Demand and supply considerations for bioenergy penetration in the UK Using a MARKAL model and a Market Segment Analysis

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

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Methodology
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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

• QUALITATIVE INSIGHTS FOR SCENARIOS
• Narratives problem structuring
• Development of storylines

• SUPPLY CONSTRAINTS FOR BIOENERGY IN THE UK
• Supply chain modelling / analysis(including
  spatial, sustainability analysis)
• Technology modelling
• Resource assessment modelling

FORMULATION OF TSEC-BIOSYS BIOENERGY SCENARIOS

• QUANTITATIVE INSIGHTS FOR SCENARIOS
• BIOSYS-MARKAL modelling runs and results

• ENVIRONMENTAL AND SUSTAINABILITY CONSTRAINTS FOR
  BIOENERGY IN THE UK
• Environmental sustainability
• Greenhouse gas balances
• Stakeholders engagement

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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.)

Y

1. Technical potential
2. Economic potential
3. Implementation
potential
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MARKAL modelling
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Application and results MARKAL modelling
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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.

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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-specificbioenergy knowledge and
  expectations

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Modelled scenarios BIOSYS1-4 overview
High UK energy system independence(reliability /
security)
Environmentally consciousenergy
autonomy BIOSYS 3
Energyindependence above all BIOSYS 2
Low environment / sustainability ambition
High environment / sustainability ambition
World MarketsMarkal Base Case BIOSYS 1
Global sustainability BIOSYS 4
Low UK energy system independence(reliability /
security)
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BIOSYS1 Bioenergy resources
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BIOSYS1-gt4 bioenergy resources
2
3
1
4
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BIOSYS1 Bioenergy final uses
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BIOSYS1-gt4 bioenergy final uses
2
3
1
4
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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 2nd 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 (ltMT) oil to transport no nuclear gtMT
• In BIOSYS 3 4 renewable to power nuclear
  decarbonised power to all end uses gt MT

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Discussion MARKAL modelling
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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

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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

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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 2nd
  generation) needed in the MT technology
  development status could be a bottleneck
• Could imply a larger role for 1st generation
  bio-fuels, at least in the ST MT

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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

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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

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

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Segmentation
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Key factors of bioenergy uptake .
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 (-)

• NB Detailed list of key factors and their
  descriptions can be found in the projects
  publications

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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

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Quantitative assessment
Biomass against Natural gas

• 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 Heating Oil
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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 barriersfrom the technical
  point of view and a ratherunattractive
  economicpicture
• Influence of the residential heat markets
  present structure (ltd larger heat-only CHP
  or DH)

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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
  gt90 of the residential market
• It is likely the situation will stay this way
  unless major changes happen

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Concluding comments
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Linkage MSA MARKAL

• MSA -gt 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 -gt 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)

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Combined messages MSA / MARKAL - res bio-heat
potential
MARKAL MSA
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
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Thank you for your attention!
www.tsec-biosys.ac.uk