1. 1 Demand and supply considerations for bioenergy penetration in the UK Using a MARKAL model and a Market Segment Analysis www.tsec-biosys.ac.uk Sophie Jablonski Imperial Centre for Energy Policy and Technology (ICEPT) Biomass role in the UK energy futures The Royal Society, London: 28 th & 29 th July 2009

2. Context and Objectives

3. Overall Objectives Explore the possible long-term contribution of bioenergy to the UK energy system –Design and apply a systematic framework with expert input to assess the potential UK bioenergy demand –Formulate different scenarios and analyse corresponding bioenergy penetration –Relate scenarios to evolving policy context

4. Methodology

5. A systematic approach to assess UK bioenergy supply & demand DEMAND CONSTRAINTS FOR BIOENERGY IN THE UK  Market segment analysis / modelling  Formulation of hypotheses on bioenergy levels of market penetration SUPPLY CONSTRAINTS FOR BIOENERGY IN THE UK  Supply chain modelling / analysis (including spatial, sustainability analysis)  Technology modelling  Resource assessment modelling QUALITATIVE INSIGHTS FOR SCENARIOS  Narratives problem structuring  Development of storylines QUANTITATIVE INSIGHTS FOR SCENARIOS  BIOSYS-MARKAL modelling runs and results FORMULATION OF TSEC-BIOSYS BIOENERGY SCENARIOS ENVIRONMENTAL AND SUSTAINABILITY CONSTRAINTS FOR BIOENERGY IN THE UK  Environmental sustainability  Greenhouse gas balances  Stakeholders engagement

6. Market segment analysis BIOENERGY MARKET SEGMENTATION (1) Segmentation of the market based on various geographic and non-geographic characteristics (called “segmenting dimensions”) IDENTIFICATION OF KEY FACTORS (2) Identification of the key factors which can affect (positively or negatively) the uptake of bioenergy technologies at the project level, for example (heat sector): Technical factors Economical factors Organisational factors (environmental, social, behavioural, etc.) X Y … … 1. Technical potential 2. Economic potential 3. Implementation potential

7. MARKAL modelling

8. Application and results: MARKAL modelling

9. Specific objectives: MARKAL modelling Explore the prospects for bioenergy in the UK energy system in the long-term, and how this is affected by sustainable energy policy objectives –Improve the modelling of bioenergy technologies and pathways in an energy systems model (UK-MARKAL) –Provide better quantitative insights No UK energy systems model has undertaken a detailed analysis of the contribution of bioenergy pathways –In particular within integrated scenarios of low carbon and energy security policy objectives.

10. Constructing the BIOSYS- MARKAL model Includes changes in structure of bioenergy module –Some added technologies / paths (e.g. pelletisation, heat technologies, aviation bio-kerosene) –Some neglected pathways (e.g. algal oil, dark fermentation, gas vehicles) Detailed data review for all bioenergy technologies –Datasets update to reflect expert-informed, up-to-date, UK-specific bioenergy knowledge and expectations

11. “World Markets” Markal Base Case BIOSYS 1 “Environmentally conscious energy autonomy” BIOSYS 3 “Global sustainability” BIOSYS 4 “Energy independence above all” BIOSYS 2 High UK energy system independence (reliability / security) Low UK energy system independence (reliability / security) Low environment / sustainability ambition High environment / sustainability ambition Modelled scenarios BIOSYS1-4: overview

12. BIOSYS1: Bioenergy resources

13. BIOSYS1->4 bioenergy resources 1 2 3 4

14. BIOSYS1: Bioenergy final uses

15. BIOSYS1->4 bioenergy final uses 1 2 3 4

16. Linking resources to end-uses Use of wood biomass to heat is the most dominant pathway (esp. in BIOSYS 1 & 2) Use of grass biomass significant to produce industrial heat and / or 2 nd gen biofuels Wet biomass to energy via AD biogas also important for power (& heat) production and /or injection into the natural gas grid (mostly in 3) Some pathways of “refined” (imported) liquid biomass to energy play a role (bio-oil, bio-ethanol, bio-diesel) Other important non-bioenergy pathways –In BIOSYS 1 & 2: Coal to power; natural gas to heat ( MT –In BIOSYS 3 & 4: renewable to power + nuclear; decarbonised power to all end uses > MT

