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Biomass Industry Outlook 2012: Cautiously Optimistic

The long-awaited construction of four major biomass plants will make 2012 pivotal in the expansion of the wood-fired power industry in North America. Coal-to-biomass plant conversions awaiting permits in Virginia could also set the stage for a boom in local use of biomass fuel. That could lead to a European-style scaling of biomass power if the Environmental Protection Agency (EPA) blesses the industry with friendly regulations.

For now, biomass developers are still beset with the EPA's regulatory uncertainty and plenty of NIMBY opposition. Growth is likely to be limited to projects nearing completion after years of development. The industry, however, stands to benefit from 2012 construction that could bring hundreds of jobs to Florida, Michigan, New Hampshire, Texas and Virginia. "We'll see gains for big projects where you have a combination of local fuel supply and strong political support," said Bob Cleaves of the Biomass Power Association. "At the same time, the weak economy, lack of demand for power and plummeting natural gas prices make it difficult to continue operations of smaller plants without long-term PPAs."

Before the new year begins, the industry hopes for a reprieve from the EPA's proposed regulations on carbon dioxide and particulate emissions. The U.S. Senate is expected to vote soon on legislation requiring the EPA to revise strict standards under the Boiler Maximum Achievable Control Technology (Boiler MACT). A similar bill passed the House in October.

Boiler MACT Extension Proposed

"The Boiler MACT rules, as they are currently written, need substantial revisions to be achievable across a range of boilers in a range of operating conditions," said American Forest & Paper Association president and CEO, Donna Harman.

Boiler MACT would classify boilers as incinerators with limits on emissions of carbon monoxide, dioxin, hydrogen chloride and mercury. Critics say proposed standards are so stringent that upgrading existing facilities to be compliant would be cost prohibitive.

"At a time when businesses are struggling because of economic pressures, they need regulations that are achievable, cost-effective and provide the certainty that the investments they make will not be undercut by a future court decision," Harman said.

The House and Senate legislation would give the EPA 15 months to revise the rules. Boiler MACT has already affected at least one project that will begin construction next year.

The Gainesville Renewable Energy Center (GREC) had secured its final permits when the new Boiler MACT rule came out in 2010, forcing the developers at American Renewables to spend several million dollars to revise the design.

The company doubled the size of a large filter in the "bag house" designed to remove particulates emitted from the 100-MW power plant. If the Boiler MACT is revised yet again, however, the company will not be able to revise its design, said Josh Levine, director of project development for American Renewables. Construction has already begun on the project.

"To be successful in this business, you have to have a lot of persistence and roll with punches," Levine said. "All that uncertainty, however, is really what's hindering further development of biomass projects."

Other projects slated to begin construction in 2012 include a 100-MW plant in Nacogdoches, Texas; a 75-MW plant in Berlin, N.H.; and a 25-MW plant in Michigan. Each took five to 10 years to develop.

PPA Competition Heats Up

In the early to mid- 2000s, biomass had less opposition or scrutiny from environmental regulators. Since then, natural gas prices fell dramatically, prompting utilities to eschew biomass in favor of cheap natural gas-fired power, Cleaves said.

This has created intense competition for long-term power purchase agreements (PPAs) and sourcing of fuel.

Six small biomass plants challenged New Hampshire Public Service's planned 20-year PPA with Burgess BioPower's proposed 75-MW power plant in Berlin, NH.

New Hampshire Governor John Lynch fostered a deal granting 20-month contracts to the smaller plants while allowing the new plant to move forward with its 20-year deal. Developers say most construction on Berlin Power Station will take place over 2012.

"We will, hopefully, start producing power before the end of 2013," said Scott Tranchemontagne, spokesman for Berlin Power Station project developer Cate Street Capital. [For more on the plant, check out The Deal on page 14.]

Regulatory Uncertainty

Long-term uncertainty surrounds the EPA's Greenhouse Gas Tailoring Rule, which would require biomass power plants by 2014 to meet the same greenhouse gas permits required for coal-fired power plants.

EPA deferred its tailoring rule for three years after many in the industry complained. Though biomass combustion emits carbon dioxide, the biomass power industry has long argued that it is carbon-neutral since woody biomass absorbs carbon before becoming fuel.

Further causing trouble for the industry is the looming 2013 expiration of the federal production tax credit for biomass power. The uncertainty has halted development of new projects with a few exceptions.

"Nobody wants to spend years developing a project to find out it won't pass muster," Levine says. "Developers don't even know if their facilities will be able to get permits under the current regime."

Other developments for 2012 include coal-to-biomass power plant conversions. Dominion Virginia Power is awaiting permits to convert three peaking coal plants to operate on biomass to help the Commonwealth of Virginia meet a 15 percent RPS by 2025.

Feedstock Programs

Wood pellet manufacturing for export is picking up, but use of pellets for power generation in North America is still controversial. The U.S. is currently second in the world for wood pellet production. Enviva, a leading exporter of North American wood pellets to European utilities, signed a deal to supply some of Dominion Virginia Power's converted coal plants with biomass. Enviva has said it will use wood waste chips instead of its typical pellets for the Dominion project.

Some worry that the push for biomass as an economic development driver will forsake clean air benefits — a major criticism of European utilities that import wood pellets from North America to meet renewable energy targets.

"This really begs the question: Where will all this fuel come from?" said Michigan Biomass Director Gary Melow.

Competition for U.S. feedstock — due to pellet demand from Europe and the combined-heat and power (CHP) industry — also complicates prospects for U.S.-based biomass power plants. New USDA programs designed to advance energy crops and forestry practices, however, hold promise for long-term fuel sustainability.

The Biomass Power Association is lobbying for the continuation of matching funds that paid biomass fuel vendors through the Biomass Crop Assistance Program (BCAP). A related Collection, Harvest, Storage & Transportation (CHST) program showed promise, but ran through its allotted $400 million in less than one year between 2009 and 2010. The program was intended to distribute the money over five years.

"As an agriculture subsidy program applied to the forest projects industry, it failed to create new biomass conversion facilities," Melow said.

Instead, he said, the prices of wood fiber were artificially inflated. Melow said biomass works best when predicated on a zero-value fuel supply since biomass is "waste" that gains value when disposed of in an environmentally friendly way.

An interim rule by the USDA says it will give preference to BCAP programs that incentivize the growing of energy crops through "establishment payments" and "special projects."

Robert Crowe is a technical writer and reporter based in San Antonio, Texas. He has written for Bloomberg, the Houston Chronicle, Boston Herald, StreetAuthority.com, San Antonio Express-News, Dallas Business Journal, and other publications.

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