If polluters pay, will renewables rise?

February 6, 2013 |

polluter-paysChanges in EU policy and the financing of advanced biofuels have led to a revival of project formation in Europe.

The latest news from Finland is that St1 is proceeding towards a build on its 10 million liter (2.6 million gallon) cellulosic ethanol project in Kajaani. The project will use industry residues, primarily waste sawdust and recycled fiber, as feedstock.

It’s one of a number of projects in a cellulosic biofuels revival in the EU — prompted, in part, by a proposed change in the EU’s Renewable Energy Directive this past year to place far more emphasis on non-food crop based biofuels.

The St1 project

The company is going through the environmental licensing process takes approximately over the next 9 – 12 months — will make the final investment decision in 2013, and could commence production as soon as 2015.

The company’s technology is known as Etanolix — and the overall strategy is to build a network of plants with a total of 300 million liters (79 million gallons) in capacity by the 2020s. For now, St. 1 is seeking to build three to five cellulosic biofuels locations, to complement five already-completed projects that use food-industry residues and biowaste.

The project will use about one-third of the energy value in lignin to provide process heat and power for the project; the remainder will be used by a local utility, presumably in place of coal, which is imported currently into Finland.

The larger trend

“EU Commission’s proposal to amend the Renewable Energy Directive, which limits food-based biofuel production plants,” said St 1 CEO Mika Aho, is [stimulating projects like the] Kajaani mill building. The EU proposal places great emphasis on the use of wastes and residues as raw materials for biofuels, and our forest industry offers significant domestic raw material potential for sustainable bio-ethanol production. Finnish negotiators and lobbyists will have to be awake to the opportunities created by the reform of the Directive can be exploited and the pitfalls avoided.”

Among key changes in the EU Directive

A proposal to quadruple count algae-based biofuels — and have added bonus counting for cellulosic biofuels.

But there’s more in the RED. A proposal to limit crop biofuels to no more than half the 10% target for renewable transport with immediate effect;  the removal of all subsidies for crop-based biofuels post-2020; The proposed retrospective introduction of a 60% GHG saving requirement for all new biofuels plant in operation after July 2012; and the proposed ILUC factors in the Fuel Quality Directive (FQD).

READ MORE: Our coverage of the proposed changes to the EU’s Renewable Energy Directive.

Changes in the financing equation – polluter pays

Even more important than the change in the RED was the introduction of the sales of 300 million emission allowances via the New Entrants Reserve (NER) program — part of the newly revised European Emissions Trading Scheme.

Unlike Australia’s carbon tax, where carbon penalties are spread out to mitigate the impact of higher energy prices on low-income families, for example — funds from sale of the NER credits go to low-carbon projects — which have been awarded in two rounds of funding just completed.

The principle: Polluter pays. By contrast, in the US a Renewable Fuel Standard was set up, mandating proposed cellulosic biofuels, and with the sometimes-stated hope that obligated parties (e.g. oil and gas) would invest in cellulosic biofuels. Or that someone would. Turned out that hope was not always aligned with reality.

At the time the NER300 grants were made, totaling €1.2 billion in direct equity injections into low-carbon technologies, Climate Action Commissioner Connie Hedegaard said:

“This year Christmas has come early—today’s decision is a major milestone in EU climate policy. The NER300 program is in effect a “Robin Hood” mechanism that makes polluters pay for large-scale demonstration of new low-carbon technologies. The €1.2 billion of grants—paid by the polluters—will leverage a further €2 billion [US$2.66 billion] of private investment in the 23 selected low-carbon demonstration projects.

Here’s how it works: NER300 funding can provide up to 50% of what they call the “relevant costs”, which is to say the cost of anything new-fangled in the technology. The remainder of project funds would be provided by the private sector, or additional grants made by national or regional authorities.

The renaissance in EU for cellulosic biofuels: five projects

The result has been, relatively speaking, an explosion of project creation. In the past few months, five projects received NER300 funding. And St1, which did not find itself amongst the winners — is also going ahead.

Ajos BT— Finland — $119.8M

A biofuel-to-liquid plant in northern Finland will produce biodiesel and bionaphta in the Baltic Sea area for sale to a market primarily of diesel and petrol retailers. The plant will use some 950,000 tonnes/year (t/y) of woody feedstock and 31,000 t/y of tall oil to deliver an annual output of 115,000 t/y of biofuel. The innovative project will include biomass pre-treatment, a gasification island and gas-to-liquid conversion.

BEST — Italy — $38.4M

Selected energy crops will be turned into second generation biofuels at a demonstration plant in Crescentino, near Turin in Italy. The highly innovative integrated biofuels plant will use giant cane, a new fast growing and drought-resistant energy crop, as well as wheat straw to produce ethanol. The plant will have an annual production capacity of 51 million litres per year.

CEG Plant Goswinowice — Poland — $41.8M

Agricultural residues such as wheat straw and corn stover will become the basis for producing 60m litres/year of second generation bioethanol. The new plant in Goswinowice will be partially integrated with an existing first generation ethanol plant. Lignin and biogas by-products will provide fuel to the existing plant which in turn will provide steam for both plants.

UPM Stracel BTL — France— $230.2M

A second generation biomass-to-liquid plant in Strasbourg will use about 1 million tonnes of woody biomass to deliver an annual output of 105,000 tonnes of biofuel. The plant is designed to be integrated into the paper & pulp production line of the existing paper mill, enabling exchanges of energy and products. The novel gasification technology will convert the biomass into gas before a gas-to-liquid conversion renders it fit for biofuels production.

Woodspirit — Netherlands — $269.5M

Wood chips will be the feedstock for producing 516m litres/year of bio-methanol, equivalent to 413,000 t/y, in Farmsum. The bio-methanol will be produced using biomass torrefaction and entrained flow gasification as new core technologies to deliver a petrol additive for partial replacement of mineral fuel.

Next steps

Well, all the projects have to raise the remainder of their capital.

In the case of UPM, all biofuels business resources are currently directed to the construction of the Lappeenranta biorefinery. The company will also continue to clarify the investment prerequisites in Strasbourg. The final assessment on the investment will be made within 12-18 months.

UPM’s investment decision is subject to the economic operating environment and the long-term outlook for the market price and availability of wood. Also, amendments to biofuels’ raw material-related directives that are currently being considered by the EU will have an impact.

In short, we have a ways to go on some of those projects.

But it proves that “polluter pays” is a powerful scheme in terms of building energy infrastructure.

READ MORE: The NER300 program, in overview.

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