17. Discussion: MARKAL modelling

18. Bio-heat contribution Bio-heat contribution is higher for BIOSYS scenarios than in other studies (MT / LT) – has the bio-heat role been overlooked? –RES mentions 2% heat from biogas and 6% from solid biomass in 2020 – only in line with BIOSYS 1 (9%) –No studies looked at bio-heat pathways for LT in details – BIOSYS contribution very high (30-50% except for 3) Underpinning bio-heat penetration are very large increases in biomass resources – bioenergy farming stimulation, logistics & infrastructure are key –Domestic bioenergy crops production appears cost effective in modelled conditions (esp. in 2) BUT actual land uptake likely to be limited by (inter alia) farmers perceptions and competitions from other markets –Large imports of woodchips and pellets in BIOSYS 3 & 4 – to accommodate and transport to final uses

19. Bio-heat contribution (2) Role of wet biomass / biogas injection in the gas grid only up to 1% of heat mix by 2020 – planning and expectations over this pathway need careful consideration –Most significant role for the service and industrial heat sectors – for low carbon futures –Influence of the natural gas grid assets’ “lifetime” important determinant of the actual biogas heat role Balance between bio-heat in different sectors (residential, industrial, service) significantly variable – support in all sectors needed –High deployment of residential bio-heat affected by demand constraints (space availability, organisational capability etc.) –Policy objectives balance the use of bio-heat in different sectors

20. Bio-fuels (for transport) contribution Contribution of bio-fuels to transport largely stimulated by RTFO (in line with other studies) – bio-fuels costly to produce and supply –In BIOSYS 3 become LT cost effective low carbon option in competition with electricity Imported bio-fuels appear the most cost effective resource for such pathway – ST/MT availability key limitation Domestic processing of bio-fuels (notably 2 nd generation) needed in the MT – technology development status could be a bottleneck –Could imply a larger role for 1 st generation bio-fuels, at least in the ST & MT

21. Bio-electricity contribution Lower role (esp. co-firing) than suggested in comparative modelling exercises & studies – lifetime cost- effectiveness of bio-electricity lower than alternative pathways (notably renewables) –The possibility to use multi-fuels could enhance actual potential –Logistical advantages not modelled as economic drivers –Policy instruments (e.g. ROCs) could change the game –Developing a portfolio of low carbon options could include biomass beyond cost effectiveness

22. Main messages: MARKAL New BIOSYS-MARKAL model used to run four scenarios constructed along the pillars of UK energy policy objectives –Results analysed in terms of bioenergy resources use and bioenergy pathways penetration in different end use sectors (heat, electricity and transport fuel) Findings suggest that the complexity of different bioenergy pathways may have been overlooked in previous modelling exercises –A range of bioenergy pathways - notably bio-heat and bio-fuels for transport - may have a much wider potential role to play The extent to which this potential is fulfilled will be further determined by resources availability, market segment constraints, and policy measures to improve deployment

23. Looking in more details: Market Segment Analysis (residential heat sector)

24. Specific objectives: Market Segment Analysis Estimate the potential demand for bio-heat at present Assess its short- to medium- term potential (2020) Formulation of explorative scenarios (“hypotheses”)

