumptions: Forest chips may replace max. 10% of coal and 50% (CHP) or 80% of peat use in the plants unless lower/higher technical limit is known Additional county-level upper bounds for forest chips combustion based on Jaakko Pöyry Cons Eventual substitution endogenous & depends on taxes, subsidies, fuel prices, CO 2 price regional resource availability, transport costs, competition between the users

20 The final LP formulation is aggregation of the problems of the consumers and producers in all the municipalities shadow prices of the municipal material balances give municipal prices for forest chips and marginal production costs (price) for heat

21 Results assuming no subsidies new subsidies for forest chips based electricity production CO 2 10 /t-co 2 subsidy 18 /Mwh CO 2 23 /t-co 2 no subsidy for chipping small diameter logs (4 /m 3 ) with or without 3 biodiesel plants Which harvest & CO 2 price combinations make the target 25 TWh materialize?

22 Alternatives considered No biodiesel Biodiesel No subsidies New subsidies

23 RESULTS

24 Use of forest chips for combustion Roundwood harvests of Combustion targe t New subsidies - no biodiesel New subsidies - 3 biodiesel units Forest Chips for TWh No subsidies - No biodiesel No subsidies - 3 biodiesel units Price of CO2-emission allowance

25 Prices of forest chips Roundwood harvests of /M MWh New subsidies - 3 biodiesel units New subsidies - no biodiesel No subsidies - 3 biodieseln units No subsidies - No biodiesel Price of CO2-emission allowance

26 Total cost of subsidising surprisingly similar with or without biodiesel plants: - the difference is in subsidy structures Subsidies for the use of forest chips 150 mill CO2-price, /tonne-co2 biodiesel no biodiesel

27 CO 2 price > 25 subsidy for chipping very expensive compared to its benefits C o st o f su b sid isin g p er ad d itio n al u n it o f fo rest ch ip u se /additional MWh /to n-co 2 No biodies el 3 biodies el units

28 25 TWh forest chips target achieved, if... /CO O2-t Kallio (2010, FPE) for 2015 No subsidies - 2 biodiesel units No subsidies - No biodiesel New subsidies - no biodiesel 2008 level No subsidies - 3 biodiesel units New subsidies - 3 biodiesel units 2007 level Roundwood harvests, mill. m

29 Conclusions 25 TWh target + 7 TWh biodiesel is extremely hard, but with the subsidies planned, it s achievable given tight carbon policy ( 25 /t-co2 as assumed in the Finnish Long-Term Climate Strategy) sawlog demand back to good level to have enough final fellings (>2007 level) electricity, coal or peat prices do not come down too much markets function; enough players in the roundwood and bioenergy market forest owners do not require higher prices for the chips LOOK FOR MEASURES TO SUPPORT THESE BORDERLINE CONDITIONS tight carbon policy; support for sawmills energy production Considerations due to our assumptions relaxing (+) or tightening (-) the case - No pulpwood was assumed to be used as fuel + Only currently known plants considered, no new small scale CHP-production considered + technical improvements in collection of the forest chips --- forest owners may require higher prices for the chips!!

30 Next stage: Roundwood harvests allocated to municipalities as to their 2007 shares structural changes ignored ->affects logging residues and stumps from final fellings the model to be fully embedded into the Finnish forest sector model, SF-GTM

31 Thank you for listening! Funding from the Finnish Academy (BEET) & EU 7th Framework (CC-TAME) gratefully acknowledged Foto Alvar Kallio

32 The Finnish forest sector model, SF-GTM

33 The general model structure for one region Production factors from other sectors (prices) Paper & board mills Pulp mills Consumers Forest industry products and wood-based energy Wood-using industries Sawmills & Plywood factories Heating, CHP and power plants Particleboard & fibreboard factories Pellet plants Forest resources Increment and drain of the growing stock Forest owners (private, industrial, state) Wood supply (elasticities of price and growing stock) Demand for and suppl ly of forest products and wood based bioenergy in other regions

34 The Finnish forest sector model, SF-GTM Partial equilibrium model of wood using sectors Integrates growing forest resources, timber supply, wood using industries and demand for forest products and woodbased energy Profit maximizing producers and welfare maximizing consumers Highly detailed for Finland: several final products, pulp grades and wood categories, production by paper machines/production lines 3 forest owner groups, 14 domestic regions Equilibrium prices, quantities and trade flows found simultaneously for all commodities and all regions using mathematical programming Multi-periodic

35 Literature and some previous applications Ronnila, M Medium-term scenarios for the Finnish pulp and paper industry. IIASA Working Paper, WP (April 1995) pdf [original version of the model covering the European forest industry as well] Recent journal articles: Kallio, A.M.I Accounting for uncertainty in a forest sector model using Monte Carlo simulation. Forest Policy and Economics 12(1): Kallio, A.M.I., Hänninen, R., Vainikainen, N. & Luque, S Biodiversity value and the optimal location of forest conservation in Southern Finland. Ecological Economics 67(2): Hänninen, R. & Kallio, A.M.I Economic impacts on the forest sector of increasing forest biodiversity conservation in Finland. Silva Fennica 41(3): Recent policy applications: For the Ministry of Agriculture and Forestry and the Ministry of Environment, respectively, support for the formations of National Forest Programme 2015 and METSO II biodiversity programme

36 Ongoing modeling work (SF-GTM) related to climate change policies Calibration with the ForENER module which readily includes the energy use of forest industry residues later on, potentially getting everything to municipal level to gain more precise transport costs in the timber markets as well