One word will suffice to summarize the outlook for the biomass industry: uncertainty. Concerns are fourfold: the EPA's Boiler (Maximum Achievable Control Technology) MACT, Non-Hazardous Secondary Material (NHSM) and Greenhouse Gas Tailoring Rules, and the Federal Production Tax Credit.

Boiler MACT Rule

Boiler MACT would classify boilers as incinerators with limits on emissions of carbon monoxide, dioxin, hydrogen chloride and mercury. The regulation would favor biomass power as it would mitigate the required investment in emission reduction technologies.

History suggests, however, that Boiler MACT will attract litigation. Furthermore, the compliance period for Boiler MACT is three years, and the industry has requested an additional year. “Simply promulgating the rule is not going to cause the industry to start immediately implementing additional pollution control technology, as they will have some time to comply under the proposed Rule,” said Bob Cleaves, President of the Biomass Power Association.

Non-Hazardous Secondary Material (NHSM) Rule

In essence, the NHSM Rule will declare which types of fuels are considered waste and which are considered to be fuel. This Rule has more immediate compliance consequences, said Cleaves.

“For waste, it's going to be very difficult for the biomass industry,” he said. “If urban residue is deemed to be waste then our boilers become incinerators and practically speaking the industry will have to stop taking that material. But that will also probably result in litigation.”

Greenhouse Gas Tailoring Rule

Uncertainty also surrounds the EPA's Greenhouse Gas Tailoring Rule, which would require biomass power plants to meet the same greenhouse gas permits required for coal-fired power plants despite industry claims that woody biomass is carbon-neutral because it absorbs carbon before becoming fuel.

The Tailoring Rule is expected to be significantly completed in 2013, although it may not be wholly completed until 2014. Cleaves said: “For the past two years we have been involved in a study with the EPA to understand how greenhouse gas emissions from biomass differ from those from fossil fuel.

“This will play a very significant role in relation to coal-to-biomass conversions. Our biomass is to do with waste products and residues. For that type of material, I think we will bear well in this proceeding.”

Federal Production Tax Credits

The looming expiration at the end of 2013 of the Federal Production Tax Credit for biomass power continues to hold up new investment in biomass power projects. Cleaves is confident that the biomass credit will be eventually be extended in 2013, despite the fiscal cliff hanging over Congress.

“If the wind and biomass tax credits aren’t extended as part of a legislative year-end package on the fiscal cliff, it may be part of what Congress is calling Comprehensive Tax Reform. Historically it's neither been comprehensive nor reform, and they may take up the wind and biomass credits.”

Also on the cards is a change in the way tax credits are paid, which have hitherto not been issued until the generation of electricity commences. Cleaves says this disincentivizes biomass, as projects have longer lead times than wind and solar. “Potentially Section 45 of the Production Tax Credit statute will be reformed in a way that helps biomass,” said Cleaves. “But fundamentally we have to be extended past 2013 in order for this to make any difference.

Cleaves said the biomass industry was shocked by the American Wind Energy Association’s decision to say they can live without tax credits in the longer term. “Whether or not this will be a true phase-out, this could potentially change the landscape,” he said. “This is a big, big deal. The nation's largest renewable energy trade association said they are happy for production tax credits to be phased out. We are not saying that.”

Projects Slowdown

The biomass industry has experienced excellent growth in the past two years in part due to the stimulus bill, but as with other renewable technologies, the low price of natural gas is causing fits in the biomass industry. With even brand new projects like Southern Company’s 100 MW Nacogdoches plant in Texas reportedly being mothballed due to disadvantageous economics, few major projects are on the horizon.

The US biomass and biofuels industries are also keeping a close eye on the Farm Bill, which is currently stuck in the House of Representatives, having passed through the Senate in the summer. The Biomass Crop Assistance Program (BCAP) is tied to the fate of the energy titles within the Farm Bill.

There is a huge fight over whether the energy titles, including BCAP, will be funded through a mandatory or a discretionary allocation. If the latter, the funding would have to go back to the appropriators. In practical terms the appropriators would be unlikely to grant funding because of the way the appropriation process works and effectively kill the program.

Full Steam Ahead in Europe

In Europe biomass is on the cusp of a boom driven by the European Union’s Renewables Directive. Around half of the EU’s target for providing 20 per cent of energy from renewable sources by 2020 will be made up by biomass, according to member states’ national action plans.

Dr. Chris Rowland, senior research analyst at Ecofin, a London-based energy investment management company, said: “The sheer volume of biomass required for power generation is going to overwhelm the supply industry. The UK alone will need an additional 20 million tonnes a year over the next 4 to 5 years as coal plants like Drax and Eggborough convert to biomass.”

Despite the growth in demand, commoditization of biomass pellets will to continue to develop slowly. The vast majority of biomass is sourced ‘in-house’ from pelletization facilities and other bi-lateral arrangements, although there will be increased participation in spot markets such as the APX-ENDEX exchange based in Amsterdam, expects Dr. Rowland.

European Union Proposals the Last Straw for Biofuels?

Europe will be hit hard by the European Commission’s proposals to limit the contribution of food-based crops to 5 percent in meeting a target to produce 10 percent of transport fuel from biofuel by 2020. However, as biofuels account for 4.7 percent of European transport fuels, the measure will effectively freeze rather than reduce their use.

In the longer term, much greater incentives will be given to second and third-generation fuels, produced from agricultural or urban waste or by growing algae, with all existing support for food-based biofuels ending in 2020. Furthermore, the Commission has effectively watered down the 10 percent target because the proposal allows member states to count second-generation biofuels four-times in order to encourage their use.

Expect more bad news in 2013 as the Commission seeks a more radical review of biofuels legislation. On the cards is a proposal to end all public subsidies for crop-based biofuels after the current legislation expires in 2020.

Lead image: Uncertainty sign via Shutterstock