25. Segmentation

26. Key factors of bioenergy uptake. NB: Detailed list of key factors and their descriptions can be found in the project’s publications Key factors categories Heat market Residential (R), Service (S), Industrial (I) Power market Technical R/S: Space availability (-) I: Technology availability (- for high temperature heat), fuel supply constraint / quantity (- for large scale) Technology availability (-): some market segments not covered, like small scale CHP) System response time (-) Economic R/S: Capital costs (-), eligibility for incentive programmes (-) I: Potential for carbon displacement (+) Eligibility for / revenues or costs from carbon trading (+) ROC Organisational R/S: social acceptability (+), fuel infrastructure availability (-) S: employment creation (+) I: Social acceptability, Organisational capability (both – for larger scale) Policies/legislation for bioenergy deployment (-/+?) Familiarity with the technology / organisational capability (- except for co-firing) Grid connection & planning (-)

27. Qualitative assessment Matrix –Assumptions; Summary Most attractive branches –Medium to large scale installations managed by district heating companies (esp. cogeneration units can get financial incentive based on trading schemes and obligations BUT barrier posed by space availability and incumbent fuel infrastructure

28. Quantitative assessment Snapshot of competitiveness of bioenergy –Profitability index (PI) –Fossil fuel / biomass combinations –Sensitivity to changes in key parameters Bio-heat can be profitable against fossil fuel heat in some market segments –Smaller scale investments less profitable: limited leverage from lower operating costs –Intervention of 1/3 party (notably in district heating) makes bio-heat less attractive - heat less attractive –Investments w. lower-costs biomass fuels (e.g. straw bales, or wood chips) more profitable than w. refined fuel (e.g. pellets) –Natural gas the hardest contender –Present policy incentives benefit bio-heat in larger scale CHP plants Biomass against Natural gas Biomass against Heating Oil

29. Hypotheses on residential bio-heat potential Three different scenarios, i.e. conservative, the middle and the optimistic –Penetration varies between 1.5% and 20% of residential heat market Overall (residential) bio-heat potential of the UK appears low. –Combination of high barriers from the technical point of view and a rather unattractive economic picture –Influence of the residential heat market’s present structure (ltd larger heat-only & CHP or DH)

30. Main messages: bio-heat MSA Not all demand segments react the same way to a given policy and economic environment –Biomass is already cost competitive in some market segments but… there are important barriers to biomass technologies adoption which are non-economic –Log / pellets boilers are the technologies which can penetrate the residential / service market in the short term The residential bio-heat market exhibits low levels of growth, with the bulk of the market in the next decades remaining mainly a “retrofit” one, and very few “new installations” built –ST/MT bio-heat potential strongly influenced by the present market structure (including the relative size of different branches) The results of our assessment suggest an extremely fragmented market –(Privately owned and managed) micro- & small-scale individual installations represent >90% of the residential market –It is likely the situation will stay this way unless major changes happen

31. Concluding comments

32. Linkage MSA & MARKAL MSA -> MARKAL –Understanding non-economic key factors (modelling of penetration constraints) for the short to medium term –Modelling of the economics at the segment level (and of the detailed incentives) –Refining the model structure (technology availability, characterisation, chains hierarchy etc.) MARKAL -> MSA –Competition between different energy sectors –Testing of “energy system”-wide policies –Understanding implications of penetration levels (modelling of supply constraints) –Long-term horizon (modelling tool to 2050)

33. Combined messages MSA / MARKAL - res bio-heat potential MARKALMSA Present Calibrated to current penetration levels (1%) Penetration closest to conservative hypothesis (2%) Woodchips/woodlogs boilers small/medium scale in rural areas Short to medium term Penetration 9-17% (143-265 PJ) is cost effective in all scenarios (lowest is BIOSYS 1) Higher penetration involves indirect bio-heat options (e.g. biogas, district heating) Getting to 9% penetration needs tackling barriers between conservative and middle hypotheses Deployment of woodchips, woodlogs and pellets boilers Long term Penetration can reach up to 919 PJ (BIOSYS 2) Strong competition with other low carbon options can phase bio- heat out of the mix With current market structure, barriers and options such levels of penetration are not possible

34. 34 Thank you for your attention! www.tsec-biosys.ac.uk