Moulding tomorrow’s market

Given that low-temperature heat is the largest single energy market in Europe, with about 40% of the final energy demand, it is amazing that this market has received so little political attention, writes Christian Rakos. He examines the use of renewable energies for heating as a strategy for dealing with some of the current energy challenges.

A large number of technologies have been proposed for the use of renewable energies on a large scale. They range from production of biodiesel from algae all the way to large PV power stations in the desert for the production of hydrogen. There appears to be much confusion and debate about which of these numerous proposals makes sense and this is particularly profound when it comes to the use of biomass.

The impending energy crisis cannot be managed by simply replacing fossil fuels with renewable energies. Even in the case of substantially increased efficiency of energy use, the potential of renewable energies will not be sufficient to keep the global economy running in the same way as it has in the past. Renewable energies will only be able to make a relevant contribution if their use goes hand in hand with a change of energy use patterns — the way different energy carriers are currently used in different energy markets. These existing patterns involve enormous inefficiencies. Furthermore, changing these patterns in an adequate way could have the effect of doubling or tripling the penetration potential for renewable energies.

Inefficient patterns of energy use — the result of low energy costs

Ample supply of energy and low energy costs have led to uses of energy that are highly inefficient from a thermodynamic point of view. One of the worst examples is the use of electricity for the production of low temperature heat. About 30% of the entire European demand for heat and warm water is met by the use of electricity — the US situation is quite similar. In both cases an enormous quantity of energy resources is wasted, considering that heating with electricity requires the use of about three times as much primary energy as heating directly with primary energy carriers.

With rising prices and limited supplies, the use of high-quality fuels such as natural gas or oil for the supply of low temperature heat may also be questioned. And, while oil-products can be replaced as automotive fuel only with great difficulty, as fuel for heating their replacement is easy.

One of the key barriers when it comes to changing the current energy system is the vested interests of related industries. Up until now these industries have — unsurprisingly — largely shown only a short-term interest in maximizing profits. For example, in Austria, where the use of renewable energy in the heat market is already quite developed, heating oil industries have launched a negative campaign against the use of pellets for heating — a new and very popular energy source. Similarly, the electricity industry appears to resist efforts to develop the demand for renewable heat, most recently by promoting low-efficiency air source heat pumps. It seems likely that in order to achieve a more efficient use of fossil energies, policy makers will need to take an active and more independent role, resisting the influence of large energy industries.

It is not only conventional energies that are used inefficiently. Renewables, particularly the use of biomass as an energy source, seems to be developing in inefficient ways. Paradoxically, in this case, political framework conditions have played a decisive role in implementing inefficient routes of biomass use. Many policies are geared towards using biomass for electricity production or for conversion to biofuel — both of which lead to losses of the potential energy of the biomass of up to 80%.

Biomass — a fuel for all energy markets?

A wide variety of technologies for use of biomass as an energy source have been explored and implemented. Until very recently the main driving force for use of biomass for energy was the oversupply of agricultural products and the constant decline in prices for these products. This decline had serious impacts on the socio-economic situation of farmers all over the world. Biomass was regarded as something that was available in abundance and that should be used in as many energy markets as possible to bring down overproduction as fast as possible. Energy efficiency did not play a significant role in these considerations. Figure 1, overleaf on page 126, shows the variation in net energy yields for different strategies for the use of biomass. It is based on an analysis made by the German expert panel for environmental issues.

The figure shows that the net energy yield — the amount of energy harvested from one hectare of land, minus all energy inputs to produce this fuel — shows a wide variation. The difference between the poorest technologies, the production of ethanol or biodiesel, and the most effective technology, the direct combustion of solid biomass from short rotation forests, can differ by up to a factor of 10.

Historically, the widely differing levels of net energy yield have not played a significant role in the evaluation of different biomass use options. This was partly because the cost of energy inputs — for fertilizer, fuel for agricultural machinery and energy for the transformation of agricultural feed stocks into energy carriers — was low and played no significant role in the economics of different approaches. But now that situation is changing. Energy prices have increased dramatically, as have the prices for agricultural feed stocks. The economics of inefficient routes of biomass will certainly continue to worsen with rising energy costs.

In January 2008 the European Commission published a draft guideline for renewable energy which will oblige its member states to reach a goal of using 20% renewable energy by 2020. As current use of renewable energy in Europe amounts to approximately 7%, this goal is very ambitious. In the past the European Commission has always published sectoral targets for specific renewable energy technologies. This time, a goal was published without introducing sectoral targets for different markets, such as the heat market or the electricity market. One specific sectoral target for liquid biofuels is, unfortunately, still part of the draft directive, however. This means that distorted economic framework conditions could further influence the use of biomass in Europe if the directive is ultimately drafted in line with the proposals.

The efficiency of differing biomass strategies

The question of whether the biomass resource should be used for electricity production, for the production of automotive fuels or for heating is often answered in the following way: it should be used in all three markets because we need all three forms of energy.

At first glance this approach seems plausible, but on closer inspection it appears to miss the point that biomass resources are not available in sufficient quantities to serve all three energy markets. This being so, biomass resources should be used in a way that yields a maximum net energy contribution and makes most sense from an economic point of view.

