BioEnergy Could Replace Coal in Europe

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Tuesday, October 14th, 2014
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Despite weak momentum at the moment, energy from sources such as wood, manure and agricultural by-products could go a long way toward replacing coal in Europe over the next two decades, a leading consultancy says.

In its latest industry insight, McKinsey & Company acknowledged that biomass based energy, or bioenergy, has struggled to gain traction in Europe but says the sector should not be discounted as significant improvements are possible without requiring new technological breakthroughs.

“Like all renewable energy in the European Union, bioenergy has struggled against low-priced coal imports, low carbon dioxide prices in the emissions-trading system and an economic and regulatory backlash against renewable-energy policies, including substantial cuts in government support,” report researchers Marco Albani, Nicolas Denis and Annd Granskog said.

“But don’t count out biomass-based energy just yet. Although today it fails to compete on cost with other renewables such as wind and solar, we believe bioenergy not only has the potential to significantly improve but could even become cost competitive with coal.”

The researchers say measures such as increasing steam parameters (to reduce the volume of feedstock required), standardisation of plant designs and stripping out unnecessary supply chain costs could bring costs down by as much as 48 per cent over the next decade.

The supply chain, meanwhile, could be bolstered through long-term contracts to provide certainty for large scale investment and efficiency improvements through use of technology such as palletisation and torrefaction (removal of moisture and volatiles from the feedstock, leaving biocoal).

Finally, a clearer definition of sustainability would help to remove current uncertainty among market participants as to whether biomass will be considered sustainable as a source of energy over the longer term.

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McKinsey’s report follows calls by the European Commission in January for renewable energy to make up at least 27 per cent of energy sources throughout the European Union by 2030. Those calls came as a follow up to earlier stated targets of reducing greenhouse gas emissions by 20 per cent compared with 1990 levels, increasing renewable energy to 20 per cent of the power supply and improving energy efficiency by 20 per cent.

In addition, last month, a European Commission report concluded that while questions about the sustainability of biofuel energy remains, the majority of biomass used in heating and electricity generation throughout the EU today is considered to provide significant greenhouse gas savings compared with fossil fuels.

Moreover, Albani, Denis and Granskog point out that unlike the case with solar or wind, energy from biomass can serve as a source of baseload power and, through biomass cofiring and coal-to-biomass conversions, can be generated using existing coal assets.

This is already happening. UK-based generator Drax, for example, is forking out €800  million ($A1.164 billion) to convert three of its six coal units with sufficient capacity to power up to 3.5 million homes to run on biomass.

Still, they acknowledge that challenges remain.

“Europe’s climate goals provide a new opportunity to revive the bioenergy industry, with great potential to step up as a fast and capital-efficient replacement for coal,” the researchers said.

“But while these policies might be helpful, the industry itself must act to make the case for its existence—something it has failed to do in the past. A comeback requires that the industry lower total costs, create more efficient value chains, and define a credible sustainability story.

“Without a renewed sense of urgency to deliver improvements in both cost and performance, there will be no place for bioenergy in Europe’s future energy mix.”

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