Better news nationally
The experience of the biomass-to-power experience elsewhere in the U.S. during the 1990s and the first half of this decade parallels its history in California. Closures and curtailments have been the norm. But with passage by the U.S Congress of the JOBS Bill in late 2004, the climate for biomass projects seems likely to improve.
The final bill offers a PTC of 1.9¢/kWh for wind energy and geothermal energy, and 1.0¢/kWh for other resources such as solar, biomass, small irrigation power, and municipal solid waste. Companies needed to qualify or begin production by the end of 2007 and would then receive the tax credit for 10 years, except existing biomass plants, which have the credit for five years.
The bill offers a 1.0¢/kWh PTC to solar, small irrigation power, municipal solid waste, and "open-loop" biomass projects (plants fired by conventional wood waste). Although that's only one-half the credit available to wind and geothermal generation, this PTC tax credit (coupled with rising fossil fuel prices and the emerging patchwork of new state incentive programs ranging from RPS mandates to enhanced state tax credits) has revived interest in biomass-fueled power production. New projects have been proposed nationwide, from Arizona to Washington and Connecticut to Florida. Because the next generation of biomass plants will likely be more geographically diverse, the California situation—too many plants competing for the same waste fuel sources—will be less likely to repeat itself.
Two broad categories of plants are being proposed by developers, and their business models are substantially different. One model is to find an idle biomass (or coal) plant, buy it for a fraction of its original cost, retrofit it to meet state RPS requirements (low emissions and/or advanced combustion technology), and fire it back up to collect the substantial "green tag" revenues available in that locale. These projects rely on the existence of an RPS-driven green tag market, can come on-line quickly, and anticipate a quick return of capital from the market (which, it must be said, has been notoriously volatile). A variation on this theme applies to new projects in Connecticut, whose state clean energy fund subsidy stretches and levelizes the green tag value over an extended period, making conventional financing a possibility.
The second model is that of a more conventional combined heat and power (CHP) plant, typically installed on the grounds of a forest products facility. Such a plant, typically of a smaller size, would use internally generated waste wood materials for at least a portion of its fuel supply and provide turbine extraction steam for the facility's low-/medium-pressure process drying needs—and, of course, electricity to the local utility grid. The plant may or may not supply electricity to the facility, depending on the facility's usage patterns and local industrial electric rates. Such projects typically require a long-term PPA with known rates. The power sold outside the fence may or may not be bundled with green tags.
Back to the future
If all biomass projects currently under way are completed, they will add about 270 MW of installed capacity by the end of 2007. The split will be roughly 50/50 between the two business models. Though most readers of POWER would consider this expansion a mere drop in the bucket, it would represent a 15% gain in national biomass power capacity nationally. It also would recoup about half of the biomass industry's losses over the past 15 years.
Even better news is in the offing. Late last year, Congress extended the JOBS Bill PTC's "placed in service date" deadline by one year to December 31, 2008. The extension is expected to bring about a further expansion of 100 MW or more by that date, which would increase the industry's total installed capacity by another 5%.
Some clouds remain on biomass power's horizon, however. For one, there are a limited number of idled plants that can be restarted quickly. CHP projects at forest products facilities are a niche market that will be saturated within several years. Another shortcoming of proposed biomass projects is their poor economic competitiveness in state-sanctioned RPS auctions held by utilities for new renewable capacity. To date, such projects haven't done well in these auctions, and many of those that have been winning bidders have been unable to attract financing due to a lack of a guaranteed fuel supply or a poor understanding of their costs. This situation is likely to persist as long as biomass power receives only half the federal PTC available to wind and geothermal producers. Not surprisingly, wind and geothermal facilities have dominated the open RPS solicitations to date across the U.S.
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