Figure 2, also on page 126, shows the significant differences in energy losses for the conversion of biomass to solid fuels, to liquid fuels and to electricity. The variations indicated represent the current state of technology. Even assuming that significant improvements of technology are still possible, the overall picture will hardly be affected, as all technologies have similarly large improvement potentials.

Figure 3 compares the public subsidies required for the production of 1 MWh of renewable energy for heating from pellets, electricity production or liquid biofuels. The figure represents the subsidy levels in Austria, which are, however, representative for most European countries. In Austria, residential pellet boilers receive an investment subsidy of €1000-€3000, renewable electricity from biomass receives feed-in tariffs of between €60 and €100 per MWh above market prices, and liquid biofuels receive a tax credit corresponding to about €35 per MWh.

With respect to conversion technologies it was assumed that woody biomass would be converted via gasification and the Fischer Tropsch process into second-generation biofuel. The figures for losses of electricity production are based on ample evidence that small and medium-scale power plants for biomass have electrical efficiencies of 20%-30%. Losses could be significantly lower in the case of utilization of waste heat through combined heat and power, but in practice the majority of biomass power plants in Europe have inadequate waste heat usage. A comparison of Figures 2 and 3 shows a close link between energy losses and subsidies. This result is not too surprising — the more wasteful a technology is, the less competitive it is.

It could be suggested that higher energy losses and higher subsidies could be justified by the greater value of the resulting form of energy. Indeed, this argument could hold if a reasonable pattern of fuel use in the energy system already existed. However, there is not much point in producing electricity with biomass while electricity is used to a great extent for heating. For example, a simple pellet stove for €2000 can replace an electric heating system with a capacity of 10 kW. Without any subsidy it is possible to produce heat much more cheaply and, in effect, ‘supply’ green electricity in the form of electrical ‘negawatts’. The efficiency of state-of-the-art modern pellet stoves exceeds 90% and the heating costs are of the order of €70/MWh (full cost calculation), compared with €160/MWh for direct heating with electricity.

Another example comes from the fact that 70 million tonnes of diesel fuel are used as heating oil in Europe. As long as this is the case, there is no point in using costly processes to convert wood into automotive fuel, losing half of the energy content of the wood due to the conversion. It would be much more meaningful to encourage the use of woodchip or pellet heating systems that can provide energy with a minimum of conversion losses and replace heating oil (which can thus be released for transportation).

The heat market — the key to transforming our energy system

As shown, the yields for solid biomass as a fuel for the heat market are much higher than most other means of utilizing biomass. The only solution that could be better — at least in theoretical terms — would be the utilization of solid biomass in combined heat and power plants. However, this solution is very seldom realized in practice. The reason for this is the high costs for comparatively small power plants and the low electric conversion efficiency of such plants. As a result, the amount of waste heat produced is very high, which can create significant problems of utilization. Another issue is the difficult logistics of supplying power plants with biomass due to the low energy density of biomass.

Figure 4 shows the European Commission scenario for increasing the share of renewable energy in Europe from 7% today to 20% of primary energy use by 2020. It shows a significant share of biomass used for heat. As the figure shows, even today the share of solid biomass as a heating fuel in Europe is very large, responsible for about 50% of Europe’s entire renewable energy use. Currently, the traditional use of firewood for residential heating and the use of wood chips and bark for the production of process heat in the saw mill, pulp and paper, and board mill industries make up the largest part of this contribution.

Supply-side efficiency is not the only good argument for paying more attention to the heat market as a key to transforming the energy system. The situation on the demand side gives another very important argument for focusing on renewable heat. About 40% of the entire final energy demand in Europe comes from the supply of low-temperature heat, making low-temperature heat the largest single energy market in Europe. It is amazing that this market has received so little political attention up to now.

Changing energy use patterns

The current state of the energy system is that various fuels are used in many different markets, regardless of whether this use is efficient from a thermodynamic perspective. The worst inefficiencies occur where electricity is used to supply low-temperature space heating and warm water. But the use of large volumes of oil and gas for low-temperature supply is also questionable as these fuels become gradually depleted. Meanwhile, generation of electricity from biomass without the utilization of the heat produced is the most inefficient form of using primary energy and, similarly, the production of biofuels also has very low net energy yields.

However, Figure 5 shows — in simplified form — the more efficient energy system of the future. In this transformed system we see a heat market that is mainly supplied by solar energy and biomass and that is significantly smaller than today. Whether the decreased size of the heat market can be achieved by crash action programmes to improve the insulation of buildings or by a significant reduction of comfort levels remains to be seen. Huge potential for reducing electricity demand in the heating/cooling market could be realized by the use of solar powered absorption chillers. This technology is largely pre-commercial, but numerous pilot plants already exist. The benefit from reducing electricity demand in summer in hot countries could be enormous.

The use of fuel oil in the heat market could see a rapid reduction in the coming years as oil is used predominantly as automotive fuel. With further decline of oil production the use of oil-based fuels for cars could gradually be replaced by electricity for small electric vehicles or trains. Only air traffic will continue to be dependent on oil, though with declining oil availability, air traffic will inevitably decline significantly too.

Gas could be used mainly for the production of electricity, possibly through increasing use of small-scale, decentralized CHP systems. In the domestic sector it could be used primarily for cooking, as heating with gas would gradually become too expensive. Meanwhile, excess electrical capacity resulting from the increased use of renewable energy for heating and cooling would be used in transport. Indeed, from this point of view the use of electricity for the provision of heat by heat pumps is questionable as it replaces solar and biomass in the market where they can be applied most efficiently.

The renewables impact of Future energy markets and current energy policies

Analysis of current energy usage seems at first to lead to contradicting results: on the one hand a shift towards efficiency and less distortion of markets by political measures is needed with respect to the use of renewable energy. On the other hand, the inefficient use of fossil fuels and electricity calls for political measures to move energy industries towards more sustainable practices.

Looking more closely, the two issues are not so different after all, as in both cases policies have been heavily influenced by economic interests: here by the interests of the agro industry and those of conventional energy industries respectively. In both cases the result has been poor.

To tackle the impending energy crisis it is of fundamental importance that energy policies regain their independence from industrial interests and are designed to create an effective system that will serve society as a whole.

Christian Rakos is chief executive officer of ProPellets, a pellets-heating trade organization based in Austria.

Austria — A hot spot for renewable heating technologies

Austria has few rivals for market penetration of solar thermal and the use of biomass for residential heating, district heating and industrial process heat. It is third in the world in terms of installed capacity per capita. By 2006 some 22% of all households had solar thermal hot water preparation, and over 5000 large-scale solar systems have been established in residential blocks, hotels and industrial applications. More than 50 large-scale solar systems are also integrated in district heating networks. Currently, Austrian producers hold a 40% share of the European solar thermal collector market.

Similarly, Austria has a leading position in the use of biomass for heating, second only to Sweden (in per capita terms) in the use of pellets for residential heating. About 12% of the national primary energy use is met by woody biomass, primarily used for heat production. But what are the reasons behind this high market penetration of renewable heating technologies?

In the 1970s and 1980s Austria had two highly charged public debates on energy policy. One concerned the first nuclear power plant, Zwentendorf — a popular vote just after its construction led to its closure and a constitutional law banning the use of nuclear energy. The second debate was sparked by a large-scale hydro power plant planned for an area of high importance for biodiversity.

Again, this debate involved the entire country and created a high awareness regarding energy issues and their role for environmental protection. These discussions created a whole generation of young people who were aware of energy issues and interested in the use of renewable energies. This generation has now grown up and become a market for renewable energy technologies. These customers were willing to take risks and accept the imperfections typical of any new technology.

The kick-off event for solar thermal market development in Austria was the establishment of a highly successful solar collector self-build movement. A group of renewable energy enthusiasts created a straightforward solar thermal system for households that could be built with a simple set of tools. Word of mouth and media interest spread the news of solar thermal systems and solar collector self-build groups were established in thousands of villages. Gradually the commercial market also took off and self-built collectors lost their importance.

Dedicated companies pushed the use of large-scale solar systems and gradually completed thousands of projects. In the meantime, Austrian companies realized projects known worldwide, such as the solar absorption cooling system in the logistics centre of the Olympic Stadium in Qingdao, China — recently selected as best renewable energy project Asia.

Being a heavily forested country, the traditional use of wood for heating has always been important in Austria. Technology development in this sector came from the introduction of strict air pollution legislation in the early 1980s. This forced companies to make significant efforts to reduce emissions from wood boilers. Today, any boiler sold in Austria must have an approval that states the efficiency and the emissions of the product.

Fierce competition between bioler producers has continued for more than two decades — current products represent some of the best available technology worldwide, with dramatic reductions in emissions having been achieved. Average values of carbon monoxide, for instance, declined from 20,000 mg/m³ to 20 mg/m³.

The high performance and impressive improvement in biomass combustion technologies resulted from strict emission limits and sharp competition for better products, plus the long-term focused approach of R&D policies and co-operation between industry and academic research. The Austrian Bioenergy Centre has become a world-renowned centre of competence that supports commercial boiler producers in developing better products.

Wood pellet boilers arrived on the market in the mid-1990s and quickly became a huge success. Within 10 years, pellet boiler sales grew to a market share of 12.5% of all boiler sales. Another 12.5% of boiler sales are fired on wood chips and modern log wood burners. Austrian boiler producers are estimated to have a 70% share of the total European wood pellet boilers market.


With renewable heating technologies gradually moving from the periphery to the centre of attention of political decision makers, the relevance of the experience gained in Austria will increase. The early introduction of products to the market has also provided the benefit of experience with the various issues — such as shortage of qualified professionals, mechanisms to ensure high quality products and fuels, effective policies for pushing the markets, and so on — that can occur during market introduction.

In a way, Austria may be considered as an advert for the future, where technologies that are hardly known in other markets can be seen in full-scale market operation. This alone offers opportunities for international co-operation on a number of levels.


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